Research finds incentives to attract companies are not helping job prospects

Iann Karamali

There are many variables large companies such as Amazon must consider when they search for new cities to expand in. New UT research shows that incentives offered by state and local governments do very little to attract investment in a city like Austin. 

When large businesses announce they are seeking sites for new headquarters, cities around the country line up to offer competitive incentives to relocate there and create jobs that stimulate their economy, according to government professor Nathan Jensen, who led the study. Texas has multiple incentive programs, including the Texas Enterprise Fund (the executive branch’s cash grant program), negotiated tax abatements and — for the largest companies — Chapter 313 tax forgiveness.

Aerospace engineering senior Caroline Naples said the idea of creating new jobs sounds like a promising venture. 

“As someone who’s about to start seeking a job for the first time, I like the idea of creating jobs in my city,” Naples said. 

However, Jensen said to a larger extent, incentives are largely “political theater,” and in 85-90 percent of cases, the companies would have relocated regardless of incentives.

“Quality of workforce, quality of infrastructure and quality of life rank way higher than incentives for attracting companies,” Jensen said. “There were about 10 active incentives given in Austin. The average college student should realize that even though these programs are expensive, that’s a very small percentage of companies. So most of the companies you would work for in Austin — or any big city — are not part of these programs.”

While policymakers are cognizant of the shortcomings of corporate welfare programs, incentives are usually an easy way for them to claim credit for economic development, Jensen said. 

Dick Lavine, senior fiscal analyst at the Center for Public Policy Priorities, said states should not give away potential property tax revenue to attract companies who might come anyway.

“The best thing for the state to do is to use those tax revenues to improve the public education system and bring tuition down,” Lavine said. “That’s the strength of the state, and that’s what, long term, will attract businesses.”

According to Lavine, Austin is a magnet for young professionals, which in turn attracts companies.

“There’re companies that want those people, like Google, Amazon and Facebook, who are here without incentives so they can pick up the people they need to for their work,” Lavine said.