Indiana University Bloomington

GE layoffs rekindle debate on effectiveness of economic incentives

  • Sept. 23, 2013

Posted: Thursday, September 19, 2013 6:02 pm | Updated: 12:07 am, Fri Sep 20, 2013.

By Rick Seltzer

Adding up the economic-development incentives the GE Appliances plant in Bloomington received over the last five years yields a total of more than $80 million.

The money came from various levels of government, and it took different forms. There was $75 million in federal tax credits from 2009 to 2011. Another $5 million in U.S. Department of Energy funds administered by the state of Indiana in 2010 and 2011. About $373,000 in 2011 Monroe County Westside Tax Increment Financing District money.

What all of those funds accomplished is debatable. Depending on how you view things, the $80 million purchased nothing more than 160 job cuts that GE announced last week.

Look at it another way, though, and the funding staved off layoffs for a few years, kept tax revenue higher and helped the factory continue pumping money into the local economy through workers’ wages. At the very least, the government money might have helped the plant stay open for the roughly 360 employees who will remain after layoffs and early retirements go into effect at the end of October.

It’s hard to look at the results of the incentives without knowing a little more about the funding, though. The $75 million in federal tax credits came from the Emergency Economic Stabilization Act of 2008. A provision of the act offered tax credits for making energy-efficient refrigerators -- and the Bloomington plant produces side-by-side refrigerators.

Those tax credits were for refrigerators manufactured in 2008, 2009 and 2010. They varied depending on how efficient each refrigerator was, with credits ranging from $50 for efficient models made in 2008 to $200 for even more efficient refrigerators, some also made in 2008, with others made in 2009 and 2010.

The $5 million in Department of Energy Funds were part of a State Energy Program administered by Indiana’s Office of Energy Development. They were to help GE buy equipment to increase the plant’s energy efficiency. The company says it complied with the terms of the grant.

Finally, the $373,000 in TIF money went to lean manufacturing training. Lean training isn’t uncommon among manufacturers and even other types of business. It focuses on increasing value and cutting waste.

GE’s official position on the government support is that it helped the plant remain viable. Even today, it’s helped the plant remain open for its 360 workers who will be staying on. Plus, according to the company, those energy-efficiency incentives required some investment and helped produce products that sip power rather than guzzle it.

There’s also an argument that a good package of incentives can attract companies to a community. Whether it’s property-tax breaks or low-interest business loans, an incentive can draw a small business with high growth potential or a major manufacturer that needs plenty of employees.

“There’s a saying that you can’t make a bad project good with incentives,” said Ron Walker, president of the Bloomington Economic Development Corp. “But you can help a good project become better, or you can help a good project land in your community.”

Helping a good project come to a community is important, especially in light of GE’s layoffs, Walker said. As markets change and companies are forced to change with them, it’s important to be adding new sources of jobs to the economy.

“This kind of thing reinforces why you have to have a strong economic development effort in your community,” he said. “These things can happen any day. You have to be looking ahead.”

Of course, there’s another argument: Incentives don’t really do much good.

“For the most part, the general body of literature has said that these types of incentives are not effective,” said Justin Ross, an assistant professor of public finance at Indiana University’s School of Public and Environmental Affairs. “They don’t seem to produce anything measurable.”

In fact, there’s some evidence that economic development incentives can be harmful over the long run, he added. If the money for them bleeds resources from core services — road upkeep, trash pickup, having enough staff members on hand to ensure speedy building permit approval -- incentives can hurt.

Local governments using incentives to compete for companies is like an auction, Ross said. As cities, towns and states throw money at a firm, they can create a situation where even the location landing a flashy new factory has no net gain to show for their efforts.

“The winner of the auction is the group that most overestimates its value,” Ross said. “We call this the winner’s curse, where the winner of the auction is the most likely to lose.”

Whether $80 million was well spent depends on who you ask.

Editor's note: This story from The Bloomington Herald-Times is being published here as a courtesy for readers of IU in the News.