June 24, 2008
Governor Strickland's Gamble
The Governor of Ohio, Strickland, is a nice fellow. He has decided to gamble with taxpayer's money. Pushing through a 1.6 billion dollar bond issue, he will use the money to "attract more business to Ohio." Of course, if he is successful, the higher state tax revenues from the investment will pay off the bonds; if he fails, taxpayers will lose big (the difference between the interest and principal on the bonds and whatever tax revenue is produced). In other words, taxpayers in Ohio are leveraged on the investments from the bonds. How will he do? Investment in infrastructure (roads, schools, sewers, water, energy lines) makes sense as long as it is not allocated politically (by city-state). Investment in selected business does not. Government does not predict well and is hopelessly idealistic (let's invest in windmills). The irony of the packages is that it pays for what the legislature otherwise does that discourages business (laws on labor, businesses greatest expense, discourage business). We threaten to pass a law mandating sick days for healthy workers and wonder why we need to offer business tax rebates to locate here. In other words, we pass law costing business funds and then pass a bond issue to pay they for suffering the cost. It is madness. Why have the new Japanese auto factories all located elsewhere, some just across the state border? Our laws on labor regulations are a major reason.
June 24, 2008 | Permalink
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One only need to look as far back as the subsidies provided to Skybus to show this government's fiscal imprudence. The city of Columbus provided $14 million in tax credits and incentives to the airline. The Columbus airport added another $27 million. The state of Ohio boosted Skybus's package to $57 million. Columbus expected Skybus would create 1,000 new jobs in the region. The airline is now bankrupt and has laid off its employees.
So much for new jobs.
Poor analytical abilities and government waste of taxpayer dollars does not stop at the border of Ohio, however.
Greensboro, N.C., also offered Skybus a very generous incentive package: the airport offered $6.3 million in immediate terminal improvements -- plus a further $40 million if Skybus hit traffic targets. The airport further conceded a whole $2.15 for each passenger it carried out of Greensboro, a subsidy that sometimes exceeded $300 per flight. The airline itself charged $10 for some seats. As if that is not enough, the state of North Carolina added another $3.9 million in job development "grants" to the company, which was supposed to bring 375 new jobs to the area. Employees in Greensboro have not fared any better than those in Columbus, following Skybus's demise.
Posted by: Jordan | Jun 24, 2008 9:42:21 PM
Call me Vic, but the bond issue is nowhere near $1.6 billion. Strickland's original plan called for a $1.7 billion stimulus, about $900 million of which would be financed with tax revenue-backed debt. The legislature forced him to cut back to $1.57 billion, only about $200 million of which will be tax revenue-backed debt. In total, only about $300 million will be invested in companies, while the rest will go toward infrastructure.
How did they cut the debt on this deal? Among the things they did was raid the state tobacco-prevention fund for several hundred mil, which is why tonight I will light up a big fat cigar to celebrate the fact that I corrected you on your own blog.
Posted by: Vince | Jun 25, 2008 10:09:17 AM
Vic, you ignored the point and made an error in logic. The point, Strickland is using state money to make an investment in Ohio business. If he is correct the state earns a return in taxes, if the state is incorrect the states loses money on the difference between tax revenue and expenditures (ie. leverage). The error in logic is on the tobacco dollars. Money is fungible. The tobacco dollars could go to reduce tax revenue necessary to fund other annual state expenditures (which could need bonds otherwise to fund them) or to reduce other bond debt. It makes little difference whether the dollars spent come from bonds or tobacco dollars -- both affect taxes.
Posted by: oesterle | Jul 2, 2008 8:13:21 AM