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Location Incentives and Job Buying: In Fordham Law Review, Albany Law’s De Barbieri Proposes Fix to Ineffective Gov’t Practice

By By John Caher

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State and local governments are spending billions of dollars of scarce public resources to attract and retain business and industry, often with little or nothing to show for the investment and with almost no accountability, according to a new article, "Lawmakers as Job Buyers," by Edward W. De Barbieri, associate professor of law at Albany Law School and director of the Community Development Clinic.

In 2013, the state of Washington—concerned that its largest employer, aerospace giant Boeing, would build a new plant elsewhere—approved a record-setting tax incentive program totaling nearly $9 billion, the most generous in U.S. history. Regardless, 17,466 workers were laid off as new jobs went largely to robots, De Barbieri wrote.

In 2009, St. Louis transferred building rights for 1,500 acres of land to a private developer for a project that was expected to reap considerable benefits. The return on that investment was a single gas station.

What's more, while Michigan leads the nation in using public funds for economic development—with much of the money going to the auto industry—it ranked dead last in educational revenue growth between 1995 and 2015, suggesting money that could have been used to further educational opportunities was being diverted to industry, with dubious public benefit, according to De Barbieri.

And here in New York, the much-touted Empire Zone initiative has often fallen flat, he said.

Read on SSRN:
Lawmakers as Job Buyers

"New York State spent massive amounts of public money through the failed Empire Zone program for projects that were either never built or did little, if anything, to grow the economy," De Barbieri wrote in the Fordham Law Review.

New York officials earlier this year dangled nearly $3 billion in incentives before Amazon, hoping the company would locate its second headquarters in Queens, with the state essentially offering the company an estimated $48,000 per job. But the proposal was widely criticized for lack of transparency and Amazon shifted gears, deciding to build in Virginia.

De Barbieri said in an interview that the "public purpose doctrine," adopted by the U.S. Supreme Court in the wake of speculative government railroad investments in the late 1800s, would presumably preclude most of the job-buying that occurs today. But now, courts are extremely reluctant to second-guess local development decisions, he said.

As a matter of public policy, De Barbieri does not disagree with that stance and, in his article, "rejects the notion that substantive judicial interpretation of public purpose can constrain state and city legislatures." While arguing that legislators, as representatives accountable to the people, ought to have a certain amount of leeway, De Barbieri also insists that flexibility should not "devolve into folly."

Consequently, De Barbieri proposes a two-pronged response that includes a "reverse auction" in which businesses compete for the subsidy or tax abatement, with the benefit going to the bidder that proposes using the least amount of subsidy to create the most jobs. In other words, he would adopt a cost-per-job analysis and would enforce it with a claw-back provision to discourage companies from inflating their job-creation/retention capacities.

"There is a power imbalance," he contends. "It seems large companies have outsized bargaining power in deciding where to locate. We need to look at the mechanisms to take that control back. … Because economic development programs do not appear to be going away anytime soon, in the interim, alternatives to the status quo should be considered."

Further, De Barbieri suggests a unique mechanism that would enable more small businesses to get in on the action—namely, a provision that would enable a consortium of small businesses to band together and submit a collective bid.

De Barbieri hopes his article "helps people recognize the extent to which elected officials feel compelled to compete for business and employment, recognize that it sometimes has a negative impact on public priorities, and that we need to think creatively about solutions."

His think-outside-the-box proposal is an outgrowth of both the scholarship and teaching paradigm at Albany Law School, a law school with a strong emphasis on yielding practice-ready, ahead-of-the-curve professionals, many of whom will gravitate toward public service law.

"We are preparing our students for careers as policy-makers and power brokers at the state and local level, and I am very excited to be teaching the next generation of leaders in government," De Barbieri said.