By Tom Prezelski
Re-Posted from Rum, Romanism and Rebellion
It is actually an old story, but it has gained some currency due to the highly visible StartUpNY campaign out of the State of New York’s economic development office. We have all seen the ads. One of them features an outfit called Valutek, who recently left Arizona for Upstate New York.
Valutek, a firm that manufactures products for the cleanrooms used in research and high-technology manufacturing, in moved their corporate headquarters from Phoenix to Albany three years ago, just as the current economic development initiative was starting in the Empire State. It was also a year after Arizona passed a budget that included the largest cuts to higher education in American history. The timing is not mere coincidence, as reported by the Albany Business Review:
Valutek, which has operations in China and Malaysia, decided to move to New York after Arizona State University, which it has worked with for several years, lost microelectronics funding, [Valutek CEO Greg] Heiland said.
The television spots tout tax breaks as a feature of New York’s aggressive economic development initiative, however, a look on StartUpNY’s web site makes it clear that this is just a part of a far more comprehensive strategy:
START-UP NY (SUNY Tax-free Areas to Revitalize and Transform Upstate NY) is Governor Cuomo’s initiative to transform SUNY campuses and other university communities across the state into tax-free communities for new and expanding businesses.
1. Business will be able to locate in these zones and operate 100% tax-free for 10 years.
2. Businesses will have access to resources of world-class higher education institutions, including industry experts and advanced research laboratories.
3. Universities and colleges will become tax-free communities that provide their students and teachers access to real-world, cutting edge business experiences.
Of course, legislative leaders in Arizona would look at this and say “See? Even in New York they are cutting taxes to attract business!” without bothering to see what they are actually doing. New York’s tax breaks are carefully targeted toward new businesses locating in “underutilized areas.” Functionally, this is the same as a landlord offering a prospective tenant a break on the rent in exchange for a promise to fix up a blighted storefront. In either case, it is an investment in improving the community. In Arizona, we cut taxes for the sake of cutting taxes because taxes are bad. Any pittance of economic development that results is a happy coincidence.
More than this, New York’s strategy recognizes the importance of partnering with higher education institutions, something that is only possible if those institutions are adequately funded. The trouble is, in Arizona they are not. The University of Arizona received a fraction of what was asked for in the budget that was passed this week, making it difficult for them to work effectively toward the state’s economic development.
We could call this penny-wise but pound-foolish, but this would imply that the reluctance to fund the Universities is simply a matter of frugality rather than the fact that the legislature generally has little appreciation for the mission of the University system and is sometimes ideologically opposed to the concept of higher education. This writer remembers a legislator, many years ago, getting up on the floor of the House of Representatives to oppose a biotech initiative for the Universities, saying that this industry would bring to our state “people who are opposed to the capitalist system,” That man is now our Superintendent of Public Instruction.
It would be unwise to exaggerate the impact of Valutek’s departure, or to assume that it is part of a larger trend. It is more a sign of lost opportunity. Arizona’s only economic development idea is cutting taxes. This has yielded some negligible results, but the net growth of new jobs here has lagged behind New York and most other states. At the very least, Valutek’s move shows that we could do much better.
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Something happened in Arizona in the period April 2007 to August 2007. After whipping on Texas with a lower unemployment rate and higher growth for years and years, we fell sharply behind and it was sudden. That something wasn’t 1070 (2010), it sure looks like employer sanctions was the culprit.
Conservatives were right that immigrants brought a crime wave with them, but, Arpaios sweeps and better enforcement by Phoenix appear to have that under control. This assumes that the good judge doesnt undo us. Lets review the stats just to understand the importance of the sweeps: murder down in Phoenix by 50 percent, AZ auto thefts down by a stunning 25,000, child auto deaths down 50%, most of these lives and autos saved were hispanic. Arpaio established some very simple rules: if you are going to be an immigrant in Arizona, you need auto insurance and sobriety, not to be on welfare and not to be burglarizing homes. Else you were going to have an expensive ride back home
But, economics are completely different story. A job taken by an hispanic immigrant doesnt take a job from a caucasian, it creates a job for a caucasian. Caucasian job creation is very positively correlated with immigrant employment, not negatively correlated as conservatives have heard over and over.
Now all that job creation has moved to Texas and California which have both moved back to new employment records while Arizona is still 200,000 jobs below its 2008 peak.
But, man does not live by bread alone or jobs alone. Cultural assimilation is important. English for all students is critically important and English in public life is also critically important.
This is a tough policy mix.
Phoenix Justice hit the nail on the head. The education system in Arizona is pitiful, especially at the K – 12 levels. The low graduation rate and S.A.T scores help reveal that. And most Arizona college graduates leave for more trendy, cosmopolitan, safe, and pro-growth cities where the economic opportunities and quality of life are far superior. In many parts of the country, Arizona is regarded as backward. And I concur.
Tom and Phoenix Justice, I have no doubt that Arizona is less artful than other states in the way it structures its incentives, but the core problem here is that the states are engaged in a race to the bottom in which they compete with one another, primarily by lowering corporate tax rates and providing other subsidies, to keep or attract corporate residents. The net result is that the states are decimating their tax bases. Worse yet, they actually make agreements with corporations to share the personal state income tax receipts collected from corporate employees. This all could be dealt with at the federal level providing a federal tax credit for all state taxes paid by corporations up to a specified level, but our Congress critters are not interested in addressing the problem.
I would propose an experiment for any state looking to increase economic output. Instead of cutting taxes every year and offering tax breaks to businesses, how about leaving the tax code alone and investing in the education system. Make the public education and public university system the best in the nation. Increase the “quality of life” quotient by investing in parks, museums and such. Then see how many companies want move to the state. I think one would be surprised.