THE CONVENTIONAL wisdom is that we are heading into a recession. So on the surface, the deal negotiated by state leaders to secure a $394 million expansion in Lexington of Shire PLC, with 680 new jobs, is good news.
The problem is that landing the British drug maker's expansion cost taxpayers $40.5 million in state and $7.5 million in local incentives, or nearly $70,000 per job. At that rate, reaching the goal Governor Patrick set out in his State of the State address for the administration's $1 billion life sciences proposal - to "add another 250,000 jobs over the next decade" - will cost upward of $15 billion. That's Big Dig territory.
The state House of Representatives has revised the life sciences bill, broadening its application to related industries. While marginally better, here are the top 10 reasons why the Great Biotech Giveaway is a bad idea:
State government is not a venture capital firm. It neither has the expertise to pick winners and losers, nor is that its appropriate role.
It's another fiscal shell game. During his campaign, Patrick said reducing the state income tax would only make local property taxes skyrocket further, calling it a "fiscal shell game." But the governor is now playing his own shell game by proposing to subsidize Shire and his biotech proposal with a $297 million business tax hike.
The payback on the Shire deal -- even if all goes very well -- is probably something on the order of 10 years away. The budget Patrick unveiled last month includes a $1.3 billion structural deficit for the upcoming fiscal year.
Financial services and higher education are among the industries responsible for more Massachusetts jobs. While the life sciences industry is clearly the flavor of the month, financial services are responsible for over six times more Massachusetts jobs.
Whether it's operating funds or bond authorizations, there's only so much money to go around. Funds dedicated to life sciences mean less for our nearly $20 billion transportation infrastructure shortfall, the crumbling labs and buildings at state colleges and universities, and extensive state information technology needs.
The proposal includes a $500 million bond authorization for the life sciences industry. Selling more bonds would raise money but endanger our fiscal stability. Adding up the liabilities already on the Commonwealth's books, including quasi-public authorities like the MBTA and Turnpike Authority, the total comes to more than $12,500 for every man, woman, and child in Massachusetts - and that doesn't even include municipal liabilities.
More bonding means more interest payments. At nearly $1.8 billion, debt service is the fourth largest line item in the state budget. As we head into recession, the Commonwealth already faces a structural budget deficit, requiring the administration's budget proposal to call for withdrawing $469 million from the rainy day fund.
Getting caught up in competitions with other states to land companies like Shire puts the Commonwealth at risk of being gamed by firms who already know where they plan to go. Massachusetts supposedly beat out North Carolina, South Carolina, and Rhode Island to land Shire. But after several attempts to contact the company, a Rhode Island economic development official concluded that it wasn't really serious about the Ocean State.
Businesses care most about the cost of doing business, not giveaways, and reducing the cost of doing business is free. A 2006 Pioneer Institute report that compared the cost of doing business in Massachusetts with costs in competitor states included a survey of companies in nine key industries. Not one company responded that more giveaways would make a state more competitive. Instead, they talked about poor infrastructure; high housing costs; unpredictable permitting and regulation; high unemployment insurance rates, and the need for clear, consistent corporate tax policies.
Using public money to provide corporate welfare invites corruption. Lobbyists or others representing the chosen firms are more likely to hold fund-raisers or otherwise assist elected officials who helped provide them with public subsidies.
Attempting to stimulate the economy by buying jobs and subsidizing selected industries is the road to ruin. A far wiser path would be to leverage the skilled, educated workforce that is our greatest economic advantage by controlling the costs that chase jobs away from Massachusetts. That will take the hard work of reform and compromise, not more announcements about how the government is buying jobs.
Jim Stergios is executive director of Pioneer Institute.
