They demand as much cash or tax exemptions as possible in return for opening a plant or expanding an existing operation, playing one state against the other.
Of course, that's why companies exist. To make a profit.
A new PEW Center on the States report offers advice to the states on limiting the economic damage. I was surprised to see Alabama not mentioned in the article, since that state has been spending on incentives for decades, since Mercedes was lured to Vance for its first U.S. plant in 1993.
In 1996, The N.Y. Times criticized the Alabama incentives in an editorial titled "Oh Governor, Won't You Buy Me a Mercedes Benz?" by Allen R. Myerson, who wrote:
Mercedes, it appears, has driven a state with a subcompact budget to spend far beyond its means.
Few people now would say the initial investment was too large. It was the price Alabama had to pay to overcome decades of very public racial injustice by state and local officials, a Wallace Tax you might call it.
Mercedes is currently moving its C Class production to that newly expanded plant, and it opened the door for billions in investment by suppliers and other plants, like Hyundai's huge Montgomery plant...which is also expanding.
In recent years, Alabama officials have started including "clawbacks" in their incentive contracts...agreements that the company will pay back some of the incentives if they fail to produce the projected number of jobs within time limits. And a few companies have actually had to pay.
The PEW report concludes, in part:
Reliable estimates of how much tax incentives will cost will allow
policy makers to make better decisions regarding the design, size, and scope
of incentives. Limiting the amount that can be spent each year will allow policy
makers to directly manage the price tag with flexibility to raise or lower the cap as
needed.
Not exactly earthshaking advice, but it may be valuable to some smaller entities, like Cities and Counties, as they play the incentives game.
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