[Source: Robert Robb, Arizona Republic] — Speaker Kirk Adams and state House Republicans want Arizona to get into the economic development incentives game big time. There are several problems with this.
- The first is that it doesn’t work. States that play the incentives game big time don’t retain more manufacturing jobs or increase wages faster than states that don’t.
- Second, there are considerable doubts that such special breaks pass muster under Arizona’s Constitution.
- But the biggest worry about the incentives game is that once a government starts to subsidize a particular economic activity, it cannot stop or draw lines. Once subsidies are available, everyone wants one and pretty much everyone gets one. They end up inhibiting economic growth rather than facilitating it. This is well illustrated by a recent report by the Goldwater Institute’s Mark Flatten on the Government Property Lease Excise Tax, or GPLET.
With GPLET, a city government becomes the nominal owner of a development, although it remains under the complete control of the developer. This gets the development off the property-tax rolls, while the developer pays the city only a minor excise tax.
GPLETs have become big business in Arizona. According to Flatten’s report, more than $2 billion in property value has been taken off the tax rolls. As a result, about $31 million in property taxes are being shifted annually to other taxpayers. Most striking is that virtually all the new downtown Phoenix office towers have been subsidized. Now the city is even offering a GPLET for a renovation of a downtown hotel that already exists. [Note: Read the full op-ed at Viewpoint: Arizona’s economic development incentives game doesn’t really work.]