Banking on the Future - and Going Bust
The current budget shortfall has led to cuts in various government programs. Inevitably, this results in news stories about how these cuts are hurting Ohio. For example, while announcing cuts to various development programs including the Technology Action Fund, Ohio Governor Robert Taft said, “these budget cuts could jeopardize the creation or retention of more than 500 jobs and millions of dollars in new private investment in Ohio."[1]
While it is certainly possible that cuts could jeopardize jobs, this should not be taken as given. After all, spending tax dollars on “economic development” does not create anything new–it merely shifts spending from taxpayers to the state.
It is important then, to look at the track record of grants.[2] One look at the results of a recent Technology Action Fund grant to Kentucky-bound Cincinnati Machine, however, displays that just because the state spends money does not necessarily mean more jobs for Ohio.
In February of 2001, The Technology Action Fund of the Ohio Department of Development handed over an $895,000 grant to Cincinnati Machine and other corporate partners to develop the “HyperMach Ohio Initiative.” Basically, the process results in high-speed machine tools for manufacturing.
According to Richard A. Curless, vice president of technology and product development for Cincinnati Machine, “This breakthrough is something manufacturers need in today’s competitive environment."[3] Now this technology is helping the company compete across the border in Kentucky.
In May of 2002, Governor Taft praised the program, saying, “These projects are making it possible for Ohio to accelerate the commercialization of new and innovative technologies, which will lead to more high-tech, high-paying jobs for the people of our state."[4]
As it turns out, though, Ohio isn’t the only state in the market for high-paying jobs. What prompted Cincinnati Machine’s decision to leave? The Kentucky Economic Development Finance Authority gave them a $500,000 state income tax credit over 10 years. Boone County in Kentucky has also provided a tax break on its occupational license fee.[5]
This means that The Ohio Department of Development transferred taxpayer money to Cincinnati Machine to develop advanced technology. Kentucky liked what it saw across the river, and transferred taxpayer dollars to Cincinnati Machine to move into their state. “The new facility will serve as the production headquarters for Cincinnati Machine’s advanced technology products for the global aerospace industry,” states one article.[6]
Not a bad deal for Cincinnati Machine. How is the return on taxpayer investment, though? Just as Ohioans once were, Kentuckians may be pleased at the moment. But what is the guarantee that the company will stay once the tax breaks expire? These are the kind of questions that Ohio needed to ask before wagering with our money.
Favoring one company over another, or one sector of the economy over another, involves a great deal of risk. This risk should be left to venture capitalists who have a financial incentive to closely monitor companies to which they loan money.
Beyond the risk of making a bad investment is the risk that had the money been left in the pockets of Ohio citizens, a better investment might have been made. Ohioans should not shed a tear for any possible cuts to the Technology Action Fund.
Notes
[1] “Statement of Governor Bob Taft, FY2003 Budget Balancing Press Conference,” Press release, March 5, 2003. Available at: http://www.state.oh.us/gov/releases/030503budget.htm.
[2] Don Baker and Bob Driehaus, “300 jobs to cross river,” The Cincinnati Post, February 8, 2003. Available at: http://www.cincypost.com/2003/02/08/mach020803.html.
[3] For more information, see http://www.techsolve.org/company/partners.htm.
[4] See The Ohio Technology Action Fund website, http://www.odod.state.oh.us/taf.htm.
[5] Baker and Driehaus, “300 jobs…”
[6] Ibid.
