Q&A of the Day – Are Local Incentives for Business Relocations Worth It?
Each day I feature a listener question sent by one of these methods.
Email: brianmudd@iheartmedia.com
Social: @brianmuddradio
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Today’s entry: Hey Brian, Love the show and the fact that you use analytics and statistics to inform and educate us. Joel's awesome too. You had a story this week about a company (and I forget the name of the company) that is moving here and bringing 825 jobs. This is generally spoken of as a good thing, but I'm struggling with why that is. The general theory is that it brings more tax money in and helps with the tax burden. If that's the case, why are my proposed taxes higher for my house and quite a bit higher for my warehouse? The only thing I see that is added is congestion. Furthermore, I've always been a free market person, so if it's good for a company to move here, why does the government need to give them money? Aren't they putting their finger on the scale? I've had a small business here for 30 years and have never received money or incentives from the government.
Bottom Line: I appreciate the note and hear you and understand. Before diving into the analytics, I do commonly hear concerns voiced by local business owners who question why it is that relocating companies are often incentivized to move their businesses to our area, while often small business owners who started their businesses locally have never received assistance. As a former entrepreneur/small business owner, I get it.
When I started my first company in the 90’s as a teenager, my business plan was rejected by numerous lenders before I finally found a lender willing to work on me on the $80,000 loan needed to launch my company. It’s understandable that when you hear millions of dollars are being doled out to recruit businesses to our area, amid rising taxes no less, there might be a bit of resentment. I’ll start by breaking down the situation at hand.
Recently Palm Beach County’s Business Development Board announced the awarding of a total of $17 million to a yet named company that’s set to establish a business location in City Place with an agreement for the creation of at least 856 jobs (there are provisions in the agreement that would result in less money being awarded if the company didn’t deliver on at least the agreed to number of jobs). Now, because the Business Development Board of Palm Beach County was involved in the facilitation of this deal, there may be some confusion about where the grant money is coming from.
Palm Beach County isn’t the entity awarding the grant money, but rather $15 million is being awarded through the state of Florida with the remaining $2 million awarded by the city of West Palm Beach over six years. Due to a Bloomberg report, it’s believed the company involved is ServiceNow, a nearly $200 billion AI cloud computing company. The Bloomberg report states ServiceNow could eventually add thousands of employees in Florida and that they’ve considered relocating their corporate headquarters from California to West Palm Beach.
I’ll pause here to unpack a few things now that we’ve established the details of the likely situation in play. The first is where the money is coming from. I’m not sure if the combination of the state/WPB combo for the grant funding changes your perspective any, but what I can offer is this. Often incentives like what we’re discussing here aren’t by happenstance; it’s through intentionality as they are sought out by businesses. For example, there are multiple business grant opportunities that are currently open with the state of Florida right now.
There are many more opportunities available through local incentives. As the Business Development Board of Palm Beach County notes, they serve as a connection to grants, assistance, and financial incentives available through the State of Florida, Palm Beach County, and local municipalities. There may or may not be grant or related incentive opportunities for select local businesses, but one would never know unless the questions are asked, and the opportunities are explored. Many business owners aren’t aware of these potential opportunities.
Now to be fair, in most instances the significant incentives issued come with hefty guarantees of jobs and money being brought into the community that most startups and small businesses would find to be too steep – but you never know what might be out there until the potential opportunities are explored.
The next thing to unpack in today’s example is the economic impact. If in fact it proves to be ServiceNow that’s going to deliver 856 jobs to West Palm Beach, independent of the money spent by the company in opening a location here, there’s the impact of the employees that will be hired/relocated here. The average earnings of a ServiceNow employee are $119,000 per year. That’s far greater than double the average full-time salary of just over $50,000 currently in West Palm Beach. In addition to the high-paying jobs, that means that they’ll be paying the new West Palm Beach employees over $100 million a year in new income. Having that much additional income generated annually will without a doubt have a meaningful economic impact on many area businesses in addition to the tax base. But about the tax base...
As you mentioned... The general theory is that it brings more tax money in and helps with the tax burden. If that's the case, why are my proposed taxes higher for my house and quite a bit higher for my warehouse? This is a great point. Now, from the perspective of local officials, they tend to look at the dynamic as adding to the tax base as opposed to helping with the tax burden, so to speak. In other words, the goal is to continue to grow the economy locally so that we don’t have a stagnant or receding economy and can hopefully improve the overall quality of life through higher incomes and career opportunities. With that said, your point here is exactly right, and in fact, it’s at the foundation of the recently enacted Florida DOGE audits and is the impetus behind Governor DeSantis’s push to end property taxes on homesteaded properties.
What we’ve commonly seen at the local government level is that rising tax bases haven’t resulted in lower tax burdens for residents, but rather simply more government spending and what could be argued to be bloated local governments. As my recent analysis of Palm Beach County showed, over the past five years the County’s spending has grown at a rate that’s 15% faster than the rate of population growth and inflation. But rather than reducing the tax burden on residents by the equivalent of 15%, which would be significant, they’ve spent it. But that ultimately comes back to us and who we elect to represent our interests. Had residents chosen a majority of fiscally conservative commissioners who’d return excess proceeds back to their constituents, we could have had those meaningful tax breaks. However, that hasn’t been the case (save a couple of minor millage rate reductions that amounted to well less than the increases in property assessments).
That’s the dynamic that the DOGE audits seek to expose to educate voters heading into next year’s election which we’ve been told will come with the ability to vote on dramatically reducing, or potentially eliminating, in the case of homesteaded properties, our property taxes.