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Wednesday, July 9, 2014

Stopping Job Piracy in Dayton, Denver,... and maybe even Kansas City

As I have reported before, job piracy is a big problem in metropolitan areas like New York City and Kansas City. Giving subsidies to relocate existing facilities is a net loss for the country and for the region as well. The flip side is that the existence of job piracy makes it possible for companies to threaten to leave their current location unless they get a subsidy, as Sears has done twice in Illinois. I showed in my book Competing for Capital that several multi-state agreements to end job piracy have been total failures.

A new study by Good Jobs First, "Ending Job Piracy, Building Regional Prosperity," reports on a couple of success stories. Notably, these have not involved state governments, but take place in two metropolitan areas, in Dayton, Ohio, and in Denver. The study also reports on failed regional efforts in Minneapolis/St. Paul and Kansas City (but see more below).

The oldest of these successes is the Metro Denver Economic Development Corporation, created in the late 1980s. Its aim is to promote the entire metropolitan area as a single region, using transparency and information exchange among municipalities to prevent site selection consultants from playing different cities off against one another. All members sign a Code of Ethics committing themselves to these goals.

The Code is not a law, but it does provide for a dispute resolution process in the case of an alleged violation. A complaint triggers this process:
the Chair of the organization will call together three to five members into a meeting with the offender. If the member’s behavior is determined to be inappropriate, the offending individual is asked to issue a public apology or issue a statement to staff correcting their action and guiding future actions.
As the Good Jobs First report points out, dispute resolution has only been invoked three times in the 26 years the agreement has been in effect, and no Economic Development Corporation member has had to be expelled, the strongest sanction available for violating the Code of Ethics.

In Dayton/Montgomery County, Ohio, there are two programs that promote regional cooperation. Economic Development/Government Equity (ED/GE) began in 1991, and provides a $5 million annual pool for "regionally significant projects in the county." It also shares increased tax revenues with slower-growing municipalities in the county. Applications for the $5 million fund are judged competitively and the process will only consider funding for relocations under very narrow circumstances and only then with a letter of support from the city losing the company.

In addition, all the Montgomery county municipalities, as well as some in neighboring counties, participate in a program called Business First! that promotes the region as a whole and, like Denver's Code of Ethics, requires information sharing when a company is seeking to move within the region. Business First! also provides for a transitional tax-sharing agreement when there is an intra-regional move.

The new report emphasizes the need for engagement with economic development officials, because they actually do the work and they represent the institutional memory necessary for these agreements to remain viable in the long term. As always, transparency is a key element that is a precondition for accountable governance.

In addition to these success stories, potential good news on the job piracy front came out of Missouri last week. On July 1, Democratic Governor Jay Nixon signed a bill passed by the Republican-majority legislature that would disallow the use of state incentives to firms relocating from four Kansas counties to the four counties that make up the core of Kansas City, Missouri. This represents a dramatic turnaround from 18 months ago, when both Nixon and Kansas Republican Governor Sam Brownback told New York Times reporter Louise Story, on camera, that they would continue poaching from the other state.

Missouri's law takes effect only if Kansas passes a parallel law. As Kansas City business leaders have pointed out, the two states have given more than $200 million in tax breaks for relocations, only to see a net 400 jobs move to Kansas. Unfortunately, so far Kansas leaders have given no indication that they will follow suit. However, the Missouri law gives Kansas until August 28, 2016 to do so. Hopefully, some sense will prevail in Kansas by then.

Cross-posted at Angry Bear.


  1. It has seemed to me in this situation that a state could "just say no" if it generally follows a policy of making the state as attractive as possible to individual people. That is, if the state attracts talented individuals, perhaps worthwhile businesses would locate there instead of threaten to leave.

  2. Unfortunately, I don't see Brother Brownback and His Merry Band of Dinosaur-Riders developing anything even CLOSE to "sense" any time in the foreseeable future.

    The only hope in Hades this has of being codified into law is if Brownback and a sufficient percentage of his Flying Monkey Brigade are voted out in the next election. The problem there is that a goodly number of Kansans have proven both willing AND able to cut off their noses to spite their face as far as politics is concerned...