Skip to content

It Is Past Time To Look Beyond Tax Cuts As An Economic Development Strategy

It is actually an old story, but it has gained some currency due to the highly visible StartUpNY campaign out of the State of New York’s economic development office. We have all seen the ads. One of them features an outfit called Valutek, who recently  left Arizona for Upstate New York.

Valutek, a firm that manufactures products for the cleanrooms used in research and high-technology manufacturing, in moved their corporate headquarters from Phoenix to Albany three years ago, just as the current economic development initiative was starting in the Empire State. It was also a year after Arizona passed a budget that included the largest cuts to higher education in American history. The timing is not mere coincidence, as reported by the Albany Business Review:

Valutek, which has operations in China and Malaysia, decided to move to New York after Arizona State University, which it has worked with for several years, lost microelectronics funding, [Valutek CEO Greg] Heiland said.

The television spots tout tax breaks as a feature of New York’s aggressive economic development initiative, however, a look on StartUpNY’s web site makes it clear that this is just a part of a far more comprehensive strategy:

START-UP NY (SUNY Tax-free Areas to Revitalize and Transform Upstate NY) is Governor Cuomo’s initiative to transform SUNY campuses and other university communities across the state into tax-free communities for new and expanding businesses.

1. Business will be able to locate in these zones and operate 100% tax-free for 10 years.
2. Businesses will have access to resources of world-class higher education institutions, including industry experts and advanced research laboratories.
3. Universities and colleges will become tax-free communities that provide their students and teachers access to real-world, cutting edge business experiences.

Of course, legislative leaders in Arizona would look at this and say “See? Even in New York they are cutting taxes to attract business!” without bothering to see what they are actually doing. New York’s tax breaks are carefully targeted toward new businesses locating in “underutilized areas.” Functionally, this is the same as a landlord offering a prospective tenant a break on the rent in exchange for a promise to fix up a blighted storefront. In either case, it is an investment in improving the community. In Arizona, we cut taxes for the sake of cutting taxes because taxes are bad. Any pittance of economic development that results is a happy coincidence.

More than this, New York’s strategy recognizes the importance of partnering with higher education institutions, something that is only possible if those institutions are adequately funded. The trouble is, in Arizona they are not. The University of Arizona received a fraction of what was asked for in the budget that was passed this week, making it difficult for them to work effectively toward the state’s economic development.

We could call this penny-wise but pound-foolish, but this would imply that the reluctance to fund the Universities is simply a matter of frugality rather than the fact that the legislature generally has little appreciation for the mission of the University system and is sometimes ideologically opposed to the concept of higher education. This writer remembers a legislator, many years ago, getting up on the floor of the House of Representatives to oppose a biotech initiative for the Universities, saying that this industry would bring to our state “people who are opposed to the capitalist system,” That man is now our Superintendent of Public Instruction.

It would be unwise to exaggerate the impact of Valutek’s departure, or to assume that it is part of a larger trend. It is more a sign of lost opportunity. Arizona’s only economic development idea is cutting taxes. This has yielded some negligible results, but the net growth of new jobs here has lagged behind New York and most other states. At the very least, Valutek’s move shows that we could do much better.

2 Comments

  1. BruceJ wrote:

    Cutting taxes to boost the economy has been pretty thoroughly and completely discredited by actual empirical evidence. If it worked, Arizona and Arkansas and a host of other red states would be booming, and places like Massachusetts would be dried up ghost towns.

    But when has reality ever mattered to the GOP?

    Thursday, April 17, 2014 at 2:21 pm | Permalink
  2. Generally I don’t read post on blogs, but I wish to say that this write-up very forced me to try and do so! Your writing style has been amazed me. Thanks, very nice post.
    Kuba Jewgieniew http://kuba-jewgieniew-inc-500.pen.io

    Saturday, April 19, 2014 at 6:56 am | Permalink