Legislative efforts are again underway in several states to create an interstate compact to end bidding wars for economic development incentives.
Bills have been introduced this year in Arizona (S.B. 1701), Connecticut (Proposed Bill 6176), Illinois (H.B. 95 and H.B. 145), Hawaii (S.B. 531/H.B. 16), New York (A. 3718), and Rhode Island (S. 46).
And Florida Rep. Anna Eskamani (D) told Tax Notes February 3 that she is drafting a bill for introduction this year. Eskamani introduced H.B. 917 last year, which died in the House Workforce Development and Tourism Subcommittee.
The legislation is part of a national bipartisan campaign, spearheaded by lobbyist Dan Johnson, owner of Progressive Public Affairs. It seeks to end the practice of using tax incentives to lure businesses over state lines by preventing states that join the compact from offering or providing company-specific tax incentives or grants to encourage businesses to relocate from other member states.
The legislation would also create a national board that would suggest revisions and improvements to the agreement.
Pat Garofalo, director of state and local policy at the American Economic Liberties Project, who is helping with the campaign, said he hopes the issue will gain more support this year. Acknowledging that most legislators are focused on the COVID-19 pandemic, he said that joining the compact would be an easy way for states to free up money that otherwise would be tied up in economic development incentives.
The use of tax incentives to lure jobs over state lines is a serious public policy problem that persists despite evidence showing that corporate subsidies don’t work, Garofalo continued.
“The reason that this problem persists despite all that evidence is that these things are very good politically, so the only way to truly get rid of them, short of something happening at the federal level, is for states to band together and do it at once,” he said.
The campaign recently received attention when 2020 presidential candidate Andrew Yang (D), who is running for New York City mayor, tweeted January 16 that “an interstate compact to keep companies from pitting states against each other is a great idea.”
The idea also has support from economic development watchdog Good Jobs First. Greg LeRoy, executive director, said that “preventing states and localities from cooperating — or even communicating — during subsidy auctions is foundational to how America’s tax break industrial complex works. So this proposed compact, along with other ways to give our elected officials back the power they deserve, is critical to fixing economic development abuse in the U.S.”
Five states introduced legislation to adopt an interstate compact in 2019, but none were enacted. The campaign gained more support in 2020, with bills introduced in Alabama, Arizona, Connecticut, Delaware, Florida, Hawaii, Illinois, Iowa, Maryland, New Hampshire, New York, Rhode Island, Utah, and West Virginia, though ultimately none were adopted.
Utah’s H.B. 270, sponsored by Rep. Marc Roberts (R), passed the House of Representatives but died in the Senate. Roberts has since retired from the Legislature.
The idea has also received support from thinkers across the ideological spectrum. Last year, researchers at the Mercatus Center at George Mason University released a paper to help guide legislators sponsoring the bills.
The paper, authored by Michael D. Farren and Matthew D. Mitchell, laid out eight key components for a successful compact, including transparency requirements, rules for enforcing the compact, penalties for breaching the contract, and mechanisms for dispute resolution.
Farren said he and Mitchell discussed those components with an informal working group, which included the National Center for Interstate Compacts, the National Conference of State Legislatures, the National Governors Association, the American Enterprise Institute, the Center for Economic Accountability, Good Jobs First, the Tax Foundation, and the Urban Institute.
Rep. Josh Elliott (D), sponsor of Connecticut's proposed bill, told Tax Notes February 3 that the support from the Mercatus Center is helpful. He said the idea that corporate subsidies are ineffective has support from both Republicans and Democrats. “Given that there is more of a microscope on the way government spends money right now, I think this may get more support,” he said.
Elliott said the new chair of the Connecticut Joint Finance, Revenue, and Bonding Committee has agreed to give his bill a hearing this year.
Eskamani said her bill will include some changes based on the Mercatus research. Incoming Republican leadership has expressed interest in the idea, she added.
“In the context of COVID-19, with budgets being super tight, I think the issue of corporate giveaways needs to be front and center,” Eskamani said.