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By Alex Ebert
More than a dozen states enticed by potentially adding up to 4,000 jobs are in a race to land a joint Mazda/Toyota plant..
If history is repeating itself, those states might be jockeying for position in order to give a third of a billion dollars in incentives to the Japanese auto makers.
Critics say this is repeating poor tax policy from the past. They say states are ignoring decades of massive tax incentives for foreign automakers that would expand in the U.S. anyway due to labor conditions and changes in international trade.
However, politicians and industry advocates say the plants come with powerful economic benefits, often creating billions in revenue for the states that cross the finish line first.
More than a dozen states across the industrial South and Midwest have either confirmed their interest or have been connected to proposals for the plant.
Governors of states that already have large Toyota plants, such as Kentucky and Mississippi, have come out saying they’re going to compete and will benefit from their existing infrastructure and relationships with the foreign automaker.
Other contenders include states with a large automotive manufacturing presence, like Michigan, Ohio, Indiana, Texas, Alabama, and the Carolinas. Even agro-centric states like Nebraska and Iowa have publicly discussed their interest and willingness to compete.
“Nebraska is very interested in this project, and we believe we can make a compelling case for it,” Taylor Gage, spokesperson for Gov. Pete Ricketts (R), told Bloomberg BNA. Gage, like the other officials contacted, didn’t provide details as to what their cases might be.
Mazda and Toyota were equally tight-lipped about who was in the running.
“We remain focused on finding the best possible site that meets our joint criteria for the future plant and do not wish to fuel any speculation,” Scott Vazin, spokesperson for Toyota, told Bloomberg BNA in an email.
Vazin said the company hopes to announce a site in early 2018. He said tax incentives are a criteria in a site selection, but that is only one factor among others, such as infrastructure, proximity to supply bases, and quality of life for employees.
Recent incentive packages for Toyota show the joint Mazda/Toyota plant could receive hundreds of millions in tax relief.
This year, Kentucky agreed to provide up to $190 million in incentives for an expansion of Toyota’s Georgetown plant. Without including these incentives, Kentucky has already provided Toyota at least $569 million in tax subsides.
Those incentives are less an outlier than the rule. In 2007, Mississippi lured Toyota to Tupelo with $358 million in incentives to develop a plant that promised to create 2,000 direct jobs.
But state officials point to evidence that incentives can pay off.
Toyota’s Kentucky operations and suppliers directly employ almost 30,000 people in Kentucky, according to an analysis of industry data from the Center for Automotive Research. The 8,000 Georgetown plant employees earned $1.8 billion in 2015 alone.
The analysis also said that for every job created at the plant, six other jobs were created in the local economy. Thomas Lehner, vice president of public policy for the Motor & Equipment Manufacturers Association, told Bloomberg BNA in an email that large automotive plants can be “transformational” because they attract suppliers and support services.
“In addition to the core increase in jobs, a new facility would require significant capital investment and a long-term commitment to the area on the part of both the automaker and the supporting auto parts suppliers,” he said. “Typically, automotive parts suppliers locate in clusters near the original equipment manufacturers. Heavier and bigger items that cost more to ship are typically made closer to plants, like axles, differentials, dashboards, and engine and transmission parts.”
Even smaller parts are often manufactured close to the automotive plants because automakers often desire “just-in-time” delivery to cut down on storage costs.
Lehner said that his organization supports tax incentives that encourage foreign groups to locate in the U.S. because one auto-plant job can lead to the creation of five other jobs in the supply or service industries where the plant is located. For example, 871,000 Americans work for auto-parts suppliers, but it’s estimated that total jobs created to serve the industry could be as high as 4.26 million.
This sector is also on the rise. Since 2012, auto-parts manufacturing jobs have increased 19 percent, and those jobs now account for 2.9 percent of all employment in the United States, according to an IHS Markit study of industry data.
Greg LeRoy, incentives critic and executive director of Washington, D.C.-based Good Jobs First, told Bloomberg BNA that state-versus-state competition for a foreign-invested automotive plant is only another lap on an endless race that’s been running for 30 years.
“This is the dark side of the federalist system of our constitution,” he said. “This has been going on for a long time.”
Since the mid-1980s, foreign automotive companies have played states off one another in order to raise the largest incentive package possible. Illinois provided $249 million in incentives for a Mitsubishi plant in 1985. Even back then, if the states decided not to compete, the companies would have located in the United States regardless, due to market expansion state-side and increasing labor costs in Japan.
But lately, the ongoing race has kicked into another gear, LeRoy said, because President Donald Trump has openly encouraged state competition, as evidenced by his speeches and tweets about the plant and another incentive deal for Foxconn in Wisconsin.
“He’s saying it’s OK for states to play against each other for these companies, but if they move out he says, ‘I’m gonna go after them,’” LeRoy said.
LeRoy agrees that some automotive plants, such as the Toyota Georgetown plant, have been very successful. But he says success is often related to factors other than tax incentives and incentives may factor into only 2 percent of a company’s cost of business.
However, when a company has narrowed down its list of possible sites, incentives often play a valuable tie-breaking role, Lee Winter, principal of New Jersey-based WRE Consulting told Bloomberg BNA.
“In some negotiations, you’re dealing with equally desirable locations, so it can become a tipping point,” he said.
Tax incentives factor much more highly than 2 percent of a decision, Winter said, because they can help states make up for areas in which the state offers less than its competitors.
“If you can’t improve your education, transportation, tax rates, your state is left with fewer options,” he said. “In practicality, most need the incentives or they’ll never get businesses to your state.”
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