What are they thinking?

Update: June 27th 2006

Last month I ranted about the fact that Governor Mitch Daniels and the State of Indiana choose to spend large amounts of our tax dollars courting large corporations to expand operations in or bring new operations to Indiana instead of spending a small portion of those dollars on businesses that are already succeeding in Indiana.
Read last months article here.

This month I was going to rant about something else, but just as I began to collect my thoughts the news broke about Honda. So I feel an update to last month’s article is in order. After all this is my favorite pet peeve anyway.

Honda recently announced they have chosen Indiana for the location of their newest plant, near Greensburg. The Governor cut short his second trip to the Orient and returned suddenly to be present for the announcement.

The new plant promises 2000 new jobs in Decatur County. The Governor was quoted as saying “I think we can call it official, the Indiana comeback is under way."

This time the investment was a bit larger then the Toyota deal I discussed last month. The Toyota deal for 1000 jobs cost Indiana $22.2 million. This deal isn't cheap, here is the break down according to the New York Times:

  • The project will cost the state of Indiana about $145 million. Of that, $40 million will go directly to Honda; about $45 million will be spent on roads and other infrastructure to serve the plant directly, and another $50 to $55 million will go to other road projects and other improvements in the region in anticipation of new economic growth touched off by the plant.

Well I guess we are to believe that these are long term investments that will pay off for years to come. But then I think about SIA in Lafayette, which we paid $94 million for in 1988. When Isuzu shut down it’s Indiana production lines between 2001 and 2004, hundreds of jobs were lost at the plant. Now Governor Daniels has put another $22.2 million into the plant to get those jobs back. I guess that means these incentive deals are not really one time investments but basically a payment plan.

Now I don’t want anyone to get the wrong idea. I repeat what I said in last months Rant:

“I applaud the State for working so hard to bring jobs back to Indiana, and I am happy for our friends, the residents of the Lafayette area. These jobs will help shore up a sagging job market in the area.”

I’m glad Decatur County is getting these jobs, and I’m glad the State is investing our tax money in getting new jobs. I admit I am a little squeamish about that $40 million “direct” payment to Honda. I guess it’s OK to bribe officials if you call it an incentive package. $40 million is $20,000 per job, about the same as the total incentive package offered to Toyota. Still, there are Hoosiers that will be better able to support their families as a result, and that’s a good thing.

So if you are starting to wonder where this rant is going, it comes right back to the facts I’ve already published:

• In 2003 in Indiana alone there were over 264,000 small businesses employing 2.5 Million people and providing an annual payroll of $81 billion. 1

264,000 small businesses. How much money did the State of Indiana spend to attract these 2.5 million jobs?

None.

How much money did the State pay “directly” to these existing businesses?

None.

Where did the State get most of the money they are paying to Honda?

From those 264,000 small businesses.

Let’s just stop a minute here, last month I suggested the State offer $10,000 in tax credits to each of these small businesses to hire one employee. Of course that would be over $2.6 billion, and it ain’t ever gonna happen. What about something more reasonable? What if the State took an amount equal to what they just threw at Honda, $145 million, and offered that amount in tax credits to the small businesses in Indiana in direct relationship to the number of new jobs each small business created? How many jobs would that create without ever leaving the State?

Now being realistic, I have to point out that if the State made a $145 million dollar offer to small businesses, they would have to spend $100 million more setting up a bureaucracy to distribute it. That equates to about 1,000 +/- new State government jobs. Now if the requirement was, as I suggested last month, that the new jobs must pay $15 or more per hour, then the list of small businesses that could afford to hire even one new employee would dwindle.

So, let’s say small businesses applied for the deal, which would provide, say $4000 in direct deduction from State Sales Taxes, Withholding Taxes, Workforce Development Funds, any tax dollars that the small business owed. How many small businesses would hire a new employee for $15 per hour or more, if they got $4000 in an instant tax rebate?

$145 million would run out when 36,250 new jobs had been created (plus the 1,000 bureaucrats that would probably be hired to process the paperwork).

Am I the only one who sees this? Take a few minutes and a calculator, manipulate the numbers anyway you like. Then send me an email and tell me what you came up with.

So keep up the good work Governor Daniels, but before you spend the entire $3.8 billion you just collected from the Toll Road Lease, reconsider where the real new jobs are waiting.

1. U.S. Census Bureau


Steve Weigle is the founder of The Village Geek, and has been a Small Businessman for more than 30 years.