Smart Incentives a Necessary Ingredient in Job Creation Recipe

There was a rather serious omission in a recent commentary by Representative John Kowalko on government incentives, and in particular his criticism of the 1999 AstraZeneca (AZ) project, which he used as Exhibit A in his broadside against all economic development incentives. 

It seems Kowalko forgot to mention the hundreds of millions of dollars in state revenue generated by the project, which paid for all the highway improvements, parks and open space.

He also neglected to mention that had the Carper Administration not taken aggressive steps to prepare a competitive incentive package, the state would have lost over 2000 high paying jobs resulting in an economic ripple effect that would have been a huge hit to the state treasury while depressing real estate values and shuttering restaurants and other businesses in north Wilmington for years to come.

While true that AZ’s job numbers have declined, this project has generated enormous benefits for Delaware and it would have been a serious mistake to have followed the advice of Representative Kowalko.

UD’s Fischer Greenhouse at the Delaware Biotechnology Institute

Before reviewing some of the long term benefits of this project, I would like to first clarify the record from the vantage point of having been the leader of the project team that crafted the AZ incentive package.

Of the $40.7 million incentive package cited by Kowalko, half of these dollars were a future tax credit available by statute when an employer adds investment and jobs. The direct cash incentive to AZ was actually $8 Million in relocation assistance to help offset some of the cost to move thousands of jobs here from Pennsylvania. The other direct incentive was the grant of land valued at $10 Million that allowed AZ to expand adjacent to their existing offices.

Beginning with an estimate of the tax revenues generated by the AZ project, let’s consider some of the overall benefits:

  • It was estimated at the time that the existing 2000+ jobs at AZ generated over $10,000,000 a year in personal income tax (PIT) paid to the state. Even with some of the recent declines, one could conservatively estimate that retaining AZ resulted in over $150,000,000.00 in state revenues over the past 16 years.
  • As Rep. Kowalko pointed out, AZ reached a peak of some 5,000 jobs in 2005. Assuming a conservative 1,500 additional jobs over ten years, the added revenue to Delaware would have been $75,000,000 or $225,000,000 total on a grant of $18 Million – by any measure a significant return on investment!
  • In addition to the PIT, Delaware would have lost millions in corporate income taxes if AZ had moved to Pennsylvania.
  • Hundreds and perhaps thousands of indirect jobs were generated by AZ’s construction and by purchases throughout the economy of everything from cars to homes and to the many retail businesses in the area, adding additional millions to the tax base.
  • The AZ project triggered the development of the Delaware Biotech Institute, a project that has resulted in hundreds of direct and indirect jobs as well as educational and business opportunities throughout the state.
  • Another “cost” of the AZ project cited by Rep. Kowalko is the $70 Million in road improvements. These much needed road improvements had been planned long before the AZ opportunity came along. The project became the stimulus that moved the plans forward while providing the revenues to pay for it.
  • Add the additional benefit of athletic fields, the “Can Do” playground, a new and improved Rock Manor Golf Course, trails and open space and historic preservation.
  • And while Rep. Kowalko laments the increased value of the site due to the road improvements, this factor and AZ’s significant investment in facilities are two key reasons why JP Morgan is adding thousands of jobs into the space vacated by AZ, thus continuing to add millions to our tax revenues.

While not all economic development opportunities are created equal, there is a reason why states compete with incentives to bring in jobs – typically these packages pay for themselves in increased economic growth and tax revenues. While oversight of incentives is important, it would be a serious mistake to unilaterally disarm in the battle for jobs.

 


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About the Contributor

John Riley

John Riley

A native Delawarean, John Riley is retired and lives in Greenville. In addition to grandchildren and golf he pursues a passion for writing and military history.

1 Comment

  • John:
    Well written!!
    Knowing you were the Architect for the Deal I know You are right.
    Again I think you need to find yourself in a College Class room instructing the Youngest and Brightest!!!