More on the ROTI – Return on Taxpayer Investment related to economic development activities

After I tweeted about the Keane Inc. expansion in Halifax I got one tweet and one email that are instructive.

Referring to the payroll rebate offered to the firm, the tweet said: “So that’s $2,770.95/job/yr not counting interest or opportunity costs etc. 5 years & out. When will governments learn.”

The email said:  “This is exactly the type of firm we need in Atlantic Canada.  The company offers high wage, engaging career opportunities in the knowledge economy.  I hope we see much more in the near future as Nova Scotia surely needs it.”

These are the bookends.  I talk to more people about economic development that just about anyone around and I can tell you there is more polarization today than at any time in my 20+ year career.   A growing number of people believe that government should not be involved in economic development at all – even more believe the government shouldn’t be in the grant/loan/tax break game.  On the other side, there are folks saying governments – particularly in the Maritimes – aren’t doing enough and what they are doing is not working.

So I come back to this issue I have blogged on before and may some day turn into a book and that is this issue of determining the value from economic development.  Not wishy washy, feel good rhetoric but actual dollars and cents.  We put in $X and we got out $Y.  We spent $20 million on economic development this year and we estimate an incremental $40 million will be generated in new tax dollars.  NSBI puts $3.5 million into Keane Inc. but that project will generate $20 million in tax revenue for governments over the five years of the agreement (or whatever – that last one is fictitious).

Now this approach won’t necessarily change people’s mind on the role of government in economic development.  Those against will still talk about opportunity cost, disincentives, ripple effects, etc.  However, at the very least, we would know if there was a positive tax benefit for tax dollars invested.  Then we could have the debate about all the other things that people worry about.  Right now we don’t even know if there is even a basic economic rationale for all the bucks we through into economic development.

Of course, the biggest concern with this – and it comes up just about every time I talk with folks in economic development organizations – is that most of what they do ‘can’t be measured’ in the way you would measure the tax impacts of a new Keane expansion.

But I am increasingly hard lined on this.  While you may have a hard time measuring the value of chunks of activity – the overall ROTI must be positive or the public is right to question why we put the money in.

Heck, maybe someone can make a case that a negative ROTI is acceptable in certain cases.  Maybe they will say I am not considering the huge social costs associated with weak economies (i.e. social assistance, et. al.).

Maybe they are right but if we have the numbers, then we can have the debate.  Without the numbers we will continue to argue the points mostly on rhetoric.

 

 

 

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6 Responses to More on the ROTI – Return on Taxpayer Investment related to economic development activities

  1. Richard Reeleder says:

    “overall ROTI”

    That’s a key – ‘overall’. A certain fraction of investments will not pay off, by any measure. If an auto part plant fails, for example, that does not mean that investments in the auto sector as a whole have a negative return. Unfortunately, bad news sells better than good news.

    “A growing number of people believe that government should not be involved in economic development at all ”

    Are there data to support that assertion?

  2. As I said in the piece, that assertion is based on my hunch as someone who talks with folks about this on an almost daily basis and who scours the media on a daily basis for references related to economic development. I could be wrong on this. However, I am sure the negative voices are louder than ever (even if they don’t represent the public as a whole).

  3. Richard Quigley says:

    As the author of that tweet may I expand slightly my point. I am coming from a position which holds that the money extracted in taxes to pay for such exercises would benefit a province more if left in the hands of the private citizen. I cannot subscribe to the idea that government knows best. I would agree that, under the current taxation regime, only they have a concentration of available capital to enable large scale investment; but I would accept both smaller investments and lower ROI’s for greater individual financial freedom. I would rather that governments made investment attractive by some other means than redistributing my money.

  4. Exactly my point. If we actually knew the efficacy of such programs, we would still have the debate about whether or not this is a proper role for government.

  5. Richard Reeleder says:

    “I am sure the negative voices are louder than ever”

    Agreed; but then they are well-funded voices are they not? Funding has kept alive the crackpot philospohy of libertarianism, and much other nonsense that should have been consigned to the history bin ages ago. Thank you, stink tanks!

    “I am coming from a position which holds that the money extracted in taxes to pay for such exercises would benefit a province more if left in the hands of the private citizen.”

    Philosophy is fine, but where are the data to support that position? I’d take the better RTOI and the resulting increase in growth over who has the money. The ‘proper role’ is the one that works best, not the one in tune with someone’s philosophy.

  6. Richard Quigley says:

    Richard Reeleder :
    “The ‘proper role’ is the one that works best, not the one in tune with someone’s philosophy.

    “The ‘proper role’ is the one that works best,…” Who appointed you to make that judgement and “where is the data to support that position”.

    That’s quite authoritarian and from my POV an unacceptable premise.

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