New Jersey is granting Panasonic a $102.4 million taxcredit to move its North American headquarters—nine miles. Theincentives, announced on Apr. 20, will help defray the cost ofleasing a new high-rise office tower to be built in Newark toreplace Panasonic's digs in Secaucus, which the Japaneseelectronics maker has outgrown.

The company concedes that its decision to stay in New Jersey,where it employs 800 workers, was swayed by the tax break. PeterFannon, vice-president of technology policy at Panasonic NorthAmerica, says the company fielded “quite competitive” offers fromAtlanta, San Diego, Los Angeles, and Brooklyn, N.Y., among others.Says Fannon: “We would not be in New Jersey without [thisprogram].” Officials in the town of Secaucus don't see it as a winfor their state, though. “We shouldn't be using tax dollars to playone municipality off of another,” says town administrator DavidDrumeler.

State and local governments eager to recover some of the morethan 8 million jobs lost during the recession are giving away$70 billion in annual subsidies to companies, according tocalculations by Kenneth Thomas, a political scientist at theUniversity of Missouri-St. Louis. States have long relied on fiscalincentives to lure businesses, or keep existing employers fromdecamping to other locales. Such largesse is coming under renewedscrutiny during this time of strapped budgets. State deficits couldreach a combined $112 billion in the fiscal year startingJuly 1. “The tragic irony of it is that in order to pay forthese things, they're cutting other areas that really are thebuilding blocks of jobs and economic growth,” says Jon Shure,director of state fiscal strategies for the Washington-based Centeron Budget and Policy Priorities.

While several organizations track subsidies, there is nocomprehensive national database. The competition “is as intense asI have ever seen it,” says Dennis C. Cuneo, a managing partner atthe Washington office of Fisher & Phillips who has handled siteselection deals for Toyota Motor for more than 15 years.

Ohio Governor John Kasich, a first-term Republican whocriticized “corporate welfare” as chairman of the House BudgetCommittee from 1995 to 2000, says states have no choice but to bein the game. “When other states come in and they offer significantways for people to have lower costs, you either compete with it andwin, or you lose,” he said in an Apr. 14 interview in Columbus.

Kasich has offered American Greetings, the second-largest makerof greeting cards in the U.S., up to $93.5 million inincentives to remain in the Cleveland area. Restaurant chain BobEvans Farms has been offered $20.9 million in state and localsubsidies to relocate from Columbus to a suburb about 20 milesaway. In a statement announcing the move, the company said thatredeveloping its existing campus would have been lesscost-effective than building a new headquarters.

With the national unemployment rate at 8.8 percent, thethreat of a company pulling up stakes is enough to open states'wallets. “States and communities are afraid to play chicken,” saysJeff Finkle, who heads the International Economic DevelopmentCouncil, a Washington nonprofit.

Columbus Mayor Michael Coleman, a Democrat, thinks Bob EvansFarms was bluffing when company officials told the Kasichadministration that it was considering moving its headquarters and400 jobs to Texas. Dan Williamson, a spokesman for Coleman, saysBob Evans Chief Executive Officer Steven A. Davis confided to themayor that he had “no intention” of leaving Ohio. MargaretStanding, a spokeswoman for the company, issued a statement saying:“We have a responsibility to all of our stakeholders with adecision of this size to have investigated all of our options.”

Some groups are crying foul over the sweetheart dealspoliticians are cutting companies, even as they take a knife tocore spending. New Jersey Policy Perspective, a nonprofit thatadvocates equitable tax policy, says that Governor Chris Christiehas granted 69 companies $822 million in tax breaks over thenext 20 years, which is equal to the amount the governor cut fromeducation this fiscal year. Ohio, facing a budget shortfall of$8 billion, has proposed cutting funding for education by$852 million in its latest two-year spending plan, accordingto budget documents.

American Greetings says it was considering moving itsheadquarters, along with 2,000 jobs and $150 million in annualpayroll, from Brooklyn, Ohio, to the Chicago area before the stateoffered it $93.5 million. The company is weighing whether toremain in Brooklyn or move elsewhere in the Cleveland area, saysspokeswoman Patrice Sadd. “If American Greetings leaves Brooklyn,you will have a community that will be the big winner, and you willhave a community that will be the big loser, and the state willhave paid for that,” says Cuyahoga County executive EdFitzGerald.

Kansas has offered movie theater chain AMC Entertainment agenerous incentives package to move away from Kansas City, Mo., TheNew York Times reported in April. Officials in Missouri areconsidering making a counteroffer. Neither the company nor stateofficials would comment. The bidding war helped prompt an Apr. 5letter signed by 17 corporate executives asking the governors ofthe two states to quit offering inducements to lure businessesacross state lines. “At a time of severe fiscal constraint theeffect to the states is that one state loses tax revenue, while theother forgives it,” the letter said. “The only real winner is thebusiness who is 'incentive shopping' to reduce costs.”

One big problem is that the public can't scrutinize corporatedecision-making and states don't compare notes, so there's no wayto do a cost-benefit analysis of tax incentives, says Greg LeRoy,executive director of Good Jobs First, a Washington-based centerthat tracks economic development deals. “As long as the wholesystem is designed to require public officials to play poker with,really, two hands tied behind their back, you're going to see jobblackmail,” he says.

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