Pitting States Against Each Other: Ford’s Expensive Game

While it lobbied for $150 million in tax incentives from Missouri, Ford also courted Kentucky, Michigan, Ohio, and Illinois for financial assistance, communicating the message that it would locate within the borders of the highest bidder.

Pitting states against each other is one of the more significant negative consequences of offering generous incentive packages to single companies. It encourages states to offer incentive packages in ever-increasing amounts, in a desperate attempt to entice these companies to locate within the state. Then, the company tells each state government that other states are offering huge incentives for it to invest there, and that they must meet or exceed these offers in order for the company to stay.

In the case of Ford, it’s a confusing mess. After Ohio gave Ford $83 million in incentives during 2002 to expand in the state, Ford moved its production to Missouri. Because Illinois gave Ford an undisclosed amount of incentives in January 2010 to open an assembly plant in Chicago, the company moved its production of Explorers from Kentucky to Illinois. Just last month, the state government in Michigan awarded $10 million in Brownfield tax credits to Ford to redevelop a section of the Michigan Assembly Plant complex in Wayne. Meanwhile, Ford told the Missouri state government that it needs $150 million over 10 years to keep its Claycomo plant open, or else it would move production of its Ford Escape and Mercury Mariner to Louisville. At the same time, Ford seeks tax incentives from the Kentucky state government. They say that, in order to remain in Kentucky, they need financial assistance. Ford secured up to $180 million in incentives from Kentucky in 2008, and $66 million in 2007.

Now that Ford has secured $150 million from the Missouri state government, will the company ask for still more, or will it pack up and leave the state? How do we know that Ford won’t demonstrate the same behavior in Missouri?

When a large company like Ford pits states against each other, other groups are negatively affected. For example, it causes taxpayers to face a higher tax burden because the state has to pay for these incentive packages. It also forces small businesses that lack lobbying power to compete at a competitive disadvantage.

It’s a very expensive game, and taxpayers everywhere would be better off if their state governments stopped playing.