It is clear by now that this story is not really about incentives.
It’s about politics. Incentives were the tool of choice to pursue a political objective, to fulfill a campaign promise. In a strange way, given how controversial business incentives are, the incentives package also provided some political cover to both sides in their highly unusual negotiations.
If you are interested in the incentives aspect of the deal, however, it draws attention to a trend we are seeing: incentives for manufacturers that are reducing jobs. Retention incentives for manufacturers that are eliminating jobs but making capital investments or simply agreeing to stay in a community are becoming more common, with important implications for economic developers. Look for more from us on this topic soon.
“We’re still losing 600-some-odd jobs, and taxpayers are going to have to reward a company that’s very profitable.”
Back to Carrier. To recap, earlier this year Carrier announced 2,100 jobs from two plants in Indiana would move to Monterey, Mexico. In response to president-elect Trump’s outreach, Carrier stated last week that it would keep 800 of those jobs in Indiana, in addition to about 300 R&D and management positions that were always planned to remain in the state. Carrier will also make the Indianapolis plant a Center of Excellence for home gas furnace production in North America and make $16 million in improvements to the facility. 600 workers in Indianapolis and 700 workers from a second plant in Huntington will still lose their jobs.
The incentives offered by the state were an important consideration.”
Indiana offered an incentive package valued at $7 million over ten years – a tiny amount relative to the expected annual cost savings ($65 million) expected to be achieved in Mexico. It is an amount hardly worth mentioning in the financial context of Carrier parent United Technologies.
The incentive package includes up to $5 million in EDGE payroll tax credits and up to $1 million for training and $1 million in additional tax credits based on the expected $16 million facility investment. The Indiana Economic Development Corporation board must still approve the deal.
This offer comes on the heels of state and local efforts to recapture incentives previously offered to Carrier. In March, Governor Pence announced that Carrier would reimburse Indiana for $382,000 in training grants. Carrier also returned $1.2 million in property tax abatements to the Metropolitan Development Commission in Indianapolis.
“The state package is respectful and it is meaningful, but it didn’t drive the deal.”
– Victor Smith, Indiana Secretary of Commerce (Interview with Inside Indiana Business)
According to press reports, promises for tax and regulatory reform “during two weeks of intensive talks” played an important role in the decision to maintain the 800 jobs in Indianapolis. Others have opined that the threats of a steep tariff on the company’s imports into the US, concerns about a negative impact on federal purchases (which run at about $5.6 billion per year) of United Technologies goods and services, and worries about sustained public criticism of the firm also pushed the company to modify its original decision. The value of the state incentive package pales in comparison to the financial implications of any of these factors.
“There was a cost as we thought about keeping the Indiana plant open. .. . I also know that about 10 percent of our revenue comes from the U.S. government.”