Saturday, March 29, 2008

Building Ohio Jobs, or The Governor's Plans for Your Wallet

Mark Shanahan outlines the Governor's plan to have Ohio borrow $1.7 billion to “create 80,000 jobs”. That's only $21,250 of state subsidy per job (excluding interest, taxes, title, and license). That's quite a bit of money that may well never translate into economic growth.

In terms of net benefit to Ohio, this is a pretty steep climb. Making some assumptions – that the $1.7 billion will be financed for 20 years at a coupon rate of 3.75% (US 10 year treasury bonds closed on 3/38 at 3.44%, and there's additional risk here), the total price tag comes to about $2.975 billion after interest payments (about $64 million per year). In order to pay off, each of the 80,000 jobs has to generate a minimum of about $1900 in Ohio state tax revenues every year for 20 years. That's the break even point. Your mileage may vary, and to the extent that these projects don't translate into significant growth in the private sector, the numbers get worse in a hurry.

The projects fall into two main groups: old fashioned public works projects – highways, streets, sidewalks, etc., and new fangled public works projects – alternative energy, bio fuels, and university subsidies.

Both will channel state dollars to the politically connected.

With old fashioned public works projects, you know what you're going to get. Sure, a big chunk will go to non-economic “quality of life” projects like parks, bike paths, etc., but some will further commerce.

Alternative energy projects are the Dutch Tulip Craze of government spending. In terms of energy production, we'd likely be better off taking the $350 million and burning in in fireplaces to heat our homes. To borrow a phrase from Mr. Gore, it's a risky scheme, since not only is the government paying for the jobs, but is using the $1.7 billion to pick “winners”.

And any new jobs in the state bureaucracy to manage all of this doesn't count as a benefit, but simply adds to the cost of the projects.

If the criteria is job creation and economic growth, we'd be far better off, with less risk to the taxpayer, by simply reducing corporate and other business taxes and reducing the burden of regulation on business, and allowing the market to function.

Here's the Governor's press release on this boondoggle.