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The Economic War Among the States: A Diamond in the Corn Belt

This is a transcript of a story by Minnesota Public Radio's Stephen Smith. It aired on public radio's Marketplace April 10.

WHEN STATES COMPETE WITH EACH OTHER to lure a corporate headquarters or factory...vast promises of a future economic boon are often made to justify millions of dollars in state and local subsidies. Automobile plants are among the most coveted prizes in the bidding wars. Ten years ago...Illinois rolled out a green carpet of incentives for a Mitsubishi plant. The welcome was worth nearly a quarter of a billion dollars. Did the huge public investment pay off? Minnesota Public Radio's Stephen Smith has the answer in part two of our series on the economic war among the states.

SFX: teacher and student speak japanese

This is the sound of a business incentive at work. The child of a Mitsubishi auto executive puzzles out a math problem with his Japanese-speaking teacher. Today is Saturday, and this school in the central Illinois community of Bloomington- Normal was set up exclusively for Mitsubishi's expatriate families.

Tape: The curriculum here is mostly japanese language, plus mathematics.

Retired Mitsubishi exec Wako Takayasu is school principal.

Tape: When they go to a higher grade, we teach social studies when they go back to japan and meet their old classmates, I don't want them to be too far behind.

The Japanese Saturday school was a million-dollar piece of the incentive package to lure Mitsubishi to Bloomington-Normal. Ohio, Indiana and Michigan also pitched multi-million dollar offers on the table. Quality of life was just one reason Mitsubishi chose Illinois. There was also location...proximity to parts suppliers...a good labor pool and, finally, the big-ticket incentives. Mitsubishi says Illinois was the high-bidder...with inducements totaling some 245 million dollars. The plant opened in 1988.

SFX: din of the auto plant

Tape: These are stamping presses. The length of these presses allows us to stamp out six different parts simultaneously...every stroke there's six jobs performed.

A Mitsubishi shop supervisor proudly points to massive machines that pound out hoods, fenders and quarter panels in one mighty punch. The Illinois plant employs some 4-thousand people...and six hundred robots. It's made more than a million cars.

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The quarter-billion-dollars worth of incentives for the car plant included major breaks... job training money.... new sewer lines and bigger roads to the factory governor Jim Thompson led the Illinois effort...which critics called extravagan Thompson..a repurblican... promised that the public investment would pay off in tax revenues and consumer spending. Today he's convinced it did.

Tape: For what we put in to the deal as the state of Illinois, the return was immense. There was never any justified criticism that we paid too much. You\ve got to look at the return over the useful life of the plant.

What kind of return did Illinois get for the quarter-billion-dollar package. So economists say there\s no way to know for certain because it's so hard to collec pertinent information. Professors Margaret Chapman and John Wenum of Illinois- Wesleyan University studied the numbers and concluded the public outlays would p off in boosted tax revenues after about 10 years. But they also found that some promises made by supporters of the deal won't pan out. For example...the expect of 8-thousand new jobs at Illinois parts suppliers was too high. Chapman says th Mitsubishi modified its "just-in-time" purchasing schedule to buy parts from Mic Indiana and elsewhere... rather than just local companies.

Tape: So Illinois came in third in the total number of suppliers. Fewer jobs meant fewer tax revenues to offset the initial expenditure.

The impact study did not determine how much of an additional burden Mistsubishi workers and their families put on local social services like schools, police and The auto plant's chief lawyer and spokesman...Gary Shultz..says the public's investment was clearly a good deal....especially when you consider that Mitsubis sank billions of its own into the plant. The automaker won't say exactly how mu spent. Chrysler was a partner in the plant for its first three years...but sold Mitsubishi. Where corn and soybeans once grew...there's now an enormous paved l with a crop of gleaming new Mitsubishi Eclipse and Gallant cars.

Tape: If you look at the west side of bloomington now compared to 10 years's night and day. It is a lively part of town. Before it was dead. It was a burned out railroad area - there were not nice houses, very few stores: now there are restaurants, motels, an outlet mall. It\s brought about a whole turnabout in this community.

Bloomington-Normal...a community of 100-thousand people was prosperous before mitsubishi came. Its economy is dominated by white-collar jobs at local univer and service companies. Unemployment rates have been a stable 4 to 5 percent for past decade. Mitsubishi started up in 1988...and since then locally-based State Insurance created more than half as many jobs as the car maker with no subsidies all. Development officials in town say that some firms grumbled privately that foreign company got government money while local firms had to fend for themselve But former Governor Thompson dismisses the notion that outside companies get preferential treatment.

Tape: By far most of the dollars used in economic development by states go to existing state businesses. I mean the plain fact is that when the governor goes to Tokyo and talks to a Japanese auto factory that's the story and when he goes down the street and talks to an existing Illinois business that's not the story.

SFX: freight train

The controversy over government subsidizes to business is so old that Illinois l Abraham Lincoln once stood up in a Bloomington courtroom to defend property tax breaks for the Illinois Central Railroad...which still runs through town {check} Professor John Wenum of Illinois-Wesleyan says the issue goes back to the foundi of the Republic.

Tape: Government has been involved, in one way or another, in all of the major expansions and developments of the United States in history. It goes back to tariff acts passed by the first congress. It goes back to the homestead act that helped populate the upper Midwest and the west. The land grant program that allowed the railroads to expand and capitalize themselves as they went. It seems to me that government is the only entity capable of taking certain economic risks.

SFX: factory

Illinois' 20th century gamble on Mitsubishi Motors may have been worth it...but state is now focusing more on helping existing business thrive than stealing fir from other states. Critics of business enticements say the complexity of foreca and then proving the impact of a project like Mitsubishi makes such public inves a leap of faith. For Marketplace...this is Stephen Smith.

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