Carpenter Tech incentives worthwhile, but steep

The state and Limestone County officials deserve congratulations on their successful effort to attract Carpenter Technology Corp. to the area.
The high-tech company is exactly the sort of manufacturer we want in the region. It produces specialty steel alloys used primarily in the energy and aerospace sectors. The 122-year-old company is based in the United States, pays its employees well and is poised to grow as a supplier to the nation’s most vibrant industries.
The company expects to employ more than 200 workers at an average wage of $25 per hour, well over Limestone County’s median wage rate of $17.21 per hour.
While the benefits the company will provide to the region are dramatic, the costs are significant.
Economic developers like to pitch industrial projects as a benefit to schools. The main evidence they offer is that abatements of property and sales tax — routinely offered to large projects — do not impact those taxes designated for educational purposes.
Carpenter will enjoy a $13.9 million abatement in its property taxes over the next 10 years and an $8.2 million abatement in sales taxes during construction. State and local school budgets will receive an estimated $10.64 million in property taxes over 10 years and $5 million in sales taxes during construction.
The fact is, however, that the largest incentive offered to Carpenter — an incentive offered to almost every significant industrial recruit — comes entirely from school funding. Estimates Carpenter gave to its shareholders on the value of the total incentive package suggest it expects a capital credit on its state income taxes to be worth $70 million over 20 years.
There is nothing wrong with the Education Trust Fund bearing some of the weight for industrial recruitment, and $70 million may not be too much. It may be that Carpenter would not have come to Alabama without the income-tax credit, in which case the schools would not have received the money anyway. Schools will receive an indirect benefit from Carpenter in the form of taxes paid by Carpenter employees.
In the ongoing legislative debate over the balance of funding between the General Fund and the Education Trust Fund, however, we need to keep in mind that public schools pay the bulk of the incentives used to attract industry.
Providing the funding necessary for our public schools to excel is an essential step in raising the quality of life for all Alabamians. We need to attract companies like Carpenter, but we need to make sure our schools do not suffer in the process.

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Filed under education, Subsidies, Tax reform

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