Ohio voters approved Issue 1, known as the “Jobs for Ohio” ballot initiative, in the November 8 election, giving a victory to Gov. Bob Taft (R) and others who backed the plan for boosting state spending by $2 billion on projects ranging from roads and bridges to support for high-tech enterprises.
At a victory celebration at Due Amici restaurant in Columbus on election night, Taft told the crowd, “This is good news for the people of our state. It will enable us to continue to support local communities in their efforts to provide the roads, the bridges, and the water and sewer projects that are so important to their quality of life and so important to attracting and retaining jobs. … That will enable us to keep more of our best and our brightest college graduates working here in Ohio.”
Opponents took a decidedly different view. Robert Lawson, professor of economics at Capital University in Columbus, Ohio and a senior fellow with the Buckeye Institute, called the measure “a $2 billion boondoggle.” The additional spending, to be done over the next few years, would be financed with borrowed money.
$2 Billion New Debt
In an October 27 column for the Buckeye Institute published on the organization’s Web site (http://www.buckeyeinstitute.org), Lawson noted advocates of Issue 1 claimed the initiative would not raise taxes. “This is disingenuous at best,” Lawson said. “Every single dollar of the $2 billion in bonds has to be paid back by taxpayers with interest totaling about $600 million. It is natural for the politicians to say vote for this and it won’t cost you anything, but we should know better. There is no such thing as a free lunch.”
Issue 1 has three parts: $1.35 billion for traditional infrastructure projects such as roads, bridges, and water and sewer systems; $500 million for expansion of a program called “Third Frontier,” through which the state directly invests in new start-up enterprises; and $150 million for the state to locate and develop business sites for companies to immediately occupy.
“There is a gap between our outstanding, world-class research institutions and our ability to commercialize some of that research into new products in our state,” said Lt. Gov. Bruce Johnson (R), who supported the measure, in an October 24 article in the Columbus Dispatch. “With some state assistance we can pool a lot of the research that’s already happening and have it create jobs in Ohio.”
Johnson added, “We’re significantly over-invested in capital because of the nature of the money we’re spending. You have to fill up (the buildings) with active people who are doing the research.”
Investments Called Risky
Lawson counters, “the state has no business spending taxpayer dollars to invest in private businesses. The idea that state development officials will do a better job of finding profitable investment opportunities than private investors is simply laughable. They sold the entire package as a ‘jobs program.’
“To say that I am skeptical of the idea is an understatement. While some merit may exist in the $1.35 billion in infrastructure, my own view is that the $650 million remainder amounted to little more than corporate welfare for risky start-up businesses, with the most likely result being that the taxpayers of Ohio will be left with a lot more debt and little to show for it.”
Government Will Pick Favorites
The additional debt was an issue with some Ohio lawmakers, including state Rep. Tom Brinkman Jr. (R-Cincinnati) and Ohio’s Republican Attorney General, Ken Blackwell, both of whom publicly opposed the measure.
Brinkman helped prepare arguments against Issue 1. He and other critics said the initiative:
- puts the vast majority of businesses at an unfair competitive disadvantage by pitting them against government-favored, taxpayer-funded entities;
- set ups a three-person, governor-appointed panel picking winners and losers by determining who gets a tax break and who does not, whereas technology development should be driven by the market and not state government, they say;
- gives preference to certain businesses, universities, researchers, and entrepreneurs who will profit financially from tax breaks that are not given to all; and
- allows individuals and corporations affiliated with universities to use the tax-supported infrastructure of a university for their personal gain when formulating and marketing new goods and services for their own profit.
Julie Carr Smith of the Cleveland Plain Dealer reported November 21 that millions of dollars of Third Frontier money is going to low-paying college internships. She said critics call the internship funding corporate welfare and further reported, “Some of the money to create the apprenticeships was awarded in 2003 to a Dayton business entity headed at the time by Rep. Jon Husted,” a Republican who became Ohio House speaker in 2005.
David Zanotti, executive director of the Ohio Roundtable, which opposed Issue I, told Smith, “This is just the continued indication of how the Third Frontier program is a selective form of socialism, and how the governor and his friends get to pick and choose where they want to use taxpayers’ money to create friends.”
Husted responded by telling Smith, “If this is corporate welfare, then so is K-12 education and public higher education. If you’re talking about investing in an Ohioan who goes to work for an Ohio company, that seems like a pretty good investment to me.”
Increase in Corruption Feared
The Taft administration has been racked by scandal, including the disappearance in 2005 of millions of dollars of rare coins that had been purchased by the state’s workers compensation fund from a powerful Republican Party fundraiser and contributor. Ohio lawmakers and citizens also learned several months ago the state’s workers compensation fund did not report hedge fund losses of nearly $215 million in 2004. (See “Rare Coins Scandal Rocks Ohio,” Budget & Tax News, July 2005.)
Lawson said the opportunity for corruption and cronyism increases when state government picks which companies to invest in. He said he had hoped the current scandals, combined with the open opposition to the initiative by some Republican lawmakers in defiance of Taft, would have prompted Democrats to pile on and defeat Issue 1.
“Apparently the allure of bigger government outweighed the desire to hurt the Republicans. It is interesting to note that Issue 1 polled much stronger in traditionally Democratic counties compared with Republican counties. This tells me that the Republicans got Issue 1 passed in large part against the wishes of their normal base of support.”
Lawson said Taft, Johnson, and other lawmakers who supported Issue 1 fail to understand basic economics. He said giving money to favored business may create some jobs, but doing so destroys other jobs by taking money from taxpayers. The result, he said, is “simply moving jobs around. But politicians know they can claim success whether the jobs are real or just the result of sleight of hand.”
David Hansen ([email protected]) is president of the Buckeye Institute for Public Policy Solutions.