Dale Brill: Florida should challenge states’ incentives to lure businesses

Private speculation evolved into overt planning last week as the Florida Chamber of Commerce became the first to signal the formation of a task force focusing on the next iteration of state-directed economic development in Florida.

With similar efforts surely to follow, forthcoming recommendations for strengthening Florida’s economy in a post deal-making era should be bold.

So here’s one: Florida should challenge the constitutionality of interstate business subsidies (cash and tax) under the Commerce Clause of the U.S. Constitution (Article 1, Section 8, Clause 3). This clause has been interpreted not only to confer power on Congress to regulate commerce, but also to limit the states’ power to interfere with commerce.

Should the U.S. Supreme Court find the use of incentives as tools for enticing corporations to relocate or expand unconstitutional, it would level the competitive landscape among states. Even better, such a ruling would benefit states willing to double down on investments in innovation capacity, education and workforce capabilities, transportation infrastructure, and quality of life.

Some argue Florida is now competitively vulnerable because it’s the first state to unilaterally step away from the incentives’ race. What better way to address this real or perceived disadvantage than by taking the incentive tools out of the game entirely?

And there’s no doubt who wins when an economic development platform targets the pillars of an economy: Everyone.

The Court has repeatedly used the Commerce Clause to strike down states’ use of tax measures to protect in-state businesses from out-of-state rivals. In New Energy Co. of Indiana vs. Limbach, Justice Antonin Scalia observed that the Commerce Clause also directly limits the states’ freedom to interfere with interstate commerce.

Yet, according to constitutional scholar Mary Wyman, the Court has yet to address a challenge assessing whether economic development incentive packages are deemed as such unconstitutional interference or discrimination.

Many questions about the Commerce Clause have gone unresolved or unasked because of the standing, or lack thereof, of the plaintiffs who have sought the Court’s ruling. The federal courts have a much narrower view of when individuals or taxpayers can bring a case forward.

In a recent ruling of DaimlerChrysler vs. Cuno, the Court ruled that “State taxpayers have no standing under Article III to challenge state tax or spending decisions simply by virtue of their status as taxpayers.”

So who could bring such an appeal to the highest court in the land? The State of Florida.

Professor Peter Enrich argues that states are the most plausible challengers to other states’ relocation incentives on the basis of being the most directly affected. Writing for the Harvard Law Review, “As the Supreme Court has observed, the Commerce Clause is not primarily concerned with fair treatment of individuals or businesses; its primary focus concerns the structural dangers posed to the federal system by excessive state interference with the dynamics of the national economy.”

From an economic perspective, the win-lose nature of the interstate business recruitment game reveals wasted effort and money. When Proximus Mobility left Naples in 2011 for Atlanta, the company received $1.75 million from Georgia’s economic development agency with the expectation that it would create 100 jobs. Georgia won. Florida lost.

Yet the national economy’s measurable benefit is largely limited to the degree that those 100 new jobs will create more federal revenue and prosperity than the losses realized in Florida. As a national strategy, states competing to pay for state-to-state relocations are the expensive equivalent of rearranging chairs in a room. Think of it this way, would it make sense for Florida to pay for a company to move from Jacksonville to Tallahassee?

If state-to-state competition is unavoidable, the best-case scenario is to change the rules of game for all the players. A successful appeal to the U.S. Court under the Commerce Clause would certainly level the playing field.

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Dale Brill, Ph.D., is founder and obsessive thinker for Thinkspot Inc., a Florida-based consulting firm. He has previously served as chief marketing officer for VISIT FLORIDA, director of the Office of Tourism, Trade & Economic Development and president of the Florida Chamber Foundation. You can reach Dale at [email protected]. Column courtesy of Context Florida.