Basic economics govern growth of new industry

Washington is decrying businesses for building cash reserves instead of hiring new workers in response to an improving economy, but Nebraska's recent experience provides a better lesson on basic economics.

Businesses are in the business of making money. Government's best role is to leave those businesses alone to do their jobs, and penalize them as little as possible through restrictions and taxes that serve as a penalty for doing their jobs well.

Gov. Dave Heineman's office announced Tuesday that the revamped state incentive program, Nebraska Advantage, had 55 applications last year from companies promising to invest $357 million and create 3,800 jobs in return for tax breaks.

The announcement was also a shot across the bow of the Legislature, which will be tempted to raise taxes to balance the budget in the face of a looming deficit.

Many states are recruiting businesses from Illinois, which last month approved increasing the personal income tax rate from 3 to 5 percent and the corporate tax rate from 4.8 to 7 percent.

"Every time you increase taxes, it's a job killer," Heineman said.

Unfortunately, half of the applications came from projects in Lincoln or Omaha, with the rest spread out across the state. Thirty-three were for financial or insurance companies, 34 from renewable fuels or medical firms and 60 from telecommunications or business services.

As good as special incentives are, they are no substitute for the nurturing of a long-term business environment.

Grand Island learned that with its recent experience with a plant to produce concrete ties for the Union Pacific railroad.

The CXT company landed a new contract with the railroad, but needed $10 million to buy a 50-ton gantry crane and other upgrades to meet the demand for a million railroad ties a year to rebuild rail lines from Los Angeles to El Paso and another from Salt Lake City to Chicago.

Grand Island invested $200,000 in Local Option Municipal Economic Development Program funds into CXT, including $100,000 as an outright grant for infrastructure and $100,000 as a forgivable loan tied to job creation.

CXT did, indeed, meet its obligations to the city, but when U.P. let its contract with the company expire, it was announced that the plant would close and its equipment taken to other plants such as Tucson.

That leaves 70 direct employees and others working for sand and gravel operations supplying CXT with aggregate out in the dark.

Yes, we should do everything to encourage the businesses that provide the jobs we desperately need. But real growth, and real economic development unencumbered by government bureaucracy is the answer.