Opinion: Daily Journal

Do relocating businesses care about public school spending? 

Shutterstock photo
Shutterstock photo

A common justification for more government spending on public schools is that such “investments” are a critical factor in driving businesses to a state. Presumably, the increase in spending leads to an increase in quality, and higher quality schools produce a more capable workforce. While there is some merit to the latter claim, the relationship between spending and quality has always been tenuous, at best, as decades of empirical research has identified a host of non-pecuniary factors that affect school quality. 

Research notwithstanding, elected officials, chambers of commerce, economic development officials, and public school advocates insist public school spending is a key criterion for making relocation or expansion decisions. In August, the Charlotte Business Journal declared North Carolina is “not making the grade” in attracting new businesses to the state. Their proof? The state had dropped from No. 5 to No. 9 on CNBC’s America’s Top States for Business 2018 ranking. CNBC staff wrote, “A great workforce has businesses sticking with the Tar Heel State, but underfunded schools are infringing on success.”   

Despite their grave assessment, seven of the top 10 states in this year’s CNBC ranking spent less per student than the national average. The third-best state for business, Utah, has one of the lowest per-student expenditures in the nation. New York, which is second only to the District of Columbia in per-student spending, ranked 27th. As New Yorkers know, big-time spending on schools requires levels of state and local taxation that keeps new enterprises away and U-Haul dealers busy. 

Starting in the 1980s, researchers began producing empirical studies that tried to examine the relationship between state-specific characteristics and business relocation and expansion decisions.  Most researchers have found corporations prefer favorable tax, regulatory, and infrastructure conditions, rather than “quality of life” factors that economic development officials and others claim are instrumental in luring businesses to their respective states. 

For example, a 1999 Journal of Business Research study assessed a survey of businesses that had relocated, expanded, or been launched in Colorado. The respondents said the cost of office or plant, the availability of labor, and business operating costs were the most important considerations in their decision. The quality of primary/secondary education was, at best, a second-tier consideration, with only 10 percent of respondents saying that it was an “extremely important” factor. 

An article a year later in Policy Sciences asked similar questions to executives from 118 internationally owned firms in North Carolina. Of the 11 location factors that respondents were asked to consider, the perceived quality of schools and universities ranked fifth. Labor force factors, such as the availability of labor and wage rates, topped the list. State marketing efforts were dead last.  

Unsurprisingly, surveys of top business executives and managers agree with the research. According to a 2017 Site Selection Magazine survey of corporate real estate executives, workforce skills were identified as the most important location criteria, followed by transportation infrastructure, utilities, state and local taxes, and the availability and price of real estate. 

Although useful, research and rankings of business development and relocation criteria are based on perceptions, generalities, and various what-ifs. Insight into the actual decision-making processes that business executives undertake, as well as state responses to their deliberations, are more difficult to find. Fortunately, when Toyota and Mazda earlier this year announced that they planned to locate a new joint automobile plant in Alabama rather than North Carolina, WRAL published nearly 400 pages of N.C. Department of Commerce emails, text messages, and planning documents related to the negotiations.  

It’s possible the issue of public schools came up during a meeting or appeared in correspondence that was excluded from the documents obtained by WRAL. Nevertheless, the contents of the North Carolina proposal don’t mention per-student spending in North Carolina, which is slightly higher than Alabama, or even the quality of the public schools in Randolph and adjacent counties that bordered the megasite identified for the proposed plant. In the end, the existing supply chain for automotive parts in Alabama was the deciding factor. 

Business leaders know it’s not necessary to rely on state systems of public schools to meet their skilled workforce needs. Both interstate and international labor mobility can address deficiencies in local and regional markets. Why else would the North Carolina proposal to Toyota and Mazda include funds for the Japanese Saturday school? 

Dr. Terry Stoops is vice president of Research and director of Education Studies for the John Locke Foundation.