Would Dow AgroSciences pack up and move 1,400 jobs out of town?

Only DowDupont Inc. knows for sure, and Indianapolis is paying the company $30 million to avoid finding out.

The City-County Council in November choked down a rare retention incentive for DowDuPont, approving it by an 18-7 vote, despite a sense of bewilderment among some who supported it. The deal, as well as the urgency surrounding it, came as a surprise to many council members — even though Mayor Joe Hogsett's administration negotiated it nearly three years ago.

"It was a s--- deal," said Democrat Jared Evans, who voted for it. "It was one of those situations that I hope never comes up again. On the line was the possibility that 1,400 people were likely to lose their jobs in the coming years if we had not approved that incentive package."

At least, that is how the Hogsett administration pitched the deal to the council.

If DowDuPont executives were prepared to pull out of Indianapolis, though, they never said so publicly. The lack of clarity on DowDuPont's intentions has raised concerns that Indianapolis is offering a $30 million cash incentive to maintain what would have been the status quo under any circumstance — or, worse, the deal could open the door to other companies that want to demand money to merely remain in place.

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"There are going to be instances in which we need to play this game, but we don't want to make it the default for everyone keeping a business here," said Kyle Anderson, an economist at Indiana University's Kelley School of Business. "I don't know how serious (DowDuPont) would be about moving, but it's costly to the company. Companies can often be bluffing about moving a business away because they incur significant cost to do that."

Research suggests that incentives rarely are a decisive factor for companies considering multiple locations for capital investment. Yet, government officials must weigh the political and financial risks of letting a company such as DowDuPont walk away with hundreds or thousands of jobs without being able to say they did something to stop it.

That fear gives corporations substantial leverage. DowDuPont isn't the only company that knows that.

It's easy for companies to say they're going to move, "but you only want to provide the incentive if they really are going to do that," Anderson said. "So it's a tough game."

The Dow AgroSciences deal, explained

Dow AgroSciences, which soon will be known as Corteva, sits on a 240-acre campus tucked just inside the northwest corner of I-465. It employs about 1,400 people, though DowDuPont declined to provide an exact figure

The incentives stem from a merger between Dow and DuPont, which was completed a little more than a year ago. When the companies announced they would combine in late 2015, it sparked a competition among states, including Indiana, to attract the eventual headquarters.

The companies in February 2016 announced their combined headquarters would be in Wilmington, Delaware, which already was home to DuPont. They also said two cities — Indianapolis and Johnston, Iowa — would become what they called "global business centers" for the new DowDuPont.

Although Indianapolis did not attract the coveted headquarters, then-Gov. Mike Pence's administration framed the vague global business center designation as a victory, insisting that Dow AgroSciences' operations could have moved away as a result of the merger. DowDuPont has not confirmed this possibility and did not agree to an interview for this article.

Corteva will be the agriculture division of DowDuPont, focusing on crop production and seed development.

Indianapolis' $30 million incentive — which was negotiated in conjunction with the state's pitch to Dow and DuPont — was among the Hogsett administration's first initiatives. The deal took more than two and a half years to reach the City-County Council because of the slow completion of the DowDuPont merger.

DowDuPont did not address a question from IndyStar about whether it would have left Indianapolis if it had not received tens of millions of dollars in taxpayer money.

"The incentives have, as intended, helped us retain jobs in Indianapolis as we restructure our businesses in anticipation of the intended spin-off of Corteva Agriscience in 2019," DowDuPont said in a written statement.

The prospect of losing Corteva, however real it happened to be, led the Hogsett administration to sell the deal to the council as a must-pass item.

"I think the threat of DowDuPont leaving Indianapolis was very real," Angela Smith Jones, the deputy mayor of economic development, told the council prior to its vote.

When asked in a follow-up interview whether DowDuPont would have left if the council had not approved the money, she said, "That was my understanding, yes."

"Corteva was in a position where they needed assurances we were going to be able to get this through the full public process required by law," she said.

The city's $30 million investment, though, does not ensure that Dow AgroSciences' existing employees will keep their jobs.

Corteva's commitment: 1,254 jobs

Indianapolis' agreement with DowDuPont stipulates that the city will borrow $30 million and pass it on to Corteva, paying off the note over seven years with money generated by a tax-increment financing district.

The city projects that Corteva will generate $60 million in property taxes over 15 to 20 years, providing a net benefit over the long term.

In the short term, though, the incentive package for Corteva means the Metropolitan School District of Pike Township will lose access to $300,000 in annual TIF money and Pike Township will lose $200,000 — funding that will be diverted to pay off the city's debt.

DowDuPont has made a commitment to both the city and state that it will retain at least 1,254 jobs, a number that gives the new company leverage to lay off at least some workers, which is common following mergers. Corteva set a benchmark goal with the city of retaining 1,385 jobs, but it would not fall out of compliance under the deal unless employment drops below the lower number.

The Indiana Economic Development Corp. awarded DowDuPont EDGE credits that could amount to $26 million through 2028. EDGE credits are intended to incentivize job creation and capital investment. Corteva must keep at least 1,254 employees but would have to add hundreds more to receive the full benefit from the state.

Indiana also offered up to $1 million in training grants and $2 million in infrastructure assistance.

Jefferson Shreve, a council Republican who voted against the city's agreement, said he opposed giving money to Corteva, in part because the company did not promise to grow.

"They did not make any commitments to the city in exchange for this proposal," Shreve said. "They'll tell us they're making substantial investments to the campus. I don't doubt that they are. Those are private investments in private property. They've got a great big, first-class campus there. I'm sure they could come up with a litany of ongoing investments they're making on that campus. Is that what TIF dollars should be used for?"

There are clawback measures for Indianapolis to recoup its money if Corteva falls below its job commitment or closes the campus, according to a draft of the project agreement provided by the city.

Debate over incentives

The practice of governments using taxpayer money to attract and keep companies is under heightened scrutiny because of some recent high-profile tax breaks that soared into billions of dollars.

Taiwan-based electronics manufacturer Foxconn stands to receive more than $4 billion in state and local incentives in exchange for opening new operations in Wisconsin, a deal that has come to be viewed unfavorably by economists. Amazon.com Inc. famously launched a North American competition for cities to host the company's purported second headquarters before splitting the project between the New York and Washington, D.C., areas.

Indianapolis competed for the Amazon project as part of a regional bid. The city and state have declined to disclose the incentives they offered.

While the exact dollar amounts of government subsidies can raise eyebrows, the general use of them is defensible, if not necessary, from time to time, said Anderson, the IU economist.

"These sorts of deals are inherently unpopular. I understand why they're unpopular, because they're essentially subsidies to corporations that are doing very well," Anderson said. "But you have to realize that corporations create economic value with the jobs that they provide and they're going to try to extract value because of that."

Even as economic development incentives have become pervasive, evidence of their success has been mixed. The W.E. Upjohn Institute in July published a working paper that concluded at least 75 percent of firms receiving incentives would have made the same location decision even without subsidies.

The paper, written by Timothy Bartik, hedges on whether incentives are beneficial because it is impossible to determine a precise percentage of deals that attract and retain companies.

"If incentive effects were assuredly less than 2 percent, then we would know that incentives were a waste of money," Bartik writes. "But if incentives tip 5 percent or 10 percent or 15 percent or even 20 percent of business decisions, then whether the incentive pays off for state or local residents depends on the details of the incentive costs, multiplier effects, job quality, and who gets the created jobs."

Regardless of their effectiveness, though, economic development incentives aren't going away. Perhaps a more important question is how and when they should be used.

Money to stay put

Indianapolis usually does not pay companies for the sole purpose of keeping their existing operations open. When President Donald Trump reached a deal to save a Carrier Corp. factory on Indianapolis' west side in 2016, for example, the city offered nothing while the state awarded Carrier $7 million in grants and tax credits.

The city's exception for Corteva, as well as the size of the incentive, has some policymakers worried about the direction that Indianapolis is headed.

"This is an unsustainable position that we're taking here, and certainly it's not going to end with this," said City-County Council Vice President Zach Adamson, a Democrat, who voted against the Corteva deal. "What is our line? What do we establish here as the new threshold for which we'll give out countless millions in incentives for nothing more than people not leaving?"

Hogsett's chief of staff, Thomas Cook, said in an interview that the Corteva deal does not reflect a policy change.

"I think it's understandable for this to be described as retaining jobs," Cook said. "But, in effect, the city was engaging Corteva, which hadn't been legally constructed yet, in a manner that was much more similar to attracting jobs from a newly formed company than it would be if we had an existing company come to us and say, 'We're making a relocation effort.'"

The Corteva deal was not predicated on retaining Dow AgroSciences, Cook said, but rather luring a portion of the combined DowDuPont after the companies' merger.

"It's difficult to use this as precedent for retention because the company that occupies this space is going to no longer exist," Cook said. "That was, in many ways, the spirit of the conversations that were sparked by the late 2015 announcement of this merger."

Hogsett, a Democrat, in a written statement also emphasized that Corteva has yet to be formed.

"State and city leaders have always shared the belief that we should try to attract and retain key job creators when it can bring a return on taxpayer investment," Hogsett said. "That's why I'm proud we are able to welcome the newly formed Corteva (Agriscience) to Indianapolis as we support opportunities for its future growth here in Central Indiana.”

Some of the council members who supported the deal did not see it that way, though. Evans cited the example of Infosys, which will benefit from $17.8 million in subsidies from the city, as an example of an optimal use of incentives.

Infosys is planning a $245 million campus near Indianapolis International Airport that will create up to 3,000 jobs by 2023.

"The only time I feel comfortable with large tax incentives is something like Infosys," Evans said. "We're competing to lure them to the U.S. That's a much different thing than when we're talking about something like the DowDuPont deal, where other cities and states were competing with us to take away our company.

"It's really sad. I think it's something as a country, as a city, as a state we need to have a discussion about. Is that right?"

Call IndyStar reporter James Briggs at 317-444-6307. Follow him on Twitter: @JamesEBriggs.