(((((((((((((((((((((((((((((((((((((((((((((((((((((Hello, I need some help wit
ID: 325330 • Letter: #
Question
(((((((((((((((((((((((((((((((((((((((((((((((((((((Hello, I need some help with the following short case and questions. You must read the short case first, before briefly answering the questions. You can address all of the questions in 2-4 very short paragraphs.
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Case:
In this chapter, we have discussed a number of location decisions. Consider another: United Airlines announced its competition to select a town for a new billion-dollar aircraft-repair base. The bidding for the price of 7,500 jobs paying at least $25 per hour was fast and furious, which Orlando offering $154 million in incentives and Denver more than twice that amount. Kentucky’s governor angrily rescinded Louisville’s offer of $300 million, likening the bidding to “squeezing every drop of blood out of a turnip.”
When United finally selected from among the 93 cities bidding on the base, the winner was Indianapolis and its $320 million offer of taxpayers’ money.
But a few years later, with United near bankruptcy, and having fulfilled its legal obligation, the company walked away from the massive center. This left the city and state governments out all that money, with no new tenant in sight. The city now even owns the tools, neatly arranged in each of the 12 elaborately equipped hanger bays. United outsourced its maintenance to mechanics at a southern firm (which pays one-third of what United paid in salary and benefits in Indianapolis).
Questions:
What are the ethical, legal, and economic implications of such location bidding wars? Who pays for such giveaways? Are local citizens allowed to vote on offers made by their cities, countries, or states? Should there be limits on these incentives?
Explanation / Answer
1. Location amounts to up to 50% of the operating expenses in such projects, making it a critical element, affecting the revenue stream of the company. Thus location bids are considered as essential expense coverage tool for organizations. But such bidding wars lead to the development of areas, which have the potential to spend higher, more often resulting in localized development within the country. Moreover, such bidding wars lead to uninterrupted cash drainage from the tax pools in the name of development.
2. These giveaways actually come from the taxes that citizens pay to the government. Bidders are acting only as citizen representatives, which is the issue here, as the money they bid does not go from their pockets, and collectively the government is held responsible for the losses made from their decisions. The individual bidders spend tax payer’s money in such bidding war giveaways without any individual accountability.
3. Local citizens do not vote on the offers made by their cities, states or country, but they vote for the government representatives that are going to handle their taxes, as their representatives.
4. There should be a limit of percentage of the total annual budgets that these incentives can accommodate, to ensure no lavish spending is done in wake of benefits in long term, which might or might not happen. Like in this case, after United’s bankruptcy the city was left with the assets that are of no value to the city unless they find a tenant to the facility, and the promised jobs were also nowhere in picture as United decided to outsource the jobs due to cost advantages that the southern firm offered to them.
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