How Big Business Dominate State Economic Development Incentives

A new report released by Good Jobs First, an organization promoting corporate and government accountability in economic development, shows that state-level business development incentive programs overwhelmingly favor big business.

Shortchanging Small Business: How Big Business Dominate State Economic Development Incentives” highlights more than 4,200 economic development incentive awards in more than a dozen states. Big businesses received 70 percent of the award share of (and 90 percent of the money allocated by) the economic development programs.

Despite state programs’ preference for big business, small businesses make significant economic contributions. Small businesses represent 99.7 percent of U.S. employer firms and make up nearly half of private-sector employment.

One of the programs examined in the report is Kansas’ Promoting Employment Across Kansas (PEAK) program. This program has been hotly debated as to its effectiveness and its contribution “to the Kansas-Missouri ‘economic border war’ within Kansas City metro region.”

Photo courtesy of Kevin Dooley via Flickr.

The program allows companies to “retain 95 percent of the incremental state payroll withholding tax for five to seven years.” The Good Jobs First report shows that 95 percent of the money allocated by the program went to big businesses.

While the program requires companies “to create at least 10 jobs in metropolitan counties and five jobs in all other counties,” a Kauffman research paper has shown that businesses receiving PEAK incentives were no more likely to create new jobs than similar firms that did not receive the incentive.

The new report by Good Jobs First confirms other research that shows that many states are using economic development incentives, including tax abatements, in hopes of generating job growth.

However, when these programs overwhelmingly favor the big business incumbents, small businesses receive very little support.

Policymakers should reexamine how to promote economic growth, whether it’s restructuring the current programs or considering other approaches.

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