A study released this week by Good Jobs First, a national policy resource center for grassroots groups and public officials, found that large companies get the bulk of states’ economic development dollars. Shortchanging Small Business analyzed more than 4,200 economic development incentive awards (often known as tax incentives or subsidies) in 14 states and found that 70 percent of the deals and 90 percent of the incentive money went to big businesses.
“State economic development spending is profoundly biased against small, local, and entrepreneurial businesses,” said Greg LeRoy, executive director of Good Jobs First and lead author of the study. “Our findings definitively confirm what many small businesspeople have long believed.”
The study looked at 4,228 incentive awards from 14 states: Florida, Indiana (two programs), Kansas, Kentucky, Louisiana, Missouri, North Carolina, New Mexico, Nevada, New York (two programs), Pennsylvania, Vermont, Virginia, and Wisconsin.
The deals, worth more than $3.2 billion, were granted by programs that are open to both small and large companies. That big businesses were awarded 90 percent of the dollars from the programs analyzed indicates a “profound bias against small businesses,” the report stated. The study defined small business as those employing 100 employees or fewer, operating independently and locally owned, and having nine or fewer establishments.
“It’s stunning to see just how much state economic development programs are biased against locally owned businesses,” said Stacy Mitchell, the coordinator of Advocates for Independent Business (AIB). “We know from extensive research that small businesses, especially new and growing firms, often deliver out-sized benefits to local economies. Yet, state governments are putting these businesses at a competitive disadvantage by denying them incentives while steering billions of dollars in public subsidies to their big corporate competitors. We hope this report will be a wake-up call for state lawmakers.” AIB is a coalition of trade associations, including the American Booksellers Association, and other organizations representing locally owned, independent businesses.
“The key finding is how consistently the programs favor big businesses,” the study noted, adding, “Given small business’s important role in the economy — and their still-lingering credit access problems coming out of the Great Recession — this massive allocation of tax breaks to big businesses is wasteful and ineffective economic development policy.”
In conclusion, the study recommended that states reform their incentive rules by narrowing eligibility to exclude large recipients. “Large companies by definition are less likely to need help: they have management depth, access to credit, and established markets for their products or services. Subsidizing large companies is … not ‘leveraging’ something that would not have happened otherwise, yet that is the definition of the word ‘incentive,’” the study said, adding that spending taxpayer money where it is not needed is a “waste of money.”