Bloomberg News

States Fail to Make Sure Incentives Create Jobs, Study Says

January 24, 2012

(Updates with comments on South Carolina in ninth paragraph and District of Columbia in 13th paragraph.)

Jan. 18 (Bloomberg) -- More than a quarter of subsidy programs by U.S. states targeting job creation don’t require verification that recipients meet their goals, according to a group that is critical of the development incentives.

While 90 percent of the initiatives examined get reports on outcomes from recipients, almost a third of those don’t check the results independently, Good Jobs First, a nonprofit organization in Washington, said in a report released today.

States and cities commit about $47 billion annually to attract employers with offers that often pit communities against each other, according to Kenneth Thomas, a University of Missouri at St. Louis professor who has written three books on such incentives. Republican governors, including Rick Perry of Texas and Nikki Haley of South Carolina, have cited the programs as essential to stay competitive with other states.

“If states are giving money based on promised performance and then companies don’t perform, that’s a big deal,” Thomas said by telephone. “This is an area where breaching a contract has less consequences than in normal, everyday business.”

Alaska had the worst rating, followed by the Dakotas, Wyoming, New York and New Mexico, in terms of enforcing the requirements of subsidies, according to the report. Good Jobs First promotes “corporate and government accountability in economic development and smart growth for working families,” according to its website.

Top Scorers

Vermont, North Carolina, Nevada and Maryland scored best, followed by Iowa and Virginia in fifth place. Texas was 16th, just above New Jersey, while South Carolina tied with Idaho for 38th place.

Good Jobs First measured the incentive programs by how they enforced requirements for creating jobs and investment, and studied provisions for recovering subsidies when pledges fall through. States that impose penalties on companies that didn’t produce promised results and that make public enforcement data scored higher, the organization said.

Out of 238 programs examined, 215 require reports on job creation or other outcomes, according to the report. Governments don’t independently verify the results in 67 of the latter group, according to the study.

South Carolina doesn’t require job-creation reports from any recipients helped under five major subsidies, according to the report. South Carolina Commerce Department spokeswoman Amy Love disputed the assertion, saying the agency requires approved companies in its Job Development Credits program to submit payroll records to help verify commitments.

Corporate ‘Handouts’

“We’re convinced that a lot that goes under the rubric of economic development is just handouts to companies,” said Philip Mattera, research director of the group and the report’s main author. “The states might say that the reporting part is a burden or they might say we have to trust the companies.”

A New York initiative criticized in the report, the Empire Zone program, is being phased out. It “was not creating a sufficient amount of new economic activity in the form of new jobs to justify its costs,” Austin Shafran, vice president of public affairs for Empire State Development, the agency that oversees the initiative, said by e-mail.

New York’s newer Excelsior Jobs program requires businesses to submit performance reports showing how well they have met their goals, Shafran said.

Like South Carolina, the District of Columbia doesn’t verify performance of aid recipients, according to the report, which scored the district lower than Alaska. The district’s Employment Services Department uses an electronic database to check companies’ compliance with programs that encourage hiring of city residents, said Doxie McCoy, a spokeswoman for Washington Mayor Vincent Gray.

--Editors: Ted Bunker, Mark Tannenbaum, Stephen Merelman.

To contact the reporter on this story: David Mildenberg in Austin, Texas, at dmildenberg@bloomberg.net.

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net


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