Bill Summary for Bill Number Economic Development Incentive Accountability

Final
Economic Development Incentive Accountability

ECONOMIC DEVELOPMENT

Votes:

Action Taken:

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01:49 PM -- Economic Development Incentive Accountability, Mr. Greg Leroy, Good Jobs First

Mr. Greg Leroy, Good Jobs First, discussed his study on economic development incentives. His organization tracks and promotes best practices in state and local economic development. A review by BusinessWeek of his book, "The Big Giveaway: The Great American Jobs Scam," was distributed to the committee (Attachment O). A copy of his testimony was also distributed to the committee (Attachment P). He stated that most of the $50 billion spent each year by states and cities on economic development is wasted, largely because it is given to companies to do what they would have done anyway. Further, all state and local taxes combined equal only 0.8 percent of the average company’s cost structure, thus tax breaks can rarely make a difference in site location decisions. He explained that the supply of skilled labor, proximity to markets, proximity to suppliers, and access to basic inputs comprise 99.2 percent of a company’s cost structure and are the largest factors in site location decisions. The supply of skilled labor is the largest factor. He commented that the availability of a skilled labor force will become more important as the baby boom generation begins to retire. Therefore, government should focus on policies that enhance the business basics for all employers. Governments should redirect their resources to create more skilled labor and improve public infrastructure systems. He stated that the American Society of Civil Engineers grades the condition of the country's infrastructure a D. He recommend more reinvestment in public goods that benefit all employers and a large reduction in spending on business incentives so that more money could be better spent on skills and infrastructure.

01:56 PM

Mr. Leroy continued by stating that the most important and fundamental reform a state can enact to improve the effectiveness of its economic development programs is disclosure, including annual, company-specific, deal-specific reporting of costs and benefits. He explained that disclosure makes it easier for public officials to avoid questionable deals and focus their resources on deals that are more strategic, create better jobs, and generally conform to a larger long-term plan. Disclosure also tends to generate more analysis of economic development spending. He discussed states with disclosure requirements. Also, he commented that instead of creating another tax credit, it would be more effective to attach comparable job quality standards to existing incentives.

Mr. Leroy also discussed the use of cost-benefit analysis and dynamic modeling. He stated that benefits tend to be exaggerated, while the costs tend to be understated in such models. Users of such models need to ensure that the analysis of costs and benefits are more accurately estimated. He discussed other economic development safeguards that should be implemented by governments, such as clawbacks and job quality standards. He discussed the increased used of market-based job quality standards, which are wage levels tied to the average wage in the region or the industry or the occupation. He stated that the use of these standards in economic development is more consistent with the public purpose of economic development, which is to raise average families’ living standards. He stated that there is not evidence that making economic development policies more transparent has hurt economic development efforts and that transparency is key to a better business climate.

Senator Evans discussed the need for infrastructure improvements in private developments. He commented that private developers are forcing local governments to provide incentives to help them provide infrastructure. Mr. Leroy discussed Maryland's smart growth program. In response to Representative Borodkin's question on whether Colorado's incentives are performance-based, Mr. Leroy commented that it is difficult to determine whether an incentive spurred economic development or whether it would have happened without the incentive. He discussed the advantages of unified economic development budgets. Illinois is currently developing one.

02:13 PM

Senator Bacon inquired about other kinds of policies being implemented to help spur economic development. Mr. Leroy discussed efforts to improve the efficiency of the permitting process. Increasing the efficiency of the permitting process is effective because time is money for businesses. He also discussed the importance of the quality of life to an area's economic development efforts.

Mr. Tony Robinson, advisory board member, asked Mr. Leroy about whether there any successful education policies that are helping develop skilled workforces. Mr. Leroy could not point to any off-hand, but stated that a lack of funding for education is an issue that should be addressed. Representative Borodkin discussed the use of cost-benefit analysis and dynamic modeling.

Representative Lindstrom discussed the impacts of low-income jobs and commented on governments that are subsidizing big box retail. Mr. Leroy commented that governments do not need to subsidize big box retailers because of the overabundance of such stores. He also discussed a successful tax sharing agreement between governments in the twin cities area.