Facing election-year pressure from voters and flush with federal cash, governors across America have signed three times more billion-dollar subsidy deals than any previous year in history.
September 15, 2022 – An unprecedented flood of economic development “megadeals” with potential billon-dollar price tags across the United States is turning 2022 into a uniquely expensive year for corporate welfare at the state and local level. Across the country and on both sides of the partisan divide, state governments have crammed a decade’s worth of billion-dollar subsidy deals into less than a single year.
A new analysis from the Center for Economic Accountability (CEA) finds that in 2022, governors and other elected officials have announced an astounding nine corporate subsidy deals with likely price tags of one billion dollars or more. This three times as many megadeals as were signed in 2021, which at the time was enough to tie the record originally set in 2010.
“America’s governors and mayors are shoveling billion-dollar corporate welfare megadeals out the door this year at a rate that would normally take them a decade or more to achieve,” said John C. Mozena, president of the CEA. “Under pressure from constituents to ‘do something’ about the economy and with their budgets deceptively flush with one-time federal dollars, they’re making short-sighted but big-ticket decisions that will be imposing massive costs on our communities for decades to come.”
According to the CEA’s analysis of historical data compiled by Good Jobs First, media reports, academic research and other public data sources, state and local governments signed a total of 25 economic development subsidy deals with a price tag of $1 billion or more in inflation-adjusted dollars between 1980 and 2020.
The pace of billion-dollar deals has been increasing over time with just one in the 1980s, two in the 90s, ten in the 2000s and twelve in the 2010s. This means that with 12 such megadeals and counting, the 2020s have already tied the previous record pace with more than two thirds of the decade left to go.
A Political Perfect Storm Drives the Megadeal Stampede
America’s economy may be in a state of disruption, but the evidence is that the unprecedented pace of billion-dollar deals in 2022 is being driven more by the political response to economy than by actual economic best practices.
These deals fly in the face of a broad consensus among economists and independent experts that economic development subsidies rarely change corporate decision-making and have little – if any – impact on employment rates or other measures of economic well-being. Both academic research and real-world evidence agree that these forms of corporate subsidies are generally ineffective at best and actively harmful at worst in their impact on a region’s economy.
Where they do generate measurable value, however, is for politicians facing an election.
“The evidence has been clear for some time that economic development subsidies are much better political tools for the politicians who hand them out than they are economic tools for the communities they’re supposed to improve,” said Mozena. “What we’re seeing in 2022 is that elected officials across the country are betting that big and flashy announcements of future ‘job creation’ will hopefully buy them enough credit with voters to survive the upcoming elections. It’s the fundamental truth of economic development subsidies: They don’t exist to create jobs as much as they do to make voters believe that politicians are responsible for creating jobs.”
Independent research supports the political roots of economic development subsidies. Studies have found that states where governors are running for reelection are more than twice as likely as those where they are not to see a sudden large increase in subsidy spending; that governors can move independent voter intent by as much as 9% by “winning” 1,000 manufacturing jobs with subsidies and that elected officials who make subsidy deals receive more in political donations and have larger margins of victory on Election Day as those who don’t.
The CEA’s Mozena says the issues at play include politicians scared about voter backlash over the economy and COVID lockdowns, the political reshuffling of post-Census legislative redistricting and the distorting impact of federal dollars on state decisions. (In June 2020, Mozena and Michael D. Farren of the Mercatus Center warned in a working paper published by the Mercatus Center that federal COVID aid held the potential to drive this kind of increase in state subsidy spending unless Congress specifically prohibited such practices.)
“There’s a subset of voters who blame their governors for the economic dislocations of COVID lockdowns, on top of the general economic pain that people are feeling because of inflation and lingering post-COVID disruptions,” Mozena explained. “This is also the first legislative election to take place in most states after the 2020 Census drew new legislative districts, which creates an added incentive for legislators to support subsidized projects that they can use to take credit with new constituents. We’re also hearing from legislators that the flood of federal American Rescue Plan money into state budgets has made it impossible for fiscal hawks to convince their colleagues to show restraint in economic development deals, while new federal subsidies for domestic electric vehicle and computer chip manufacturing are exacerbating the problem by creating a gold-rush environment for projects in those industries.”
Fewer Deals, Bigger Price Tags
Of course, not every massive economic development subsidy breaks the billion-dollar barrier. The past two years have also seen a flood of massive deals that may not have ten-figure price tags but are still massive commitments of public financing for private companies.
Industry data from the consultancy Site Selection Group quantifies this trend in action. In 2021, their industry data analysts found a 13.4% decrease in the number of subsidized projects nationwide over 2020, but what they characterized as “an astounding increase of 94.8% in the total value of announced economic incentive awards and a 60.8% increase in the average award per job.”
That trend of skyrocketing average subsidy value continued in 2022. In May, Site Selection Group’s team reported that the total number of subsidized projects nationwide had again decreased in the first quarter of 2022 from the first quarter of 2021, this time by 9%, but that the total subsidy price tag for fewer deals had skyrocketed by 833% over that time. Recently, they announced that while the number of subsidized deals in the second quarter of 2022 was up 37.1% year-to-year over 2021, the total cost of these deals had grown almost four times faster, at 132%.
“Before COVID upended state budgets, the best estimates were that the total price tag of state and local economic development subsidies across America was roughly $100 billion a year, which was enough at the time to fully fund the 11 smallest state budgets combined,” said Mozena. “With this unprecedented explosion in billion-dollar megadeals, we’ve gone past just being in an economic development crisis to being in the middle of a full-fledged policy disaster.”
Case Study: North Carolina
North Carolina provides a perfect example of the megasubsidy trend in action. The Tar Heel State has broken its previous record for “largest economic development subsidy in history” in each of the past three years:
- June 2020: More than $450 million for health insurer Centene’s new headquarters in Charlotte. (In August 2022, Centene announced that it had cancelled the project because its workforce now prefers to work from home.)
- April 2021: More than $845 million for an Apple R&D campus in the Research Triangle. (The CEA named this the “Worst Economic Development Deal of the Year” in the country for 2021.)
- July 2022: $1.2 billion in incentives to Vietnamese electric vehicle manufacturer VinFast to build manufacturing facilities in Chatham County.
Betting Billions on Sports Stadiums
2022 is also the first year that an American sports stadium subsidy broke the billion-dollar barrier. They had come close in the past, as the the Superdome in New Orleans, Levi’s Stadium in Santa Clara, Calif., Allegiant Stadium in Las Vegas, Lucas Oil Stadium in Indianapolis and Mercedes-Benz Stadium in Atlanta are all estimated to have received more than $750 million in today’s dollars. But the announcements of $1 billion in subsidies for a new Buffalo Bills stadium and the passage of a $1.2 billion funding mechanism for the Maryland Stadium Authority set new heights for stadium megadeals – and before the year is out, a proposed new football stadium in Nashville, Tenn. could add yet another entry to that list.
The Billion-Dollar Megadeals List:
- Ohio: $2.1 billion for Intel computer chip manufacturing
- Georgia: $1.8 billion for Hyundai electric vehicle plant
- West Virginia: $1.7 billion for steelmaker Nucor
- North Carolina: $1.7 billion for electric vehicle startup manufacturer VinFast
- Georgia: $1.5 billion for electric vehicle startup manufacturer Rivian
- Kansas: $1 billion for Panasonic battery manufacturing
- Michigan: $1 billion for General Motors electric vehicle manufacturing
- Maryland: $1.2 billion via the Maryland Stadium Authority for the Baltimore Ravens’ and Orioles’ stadiums
- New York: $1 billion for a new Buffalo Bills stadium
- Missouri: $8.2 billion for “Golden Plains Technology Park” data center project
- Texas: $1 billion for Samsung semiconductor factory
- Tennessee: $1 billion for Ford electric vehicle and battery plant
Note on Cost Estimates
The cost figures above were derived from a combination of media reports, official announcements and independent third-party analyses of total potential costs to state and local governments. As with almost all figures in economic development finance, they are estimates that may not include all potential costs and may change dramatically in practice.
About the Center for Economic Accountability
The Center for Economic Accountability (CEA) is a nonpartisan and independent 501(c)(3) nonprofit that works to advance economic opportunity for all by promoting transparency, accountability and free-market-based reform of state and local economic development initiatives across America. Headquartered in Michigan, the CEA was founded in 2018. For more information, visit https://economicaccountability.org/.