State Economic Development Agencies’ Own Data Shows How Little They Matter
In Honor of Economic Development Week 2023, the CEA’s Review of Official Government “Job Creation” Claims in all 50 States Finds Irrelevant Results at Increasing Costs
According to their own data, America’s state economic development agencies’ “job creation” efforts don’t make a meaningful difference to the nation’s workforce or economy.
That’s the findings of an analysis by the Center for Economic Accountability (CEA), a non-partisan think tank that works to improve transparency and accountability in America’s state and local economic development programs. In honor of Economic Development Week (May 8-12), the CEA analyzed annual reports, websites, audits and other published materials from economic development agencies (EDAs) in all 50 states plus Washington, D.C. and determined that those agencies collectively claim to have “created or retained” a combined total of fewer than 625,000 jobs in their most recent fiscal years.
That figure is less than four tenths of a percent of the total U.S. workforce, which CEA President John C. Mozena says should have Americans asking elected officials hard questions about the billions of dollars that EDAs distribute in tax credits, abatements, guaranteed loans, grants and other forms of corporate subsidies every year to achieve those reported results.
“In a nation of more than 330 million people and an economy with 164 million workers, the 625,000 jobs a year claimed by economic development agencies are a tiny drop in a massively expensive bucket,” said Mozena. “For all of the claims that states’ economic development agencies are critical to economic competitiveness, their own data shows that their results are a rounding error at best for the economy as a whole.”
The 625,000 jobs advertised by EDAs would be just the 29th largest city in the country, roughly equivalent to the population of Memphis, Tenn. That’s less than five percent of the 15 to 17 million gross jobs naturally created by the American economy in any given year, which is equivalent to a new job every year for every worker in Texas, the nation’s second-largest state economy.
“Even when we’re setting aside our skepticism and using the economic development agencies’ own marketing numbers, we still see just how little their work matters in the context of the economy as a whole,” said Mozena. “State economies are massive, complex, constantly evolving things and trying to change them by subsidizing a few thousand jobs here or couple hundred jobs there is like trying to get a cruise ship to turn by throwing ping-pong balls at it.”
While the results might be insignificant, the costs EDAs impose on state budgets are anything but. Before the COVID-19 pandemic upended state finances, researchers estimated the total aggregate cost of state and local economic development programs at roughly $95 billion nationwide, a figure equivalent at the time to the 11 smallest state budgets combined. In the wake of the pandemic, the nation has seen a rapid increase in gigantic subsidy deals with price tags of a billion dollars or more. Last year, a CEA analysis found that a total of 12 billion-dollar-plus subsidy deals had been announced across the country, shattering the previous record of three (inflation-adjusted) deals in a year.
When price tags reach ten figures, even large state budgets start feeling the burden. For instance, the CEA recently pointed out that the estimated $1.75 billion taxpayer price tag for a planned electric vehicle battery plant in Michigan is more money than the state had distributed in total unemployment benefits in 2021.
“American taxpayers spent enough on economic development agencies’ job creation programs to fund almost a dozen state budgets, and we got, at best, one mid-sized city’s worth of jobs, spread thinly across the entire country,” said CEA President John C. Mozena. “That return on investment is so bad it makes Sam Bankman-Fried look like Warren Buffett. If private-sector investment professionals were delivering results like this to their customers they’d be fired, in jail, or both.”
However, even that insignificant ROI figure requires accepting state EDAs’ figures and ignoring the evidence that the real-world results are much worse. Specifically, the consensus of dozens of studies by independent experts into the actual results of economic development subsidies is that EDA job creation figures tend to be at least four times larger than they should be. That’s because agencies’ reports consistently take full credit for every job created or retained by subsidized companies, regardless of how much of a role – if any – the subsidy truly played in the business’s decision-making process. The most definitive and widely cited review of the research to date, published by Dr. Timothy Bartik of the W.E. Upjohn Institute for Employment Research in 2018, found that “for at least 75 percent of incented firms, the firm would have made a similar decision location/expansion/retention decision without the incentive.” This assessment is consistent with the site selection industry’s own research, which regularly finds subsidies and incentives to be ranked eighth or worse among factors that influence business site selection decisions.
Applying even the most optimistic “one in four” filter to the CEA’s findings results in EDA job creation results dropping from 625,000 to 156,000. This means that rather than the population of Memphis, those jobs collected in one place would rank in the 160s among American cities, equivalent to the population of a suburb like Lakewood near Denver, Roseville outside Sacramento or Hollywood between Miami and Fort Lauderdale.
“Whether you accept economic development agencies’ figures as correct or not, whether you apply magic ‘multipliers’ to their economic impact or not, you simply cannot arrive at a result that justifies the bloated price tags of today’s economic development programs,” said Mozena. “Governors claim all the time that their state can’t afford to ‘unilaterally disarm’ in the economic development wars, but it’s clear from these results that the question isn’t whether they can afford to disarm; it’s how much longer they can afford not to.”
Notes on Methodology: The CEA contacted the relevant economic development agencies, as listed in the U.S. Economic Development Administration’s directory, for all 50 states plus the District of Columbia and asked, “How many jobs were directly or indirectly created (or ‘created or retained’ if that’s the metric you use) thanks to your agency’s programs in the most recent full fiscal year for which you have those figures?” Representatives from 15 state agencies responded with relevant information. The CEA then reviewed agency websites, annual reports, audits, press releases and other published documents from official sources to attempt to identify whether nonresponsive states had publicly reported such figures. Not all per-state figures are exact: In four cases, states only reported multi-year job creation figures and in those cases, the CEA annualized those numbers to arrive at a one-year number. In seven states, the CEA was required to manually add up program-by-program numbers from different reports to arrive at a best estimate of a state’s total claimed results and may not have identified all relevant programs as a result, or may have double-counted jobs for projects that participated in more than one program. EDAs in three states – Alaska, Montana and New Hampshire, accounting for less than one percent of the nation’s population – neither reported “job creation” figures in any relevant format that the CEA could identify nor responded to multiple requests for information. Those three states were artificially assumed to have reported jobs at the national average rate of 0.19 percent of the state’s population.
The analysis did not include job creation claims by economic development agencies at the municipal, county or regional level, other than the city government of Washington, D.C. (In most states, projects with significant job creation subsidized by local or regional EDAs would tend to include some form of state agency participation and be captured in those agencies’ reports.)