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A Skeptical Journalist’s Guide to Covering Economic Development
Many reporters, especially in today’s hollowed-out newsrooms, find themselves covering economic development deals or topics without having had the benefit of experience or background in the topic.
Economic development is a complicated world, in which there are many incorrect assumptions and half-truths promoted by powerful interests — corporate, political and otherwise — with a direct interest in keeping the money flowing through these deals.
Our interest is in pushing back against that misinformation. As an organization, we promote accountability, transparency and free-market-based reforms in state and local economic development programs. Informed and independent journalism plays a critical role in that process, and we want to support the reporters doing that work in local communities across the country.
This document is a work in progress.
It is intended to answer questions reporters often have when covering these deals and programs. Our hope is this helps improve the quality of media coverage on economic development topics, increasing accountability and transparency for all.
It is by no means a comprehensive overview of every relevant issue or topic. If you have questions you’d like to see answered here, would like to speak with our team either on background or for the record or would like to be added to our mailing list for press releases and commentary on these topics, please contact us.
Economic Development Is a Growing Industry
Economic development has quietly become a massive and ubiquitous industry, despite the growing independent research-backed evidence against the value of its standard business model. We believe that the best journalism on economic development has covered it in the context of the interaction between big business and big government, rather than as standalone deals or individual government programs.
How big? One reasonable estimate is that the total amount of money transferred from American state and local governments to private interests through these sorts of deals has tripled since 1990, to an estimated $95 billion per year. (The New York Times estimated $80 billion in 2012.)
Looked at another way, that was enough money to fund the entire pre-COVID annual state budgets of the eleven smallest state budgets, combined.
In addition to big government, this is also the domain of big business. Notably, most estimates are that roughly three quarters of development deals go to big businesses — “Fortune 1000” is one common measuring stick — even though that has the inevitable impact of concentrating local economies in the hands of those businesses at the cost of small/medium businesses and startup entrepreneurs. As a result, most of these sorts of programs are supported by Chambers of Commerce and other “pro-business” organizations that tend to be dominated by a region’s largest corporations.
Research-Backed Insights and Potential Questions
For deeper information on the state of independent academic research on economic development topics, please visit our page where we collect and digest relevant work. For reporters covering state and local deal or program announcements, here are some general facts and insights about economic development that may help inform your coverage, along with associated questions (in bold) that politicians and business leaders probably hope won’t get asked at the press conference.
- First and foremost, there’s little to no evidence that incentive and subsidy deals fulfill their mission of developing economies. “Incentives still do not have any meaningful relationship to the economic performance of states,” says internationally-recognized urbanism expert Richard Florida. “Even when we take out sales tax and related tax refunds, we find no relationship between incentives and any meaningful measure of economic performance. As before, there is no statistically significant correlation to economic output per capita, none with wages, none with income, and none with educational attainment, measured as college grads as a share of adults.”
- As researchers at UNC and UConn recently wrote after concluding a large nationwide study on economic development incentives, “This simple but direct finding—that incentives do not create jobs—should prove critical to policymakers.”
- Are the leaders in your community familiar with the preponderance of the research findings in this space and why do they think their program is different?
- NOTE: One common pro-subsidy talking point is that the research consensus against economic development subsidies is “ivory tower” in nature. However, the economic impact predictions that underlie all subsidy deals rely on the exact same tools used by independent researchers to analyze the ultimate value of those deals. If the independent analysis is insufficiently attached to the real world, so must the bought-and-paid-for analysis that justified the deal in the first place.
- One related issue is that these tools are regularly used by economic development agencies to generate predictions that go much further into the future than they are designed to. Few economists would use an econometric tool to predict the impact of a single factory further than five years out, simply because economies are so inherently unpredictable. (Consider how challenging it is for state budget officers or fiscal agencies to predict tax revenues on a year-to-year basis. Few would dare to try to do so five or 10 or 20 years out.)
- Are you confident in your ability to predict the economic impact of this subsidy more than five years out? What tools are you using?
- Have you gone back and analyzed similar predictions in the past to determine how they performed in reality?
- One reason for incentives not working is that they don’t change companies’ plans. Overall, researchers find that at least three quarters of development incentives go to deals where the company would have made that same decision anyway without the incentive. This is because companies make decisions based on fundamental business factors like where customers are, where competitors are, where workers are and what the infrastructure is like, so subsidies are secondary at best. In a recent survey by Area Development Magazine, companies ranked state and local incentive programs seventh in importance among site selection factors they consider, behind things like skilled labor, highways, general tax climate and quality of life. This matches with what Amazon said during its “HQ2” search process, that “Economic incentives were one factor in our decision—but attracting top talent was the leading driver.” Since there’s no economic benefit to the community to subsidizing something that would have happened anyway, this means all the money dedicated to at least 75 percent of incentives is effectively wasted – even before any analysis is done of whether or not the remaining deals turned out to be a good idea.
- What about this deal convinced you that this is one of the 25 percent or fewer economic development deals where the subsidy changed a company’s decision, rather than one of the 75 percent or more where the decision was made based on fundamental business factors and the subsidy wasn’t necessary?
- To corporate representatives:
- In your list of site selection factors, where did the subsidies rank? What factors were higher, what were lower? Can you put a percentage on how much of the decision they influenced?
- Considering all other business factors and leaving out the subsidy, was this the best possible site for this project? If yes, then was the subsidy really necessary to your site selection decsiion? If no, then are you concerned that you chose a second-best (or worse) site for your facility from a business perspective?
- The structure of the standard economic development process is generally understood to be flawed because everyone involved in a deal has a personal incentive to make the deal happen: Companies get free money, bureaucrats get to stay employed and politicians get to take credit with voters for “creating jobs.” Whistleblowers have reported massive political pressure for well-intentioned bureaucrats to approve deals no matter what the actual ROI might end up being, which makes sense when you discover that companies that make political donations are four times more likely to receive subsidies than those that don’t; or that states where governors are running for reelection are twice as likely to see sudden large jumps in subsidy spending as those where they’re not. (That kind of evidence is why we argue that “the true reason for economic development programs isn’t to create jobs. Rather, it’s to make voters believe that politicians are responsible for creating jobs.” It’s also why we suggest that political reporters, rather than business reporters, take the lead on reporting these stories.)
- Who in this deal or process will have the incentive to be skeptical and push back against flawed assumptions or a bad deal?
- How many deals get turned down? How often does your local board vote down a proposed deal? (Often, that answer is “never.”)
- One fun question for politicians: “Are you claiming responsibility for these jobs?”
- Did the subsidy recipient make any political donations to relevant elected officials?
- Frequently, companies sign deals to great publicity then later renegotiate the deals in secret to lower the expectations and requirements.
- What are your local policies be about holding companies accountable, is deal renegotiation allowed and what publicity is required when those renegotiations happen – do they issue a press release just as they did with the original deal?
- Are there be “clawback” provisions to get money back from companies that fail to meet commitments?
- How are those enforced and reported?
- In the current labor market, most of the economic pain is a function of too few skilled workers rather than too few jobs.
- With so many employers having trouble finding skilled workers, why is the government still subsidizing “job creation” that would make that problem worse?
- Who are the workers who will fill these jobs? Are they currently unemployed, do you expect them to move here, or are they workers that will be lured away from other employers in the area?
- Researchers find that incentive programs tend to concentrate local economies in the hands of big business, don’t improve the climate for entrepreneurship or result in more small businesses being opened and tend to be based on who’s got the best lobbyists.
- How will local policies avoid favoring big businesses over small, or new companies over existing long-time competitors?
- If deal proponents are making the argument that this supports “innovation” or “entrepreneurship,” how do they support that assertion in the face of evidence that the standard impact is otherwise?
- What role did lobbying play in the deal development and approval?
- Money that goes to development deals isn’t available for spending on public goods like police, fire, roads, schools, etc. and has been linked to decrease in quality of those services over time.
- What will local municipal leadership be doing to ensure that the quality of public services in the short term isn’t further harmed by making long-term bets on economic development deals?
Facts & Figures
One interesting figure you may want to include in your story for context is how much money the relevant government is already giving up in tax revenues due to existing deals. Thanks to rules promulgated in 2015 by the Government Accounting Standards Board (GASB), governments have to include a description of what taxes are being abated and how those decisions are made and managed, the gross dollar amount of such abatements and any other commitments made as part of such agreements. In practice, these “GASB 77” disclosures are usually found in the notes section of a government’s Comprehensive Annual Financial Report (CAFR) and can usually be found by searching for “abate” using PDF search tools:
(IMPORTANT: Note that these disclosures do not capture anywhere near all of a government’s outstanding incentive and subsidy deals, as they only cover abated tax revenues and do not capture many Tax Increment Finance mechanisms, direct subsidies, loan guarantees, transfers of land or other property, bond-financed programs or other such common tools.)
The average reader has no context for the massive amounts of money that these deals often involve. Our experience is that comparing the stated cost of the deal to some other governmental function helps voters and taxpayers have a better conception of the costs their elected officials are incurring on their behalf and assists them in making a rough “is it worth it?” cost-benefit calculation.
(From a practical perspective, since it’s unusual to see these deals reported in such a way, it differentiates your coverage from other local media that received the same press release or attended the same press conference.)
Some real-world examples of this in action include:
- The City of Detroit spent $54.1 million to purchase land for a Fiat Chrysler auto plant expansion in 2019. That’s more than the budget of the Detroit Health Department that year.
- Georgia lost $860 million in revenues to its film tax credit program in 2019. That’s $53 million more than it spent to run its entire Department of Health & Human Services.
- In 2019, New York City handed out more in corporate tax credits than it budgeted to run the New York Fire Department and Department of Correction, combined.
- The total cost of all Iowa state tax credit programs in 2018 was $422.9 million. That same year, the combined total of all state and municipal government spending on mental health and disability services was $422.6 million.
- The proposed $31 million expansion of the Government Property Lease Excise Tax Credit in Tucson, Ariz. would cost the city more in lost revenues than it spends to operate its network of public swimming pools and public sports facilities such as baseball diamonds, soccer and football fields and tennis courts.
- The $1.75 billion in subsidies going to a Ford Motor Company battery plant in mid-Michigan is as much money as the state paid in unemployment benefits in 2021, or four times as much in property tax credits as all of the state’s homeowners combined were able to deduct from their own income taxes that year.
- The $565 million revenue loss to economic development tax abatements in Louisiana is enough to run the state’s Department of Wildlife & Fisheries, Department of Natural Resources, Department of Environmental Quality and Department of Agriculture & Forestry, combined. (The state’s license plates advertise “Sportsman’s Paradise.”)
This kind of context is incredibly valuable for voters and taxpayers, and drives audience engagement when included in media coverage of any deal. We strongly suggest this as an exercise for any journalist covering an economic development announcement, and are happy to help with this process when asked.
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