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? It’s generally accepted 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 more than $70 billion per year. (The New York Times estimated $80 billion in 2012.) That’s roughly equivalent to the size of important economic sectors such as the golf, weight loss, pet care or television advertising industries.

Looked at another way, that’s enough money to fund the entire annual state budgets of Alaska, Rhode Island, Idaho, Maine, North Dakota, Montana, New Hampshire, Vermont, Wyoming and South Dakota — 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 nationally-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?
  • 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 will be done differently with this deal or this program than all the other economic development models out there to ensure that incentives aren’t going to decisions that have already been made?
    • In the case of a specific deal, what might corporate leaders say about where the incentive ranked in terms of importance to their decision making? What percentage of the decision to they attribute to it? Do they say they would have gone elsewhere without it?
  • 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. (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.”)
    • 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?”
  • 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?
  • 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:

Ohio CAFR
Example of GASB 77 disclosure in Ohio’s FY2018 CAFR

(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.)

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