Americans broadly believe that state and local economic development subsidies create jobs, improve the local economy and are necessary to the prosperity of their community.
They are badly misinformed.
That’s why the Center for Economic Accountability works to change the way Americans think and feel about economic development subsidies in their communities. One way we do that is by working with media around the country, doing interviews and writing columns related to economic development subsidy deals in their town.
Over the past few years of doing this, it’s become clear that there’s a lot of reporters and editors out there who are open to telling the whole story of what’s going on in economic development, but just don’t know where to start or how to find the right answers. That’s especially true in today’s newsrooms, where staff cuts have made it harder for reporters to invest the time and effort in becoming truly expert on a topic as complex as economic development.
That’s where our current project comes in: “The Skeptical Reporter’s Guide to Covering Economic Development” is a tool being developed to help improve the quality of media coverage of state and local economic development subsidy programs. By educating reporters and helping them get the story right, we’ll be increasing the amount of balance and context included in the primary channels through which most people get their information about this topic.
This isn’t just a question of simplistic “awareness raising,” however. Our ultimate goal is to help foster an environment of public opinion in which evidence-based, market-driven policy reforms can be implemented. In this, we are guided by research that finds that while voters politically reward politicians who take credit for “creating jobs” with subsidy deals, that political benefit goes away when voters are simultaneously informed about costs.
Our solution is to weaponize a growing body of high-quality academic research in the service of spreading the truth as widely as possible. Researchers from across the country and across the political spectrum agree that on the whole, these deals do not deliver economic benefits to communities, and often end up doing more harm than good. They don’t create net new jobs, they don’t improve economies and they incur very real costs in the process.
What these deals do deliver, however, are significant political benefits to the elected officials who hand them out. In other words, the evidence tells us that state and local economic development subsidies don’t really exist to create jobs. Rather, they exist to make voters believe that politicians are responsible for creating jobs.
They’re also incredibly expensive. The secrecy endemic to the economic development industry makes it difficult to undertake a full accounting, but the 2020 estimate of $95 billion per year by economists at the Mercatus Center is consistent with a 2012 New York Times investigation that estimated $80 billion, factoring in inflation.
It’s also a lot of money at the local level. New York City, for instance, reported more revenues lost to tax abatements in 2019 than it spent to operate the New York Fire Department and Department of Corrections, combined.
You’d never know this, however, if you read the average story in your local newspaper or watch coverage of a ribbon-cutting ceremony on your local TV station. With a few notable exceptions, media coverage of state and local economic development programs tends to focus on promised benefits but lack meaningful discussion of costs or risks.
From our experience, that’s less a question of malice or incompetence on the part of journalists and more an issue of expertise, interest and resources. Especially in today’s bare-bones newsrooms, few reporters have the time and resources necessary to educate themselves on the current state of economic development research. It’s much easier for them just to effectively reprint the press release from one of the 540+ economic development agencies across the country, get a quote from the subsidized company and move on to the next story.
As a result, efforts to reform economic development programs across the country regularly run into the challenge of an “Overton Window” of public opinion where people generally believe the job creation narrative, and are worried that without these subsidy programs, all the jobs will go someplace else. Elected officials have no incentive to change programs that deliver political value to them, so reform efforts founder.
There’s very strong research backing this assertion of political motivation. Highlights include:
- Companies that make political donations to the relevant elected officials are four times as likely to receive subsidy deals as those that don’t, and those deals are 63 percent larger on average. (Aobdia, Koester & Petacchi, 2019)
- The best predictor of whether a state will see a sudden large (20%+) year-over-year increase in subsidy spending isn’t unemployment or some other economic factor. Rather, it’s whether the governor is running for reelection. (Slattery and Zidar, 2020)
- Governors who take credit for “winning” 1,000 manufacturing jobs with an incentive package can see an increase in voter intent among independent voters of roughly 9.2 percent. (Jensen and Malesky, 2018)
- Cities with elected mayors hand out larger incentives, and implement less-rigorous oversight of them, than cities with non-elected city managers. (Jensen, Malesky & Thrall, 2015)
- The more lobbyists an industry has and the more it spends on political donations, the more it receives in subsidies. (Jansa and Gray, 2017)
In addition to the evidence that economic development subsidies are driven by base political motives, an overview of the research finds that at least three quarters of the tax abatements, grants and other forms of subsidies handed out by state and local governments do not meaningfully change the behavior of the incentivized company. (Bartik, 2018) Thanks in part to Government Accounting Standards Board rule changes that required governments to begin accounting for tax revenues lost to economic development abatements for the first time in 2015, the past few years have seen a flowering of high-quality academic research on this topic, including:
- “Overall, we find that incentivized establishments lead to lower employment gains than their nonincentivized peers… By comparing incentivized establishments to a carefully selected control group, we cast doubt on the biggest claim made by incentive proponents that ‘but for’ the incentive payment, job creation would not occur. This simple but direct finding—that incentives do not create jobs—should prove critical to policymakers.” (Donegan, Lester & Lowe, 2018)
- “We find that incentives have a statistically significant, negative relationship with start-up rates in total and for some industries including export-based and others that often receive incentives. Our findings support critics who contend that incentives crowd out other economic activity, potentially reducing long-term growth.” (Partridge, Tsvetkova, Schreiner & Patrick, 2019)
- “In no specification were we able to uncover a relationship between development incentives and either net new business formation or the rate of sole proprietorships… In all specifications, we found a negative and statistically significant relationship between economic development incentives and patent activity.” (Tuszynski & Stansel, 2018)
- “In particular, the main findings indicate that incentives expenditures are associated with decreases in expenditures on productive public goods such as education, health and human services, sanitation and utilities.” (Wang, 2015)
This is where our project comes in. “The Skeptical Reporter’s Guide to Covering Economic Development” will be an online and printed resource aimed at journalists who find themselves covering the topic of economic development, either on a one-off basis around a single announcement or as part of a larger beat. We will create the materials, then invest as much as possible in broad dissemination both directly to individual journalists as well as through other channels such as social media, targeted advertising, events, journalism schools and more.
We’re doing this because we’ve seen high-quality journalism drive changes in economic development policy over the past few years. For instance, investigative journalists for WNYC and ProPublica uncovered massive corruption in New Jersey’s economic development programs that led to significant reforms and criminal investigations. Last year, reporters for the Houston Chronicle published a package of stories that so powerfully laid out the failures of the state’s multi-billion-dollar Chapter 313 subsidy program that the state legislature unexpectedly allowed the program to expire rather than renewing it as planned.
To help encourage more journalism like this, we’re developing the specifics of the Skeptical Reporter’s Guide together with a collection of academics, experienced advocates, current and former journalists, communications professionals and other experts that we’ve been engaging over the past three years. Potential topics include:
- Where most media coverage of economic development fails to tell the whole story and why that’s important.
- Understanding what the research and real-world history says about the political value – and economic lack of value – of these programs.
- Where to find key facts and figures for your story
- How to identify and report on common distortions in “economic impact” predictions.
- Common games agencies play with transparency, and how to overcome them where possible.
- “Questions they hope you won’t ask at the press conference.”
- Best practices in proactive investigative journalism and where to go digging for great stories.
When it comes to economic development, good journalism helps change public policy for the better. The Skeptical Reporter’s Guide to Covering Economic Development will be a tool to help improve the quality of reporting on this topic, moving public policy away from cronyism and toward a more evidence-based model that delivers opportunity for all rather than subsidized benefits to a chosen few.
This is an initiative of the Center for Economic Accountability, a nonpartisan and independent nonprofit organization that works to promote transparency, accountability and market-based reforms in state and local economic development programs across America. It is led by CEA President John Mozena, who has more than 20 years of experience as a marketing communications and public policy advocacy professional working with media across the United States. He was also the co-founder and lead spokesperson for the first Internet-based advocacy organization, the Coalition Against Unsolicited Commercial Email (CAUCE), and began his professional career as a reporter and editor covering health care policy.
The CEA has been engaging with media since 2019 on economic development topics, and this project grows out of our experience working with journalists one-on-one to answer their questions and improve their stories.
While we are a relatively young organization (founded late 2018), we have received some notable third-party accolades:
The CEA was selected as a “Best New Think Tank” in the University of Pennsylvania Wharton School Think Tanks and Civil Societies Program’s 2020 Global Go To Think Tank Index. This designation recognizes “think tanks that have been established in the past 24 months, and are centers of excellence.”
In late 2020, the CEA was selected as a “Smart Bet” by Atlas Network, the global network of free-market think tanks. The designation identified the CEA as one of 10 organizations that were, in their words, “‘punching above their weight,’ and, with the right amount of investment and recognition, are likely to make important strides for the future of freedom in the United States.”
We have an opportunity to change the way Americans think and feel about economic development by helping local journalists be more effective in the way they cover subsidy deals — but we need your support. Click here to make a donation to help the CEA cover the costs of developing and distributing the Skeptical Reporter’s Guide to Covering Economic Development. Or, contact us directly if you have questions. The CEA is a 501(c)(3) charitable nonprofit organization (EIN 83-3122559), and your donation is tax-deductible to the extent allowed by law.