Have states gone overboard when it comes to awarding lucrative tax incentive deals to the most-coveted large employers?
A new study published by watchdog group Good Jobs First found the number of “megadeals” -- incentive packages totaling $75 million or more -- jumped during the recession as companies made payroll cuts. Since 2008, both the number of such deals and their total cost to taxpayers roughly doubled from prior years.
The think tank examined all large state tax incentive deals dating back to the 1970s, tallying 240 “megadeals” totaling $64 billion.
Greg LeRoy, the group’s executive director who co-authored the report, told Governing that while the total number of all tax subsidies has declined, states fought hard to compete for fewer deals targeting major employers. As the supply of available jobs dropped, demand increased.
LeRoy also attributes the recent hike in subsidies to elected officials wanting to appear aggressive in addressing job losses.
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According to data compiled for the study, states collectively awarded an average of nearly $5.2 billion annually in large deals over the past five years.
New York spent $11.4 billion on megadeals since it began awarding incentives, by far the most of any state. States granting the next-highest amounts were Michigan ($7.1 billion), Oregon ($3.5 billion) and New Mexico ($3.4 billion). (See state-by-state chart below.) It’s important to note, though, that these deals were awarded over decades and only reflect the largest tax incentive packages.
A few states have significantly ramped up their incentive packages to both retain jobs and lure companies from other states. Governing recently examined New Jersey’s tax incentive programs, finding the state had awarded $1.95 billion in tax incentives since 2011, more than the entire previous total dating back to the programs’ inception in the mid-1990s.
Good Jobs First and other advocacy groups argue this money would be better spent on other investments, such as education or infrastructure.
“States putting all their eggs in a few baskets at a time when they’re disinvesting in things to benefit all employers is not smart,” LeRoy said.
Awarding large tax incentive deals is by no means a new practice. One of the first notable deals occurred back in 1976, when Pennsylvania officials enticed Volkswagen to set up a plant outside of Pittsburgh with a $100 million package.
Over the years, use of tax incentives as a tool for economic development became widespread. Since the 1970s, 40 states and the District of Columbia have awarded at least one deal exceeding the $75 million-mark.
About half (122) of the larger deals Good Jobs First identified benefited manufacturers. These employers are most sought-after because of their high jobs multiplier effect, supporting suppliers and other businesses throughout a region. In years past, manufacturing shops also tended to pay higher wages, further establishing them as prized assets for communities.
This is especially true in Michigan, which has provided numerous incentives to keep its auto manufacturing base intact. The state awarded General Motors tax credits totaling $1 billion in 2009, then gave Chrysler another $1.3 billion deal the following year for an assembly plant. In all, Michigan awarded 29 large tax incentive deals identified in the report, more than any other state.
Other sectors reaping the benefits of large subsidies included energy and natural resources (21 deals) and research facilities (14).
Employers winning the largest subsidies typically retain existing workers or expand into new facilities within a state. Of the deals the report identified, only 14 benefited employers moving across state lines. Another 11 funded moves within a state, led by New Jersey’s four intrastate relocation deals.
Some economic developers and economists express concerns that many companies with potential to create jobs are often left out when the bulk of incentive awards benefit a few select companies. If states are going to continue to offer tax incentives, LeRoy suggests the money would be better spent on smaller companies rather than a few major deals for top employers.
“Using the same amount of money from one bigger deal to help many smaller companies gets you much more bang for the buck,” he said.
The following table shows award totals for each state, dating back to the 1970s. These figures do not reflect total tax incentives that states have awarded, only including tax-incentive deals exceeding $75 million compiled by Good Jobs First. Differences in states' total private sector employment, industry concentration and policy goals of tax incentive programs should be considered when evaluating these totals.
|State||Total Awarded||Number of awards|