State economic development bends toward big business, according to Good Jobs First report

Editor’s note: This post was republished with permission from the Ewing Marion Kauffman Foundation’s Growthology blog.

Good Jobs First released its third report in a series examining state-level economic development programs and finds that states consistently favor big business over small businesses in their budget.

The report Slicing the Budget Pie for Big Business: How Three States Allocate Economic Development Dollars, Large Companies versus Small examines the economic development programs of Florida, Missouri, and New Mexico and how they distribute their awards between small and big businesses.

The results showed the three states—despite their difference in size, geographic location, and politics—are alike in the domination of big business incentives. As the paper shares:

“At least 68 percent of overall state economic development spending goes to large companies and programs that support those companies. Only a small fraction of state funds—typically about 19 percent—goes to small companies and programs that support their operations. The remaining 13 percent of state spending could not be classified as primarily benefiting large or small companies as program rules were open to companies of any size and programs lacked adequate transparency.

The conclusion of the paper, that state approaches to economic development overwhelmingly favor big business, echo the results of their previous reports in the series Shortchanging Small Business: How Big Businesses Dominate State Economic Development Incentives, an examination of the incentive awards in 14 states, and In Search of A Level Playing Field: What Leaders of Small Business Organizations Think About Economic Development Incentives, a survey of small business organizations.

The report concludes with four policy recommendations to help balance the playing field for small businesses.

Disaggregated Disclosure

While examining Missouri programs, Good Jobs First was impressed by the transparency found in Missouri’s Tax Credit Accountability Report. This report accounts for its awards by firm size (less than 100, 100-500, and more than 500). Good Jobs First recommends for other states to release more detailed information about its awards.

Small Business Support Budget

Good Jobs First also recommends individual states repeat their model by  annually calculating “how many of its economic development dollars are actually benefiting small, local and/or entrepreneurial businesses…and then determine what share that is of its total economic development budget” in order to help a state think through its spending priorities.

Reform Program Eligibility Rules

One way states could better target their economic development funding toward small businesses is to change the rules that say what kind of companies are and are not eligible for these development dollars. This kind of reform would remove large businesses from consideration, so that small businesses that need the most assistance get it.

Spend Less by Capping

Good Jobs First suggests that “states should substantially reduce the total amount of subsidy dollars flowing to big businesses. This could be through protections like dollar caps per deal, dollar caps per job, “caps on…’aid intensity’ (the ratio of public subsidy divided by private investment), and dollar caps per company.”

To learn more, check out the report in full.

Emily Fetsch | Courtesy of the Ewing Marion Kauffman Foundation
Emily Fetsch | Courtesy of the Kauffman Foundation

Emily Fetsch is a research assistant in Research and Policy for the Ewing Marion Kauffman Foundation, and assists in the processing of new grants including grant research, grant write-ups, setting deadlines, and reviewing financials. She also assists in writing literature reviews and informative briefs, and conducts quantitative and/or qualitative analysis on the economy, policy, and entrepreneurship.





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