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States are wasting billions in tax subsidies to private companies, often with little or no … [+]
States and cities constantly try to attract new businesses, through marketing, publicity, and branding events like the Super Bowl or presidential conventions. But among the most expensive things they do—and arguably the most wasteful and distracting—is granting tax and regulatory subsidies to companies, many of whom don’t need them.
In New York State, Reinvent Albany is a leader in trying to change that. Their “Subsidy Sheet” is an invaluable guide to the waste and political maneuvering behind New York’s dense and opaque web of subsidies and tax dollars that flow to businesses, many of whom don’t need them.
I was part of a recent session Reinvent Albany held on reforming economic development subsidies in New York. (I won’t quote directly from the discussions.) Participants came away energized by the need to reform subsidies, while somewhat daunted by the scope of the problem.
There’s no accurate figure on how much New York and other states spend on subsidies to private firms in the name of economic development. A 2020 report from the Mercatus Center estimated that $95 billion nationally went to individual firms, and that number could well be higher now.
Why don’t we know how much is spent? Partly because states and recipient firms have an interest in hiding it. State agencies that award subsidies have few specific binding criteria, and often don’t include the expenditures in their regular state budget process. And even if they did, those state budget processes can be virtually immune to public engagement. (The “Boondoggle” substack and blog by Pat Garofolo is a great resource for information and analysis on how corporations get often-invisible benefits from governments.)
Consider New York’s latest state budget cycle. Late in the process, Governor Kathy Hochul introduced a proposal for up to $10 billion in tax credits to promote “green” semiconductor investments. The proposal was offered on May 31, and passed by the state Senate (in its “non-controversial” calendar) on June 2, giving virtually no time for analysis, review, or public comment.
This type of bum’s rush isn’t unique to New York. Earlier this year, Kansas enacted over $1 billion in corporate incentives and tax cuts, including “hundreds of millions” for a single company. The catch? State officials wouldn’t say what company would receive those benefits. But the legislature approved them anyway.
The world of subsidies is opaque and costly. The invaluable national watchdog Good Jobs First lists 21 different types of state subsidies on their “Subsidy Tracker,” and there could be more. Sometimes infrastructure projects are built to service a single company or other benefits are provided to firms, but these show up elsewhere in the public budget, not designated as a benefit to the company.
States and recipient companies will go to great lengths to hide the subsidies. Researchers Nathan Jenkins and Calvin Thrall describe how companies went to court to hide their economic development contracts with a Texas program, claiming public viewing would compromise trade secrets. They found a company was more likely to resist public disclosure after privately renegotiated its subsidy deal “to reduce its job-creation obligations.”
All of this unaccountable spending takes places in spite of an overwhelming consensus among economists—liberal and conservative—that subsidies to individual firms don’t work. There’s no evidence subsidies create jobs outside of regular growth by a company or in a region.
And subsidies have what economists call “opportunity costs”—they don’t address how subsidy money could have been spent otherwise. Liberals and progressives might want funds spent on education and social services, while conservatives often prefer directing funds to general tax reductions for all businesses.
There are many calls for better public information about subsidies. The Pew Charitable Trusts work with states to create evaluation plans for subsidies, and they see more states starting to evaluate subsidy effectiveness.
Others are skeptical. The U.S. Public Interest Research Group (USPIRG) graded states for 2019 online public access to economic development data. Only one—Ohio—got an A. But 14 states were graded “D,” while 17 flunked, with an “F.” The failure was bipartisan—red states like Alabama and Idaho failed, but so did the blue strongholds of Maryland and California.
So kudos to Reinvent Albany and everyone around the country struggling for transparency in the often secret economic development subsidy world. While transparency alone won’t bring accountability, it’s an essential first step. There’s no way to hold these policies accountable without transparency.