New Jersey — Where Corporate Subsidies Aren’t Improving the Economy
Interesting. A NJ think tank — New Jersey Policy Perspective — has a report out the shows that while subsidies to NJ businesses have surged under Governor Christie’s administration (subsidies that are billed as economy boosting), NJ’s economy has remained pretty sluggish. According to this report, $4bn worth of subsidies had been awarded to businesses in the past four and a half years by state authorities under Christie – more than three times the $1.2bn in subsidies that were given out in the prior 10 years. Got that? That’s $4 billion dollars worth of corporate subsides for this result:
A comprehensive review of economic data last month by the Newark Star-Ledger found that “during Christie’s governorship, only New Mexico has generated private-sector jobs at a slower pace than New Jersey”. The state is facing a budget shortfall of $2.7bn over the next year and has had its credit rating downgraded five times since Christie entered office.
Some of this activity seems specifically designed to help friends of Christie, with some calls to make these subsidy schemes subject to pay to play laws:
Christie signed a bill, which passed with bipartisan support, overhauling the state subsidy schemes last September. It contained language that specifically enabled the passage last December of the $106m subsidy for the property venture involving his friend, Jon Hanson, which the Guardian disclosed this month.
Some critics have called for the subsidy deals to be subject to New Jersey’s law against “pay to play”, which bars state authorities from contracting goods or services from firms that have made political contributions.
But look at what this investment gets New Jersey residents:
Yet New Jersey has badly trailed the rest of the US in recovering from the 2008 recession. The state has regained only half the jobs lost during the recession compared with 83% that were recovered nationally, a Rutgers University study found at the end of last year.
Look at how much they pay per job created — remembering that the more you subsidize a position, the longer it takes for it to pay for itself and at some point you won’t recoup the taxpayer’s investment:
They also found that the cost of each job due to be created or retained in the state by some corporate subsidies had more than doubled under Christie’s governorship. The “per-job cost” of jobs-related state subsidy schemes since Christie came to office is $33,853, compared to $16,591 in the last decade, the study found.
One of the things I really wish would happen with these corporate subsidies is the keeping of some standardized data — reported to taxpayers yearly — on the results of subsidy spending. Subsidizing Walmart and others to create low-paying jobs that the state still has to subsidize isn’t a good use of taxpayer money. if this is supposed to be so good for the local economy, then we should be able to see some serious data to back that up.
Then there’s the idea that tax cuts not only pay for themselves, but they bring greater economic prosperity. Kansas put this into action and predictably, those tax cuts got them an economy that isn’t recovering well AND a structural deficit — meaning that they always have a budget the promises more than they can pay for. Why? Because they decreased their revenues and hoped that no one would notice that they couldn’t pay for their budget.
Pennsylvania has a similar problem — they cut taxes largely paid by wealthier people, reducing their revenues by approx. $600M per year and the state is now swimming in red ink. And given the fact that Corbett has slashed education funding as a way to patch the holes in his budget, he is looking like he’s done for this re-election year. Still — we have one more data point showing that tax cuts neither pay for themselves or generate any prosperity.
It is good to see that someone has tried to quantify how much corporate subsidies are costing taxpayers as well as quantify how that spending supports (or not) economic development. And it is good to see that basic math doesn’t get thrown away to support discredited ideology.
It wasn’t long ago that we had a tax structure that incentivized businesses to invest in growth activities. Christie seems to have taken the basic Republican disincentive regime and cranked it up to 11.
This is the guiding philosophy of education policy spending too. No proof it will work, throw money at it, throw hands in air exasperated with no result. Meanwhile, hard working, earnest locals have ideas/solutions that may work with very little of the money being spent on data coaches, consultants, etc.
Any conclusion that tax credits/subsidies are always ineffective which is based upon the performance or the overall economy, is pure unadulterated mush.
The historical problem with credits/subsidies is the process by which they are awarded. Too frequently politics drive decision making, too little public information disclosure and way too little benchmarking to measure success/failure. Fix these things, and others, before scraping the concept.
Notable observation: the NJPP study relies upon a 270M subsidy to the Revel Casino. New Jersey never paid that money as the Revel went into bankruptcy. Nonetheless, that outlay is included in the discussion. Ironically, like Delaware, the entire NJ casino industry revenue is declining. Virtually every argument made by the Delaware casinos to support their 30M taxpayer gift was likewise used to support the Revel subsidy.
Don’t like how credits/subsidies are used. Simply disagree that the NJPP study proves anything upon which a solid conclusion should rest.
Too many variables in the larger economy to reach that conclusion especially as the
76ers: turnover from Jersey:
http://www.philly.com/philly/business/20140615_Slam_dunk_for_76ers__but_an_air_ball_for_others.html
cassandra, that impact statement in some sort of standardized form might be more difficult to achieve than you might think.
Subsidies for AstraZeneca, for example, included not just direct subsidies but also a major road rebuilding at their behest that cost the state a reported $110 million. So you not only have the direct cost of the $110 million, but the opportunity cost of what else could have been done with those dollars in terms of road building/maintenance than would have been of greater economic benefit to Delaware citizens than the couple hundred jobs created that are now (only a few years later) at significant risk of leaving. (And many of them were never held by people living in DE in the first place).
Likewise, in the deal that brought Highmark Blue Cross Blue Shield to Delaware, the $175 million in the reserve fund for indigent health care that they were relieved from maintaining has to be measured not just as a one-time bribe, but also in terms of the increased cost of indigent care to other providers (chiefly Christiana Care and Bayhealth).
The general concept of state subsidies to large corporations IS inherently flawed. Even when it does produce jobs and economic growth, it disproportionately rewards the corporate elites and reduces the resources available to improve our infrastructure or help smaller businesses.
There’s also the hidden cost of subsidies in the often secret regulatory relief that the Delaware Attorney General’s office has been providing in “proprietary” opinions, specifically those creating new limits on the reach of the Coastal Zone Act.
ATINM makes one good (but obvious) point about process. And here’s how it plays out: over the past six years, according to databases compiled by NYT and Goodjobs, Delaware has repeatedly awarded major multi-million-dollar corporate subsidies to corporations concurrently being cited by the EPA for polluting our air and groundwater. You’d think that our government could at least hold a standard that says if you are violating pollution laws you can’t have our money.
In order to make a case for large-scale corporate subsidies in a state like Delaware you have to make the old scare tactic argument that no subsidies means no jobs. The reality is that we hand out tens of millions annually and hundreds of millions over the course of a decade to multi-BILLION-dollar companies to whom our money is chiefly useful for purchasing the cocktail weenies at their next annual “thank the chumps” luncheon.
the NJPP study relies upon a 270M subsidy to the Revel Casino. New Jersey never paid that money as the Revel went into bankruptcy
The NJPP study relies on many subsidies in its report. The Revel is but one. You’ll need to produce some evidence that the state never paid out those subsidies, because the usual news outlets report that $261M award. That award is structured as a tax rebate, but this is still $261M that can’t be included in state revenue projections unless the deal is cancelled or the Revel goes out of business in a way that precludes these credits being passed on to a new buyer. As far as the balance sheets go, this $261M is tax revenue given up by the people of New Jersey for this casino. Besides, the Revel’s bankruptcy was a reorganizing bankruptcy, not a liquidation bankruptcy.
And since all of these Governors keep claiming that these subsidies = more jobs + better economy, it sure is very reasonable to judge the state’s economy in light of those subsides. It isn’t as though all of those variables in the larger economy are a factor in awarding those subsides OR in the marketing of those subsides.
@JM: Good for New Jersey. Why should Pennsylvania taxpayers be the only ones screwed, when nearly half the fan base lives across the river?
You may be right about the Revel subsidy. I made that statement from memory. I checked the link you cited but it is dead.
The only point I wanted to make is that one study does not support solid conclusion. Read https://www.mackinac.org/archives/2009/nr043009-petersfisher.pdf for a broader perspective.
That article’s summary of literature on the subject of tax credits/subsidies is telling. Clarity is lacking largely because a standardized methodology to evaluate effectiveness is missing and data collection/summarization is varied in stares which makes evaluation difficult. The article’s ultimate conclusion, however, is the the process of granting such largess is fundamentally flawed, often based on inflated political expectations and done without meaningful due diligence.
Arguing that credits/subsidies do nothing for the overall economy is like complaining that the fishing sucks even through you threw a fistful of worms into the lake.
$4B is not a fistful of worms in the lake. And I don’t think that the argument is that they do nothing for the economy, but that they certainly don’t return much in terms of that investment. What those subsidies do is to largely add to corporate bottom lines or help that corporation look a little healthier so that they can get additional financing (the Revel story). The easiest way to judge how well these subsidies work to to provide an old-fashioned ROI calculation. Report the subsidy and a year by year accounting of the return in terms of revenue to the state. That’s never going to be the entire picture, but it will certainly provide enough of a picture for taxpayers to see how their money is working.
And I think I fixed the link above.
So we visit ATINM’s link for a more “balanced” perspective. Leaving aside the fact that the article is from 2004, and depends almost exclusively on research conducted prior to 1999 (and therefore in completely different economic circumstances than we find ourselves today), here’s one of the conclusions:
The upshot of all of this is that on this most basic question of all—whether incentives induce significant new investment or jobs—we simply do not know the answer. Since these programs probably cost state and local govern- ments about $40-50 billion a year, one would expect some clear and undisputed evidence of their success. This is not the case. In fact, there are very good reasons—theoretical, empirical, and practical—to believe that economic development incentives have little or no impact on firm location and investment decisions.
Oops. And as for targeting poor people and distressed neighborhoods via economic incentive plans, there’s this:
In most states, some portion of a state’s economic development funding will be targeted at distressed areas; some (small) portion of that funding may actually be effective in inducing investment and jobs in those areas; some fraction, and probably not a large one, of those induced jobs (if there are any) will actually go to residents of that area; and some of those newly employed residents may actually be the poor or unemployed we were trying to help. And even this doubt- ful level of policy effectiveness may be difficult to sustain in the long run.
And as for the revolving door (ala AstraZeneca), the study concludes this:
There are two basic reasons why it is very difficult for states to gain revenue through the typical incentive package. First, there is the basic problem identified by Bartik— tax cuts just don’t have that much leverage, so you end up giving away tax revenue mostly to firms that would have been happy to locate in your state anyway. Second, there is the fact that establishments don’t live forever. By the time incentives have expired and a firm would be paying full freight, some firms have already left town, and many others will be around only a few more years. Meanwhile, the firms getting the new full incentive package keep arriving.
And for the conclusion?
On the three major questions—Do economic development incentives create new jobs? Are those jobs taken by targeted populations in targeted places? Are incentives, at worst, only moderately revenue negative?—traditional economic development incentives do not fare well. It is possible that incentives do induce significant new growth, that the beneficiaries of that growth are mainly those who have greatest difficulty in the labor market, and that both states and local governments benefit fiscally from that growth. But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.
There you have it, from the link ATINM provided: the literature does not support the effectiveness of corporate subsidies.
I liked the worms and fishing analogy so much I simply can’t see my way to letting it go and conceding you are right.
Otherwise agree with most of what you’ve written.
The ROI argument is a legitimate point. The problem, however, has always been what counts as a “return” on the investment.
As far as the corporation being the sole beneficiary, your remark is too generalized to account for. Some government incentive/tax credit/subsidy programs pivot off employment targets, employee re-training, land restoration, re-investment. No doubt that the corporation may benefit but likewise no doubt that other constituencies benefits as well.
Steven, Steven, Steven:
Lets walk through this very slowly so maybe even you understand:
What was the article cited for: Couldn’t have been clearer: “That article’s summary of literature.” Did you happen to look at the authors’ summary of prior studies. I didn’t think so. Had you, it was there to see – scholars reached different results. Imagine that.
Your fleeting glee at discrediting a different point of view blurs your point. Re-read what you cut and pasted. See that last quote: “after decades of policy experimentation and literally hundreds of scholarly studies, NONE OF THESE CLAIMS [that incentives/subsidies are effective] IS CLEARLY SUBSTANTIATED. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.” Huh. That’s odd. The article doesn’t stand for the proposition that incentives/subsidies are never effective. Likely not effective but the authors – what do they know – couldn’t make the leap that you gladly did.
Did I agree with the article’s conclusion: Nope. Never said that.
Did I suggest that government incentives were right up there with God, mom, and apple pie. Nope. Never said that.
Did I try to prove anything. Yes. “The only point I wanted to make is that one study does not support solid conclusion.” Radical idea there.
Is the article really from 2004: Yes you got me on that one. My so bad. Gotta remember – Steve says old articles are worthless. I wonder why the libraries keep them???
I’ve said it to you before but it bears repeating: You say some of the dumbest shit I’ve ever heard from an adult.
Done here.
The problem, however, has always been what counts as a “return” on the investment.
This is true, but it would certainly be fair to start defining “return” in the terms that politicians use to justify the subsidies.
Some government incentive/tax credit/subsidy programs pivot off employment targets, employee re-training, land restoration, re-investment.
True, but they still pay for activities that these corporations would have (mostly) done anyway at some point. I know firsthand how subsidies for employment go right to the bottom line and land restoration is often a question of getting a liability off the books.
The beauty of this site, ATINM is that people can actually click through and read for themselves. The article completely undercuts your whole argument. It’s a meta-review of meta-studies. I’ve done them and I understand how they work. Apparently you don’t, and that’s ok as long as you stop pretending you do.
Yes, the article is from 2004, citing studies that are often as much as 20 years old studying data that is often thirty or forty years old. Even then–during the 1990s when the economic climate was about as favorable to corporate incentives as it ever was–there’s an absence of data to support the positive effects of tossing out $40-50 billion in corporate subsidies (then; now it’s closer to double that) by the states every year.
Now there’s even less to back it up. You can run away from your position that corporate subsidies are great economic tools, but next time try to link to something that actually supports your point.
And as a side note: while you take the “high road” with respect to how inappropriate it is for Women’s sites to be lampooning the Men’s movement, apparently it’s just fine for you to make ad hominem attacks on people who disagree with you personally. It must be a nice, safe life there in corporatia, with all those civil attorneys pursuing reason-driven public policy.
What ATINM would like you to think the Peters and Fisher article concludes:
The article’s ultimate conclusion, however, is the the process of granting such largess is fundamentally flawed, often based on inflated political expectations and done without meaningful due diligence.
What the article actually concludes:
But after decades of policy experimentation and literally hundreds of scholarly studies, none of these claims[of the effectiveness of subsidies] is clearly substantiated. Indeed, as we have argued in this article, there is a good chance that all of these claims are false.
The issue of process is not the main thrust of the article, no matter how much ATINM would like to make it so. But keep on, son, you’re entertaining when you turn blue in the face.