AP: Corporate Welfare Doesn’t Work

Marc Levy of the AP with analysis of taxpayer subsidized businesses and job growth in Pennsylvania:

To date, the Rendell administration has offered $1.7 billion in aid through its one-stop incentives shop, the Gov.’s Action Team. The team negotiates the vast majority of deals in which companies get state subsidies in exchange for adding workers or keeping their jobs in Pennsylvania and investing in an expansion. …

“The question is always, ‘Would they have come anyway?'” said economist James Diffley of the Boston-based business forecasting company Global Insight. “The economic development people tend to say, ‘But for our efforts they would be elsewhere.’ The conventional wisdom is that’s almost never the case.”

At the AP’s request, the state pulled together data on at least 100 of the biggest job-creation deals arranged by the Gov.’s Action Team in 2003-04. Of those, only the 56 had undergone a compliance audit by the state.

Complete data for the more than 800 projects that were offered money from the Rendell administration is unavailable because businesses usually get three years to meet their job targets, some businesses are awarded extensions and the state still has hundreds of audits to perform.

Of the 56, the 31 firms that did not meet their commitments were awarded a total of $19.8 million in assistance before the state sought refunds, the data showed, and combined provided 4,175 jobs fewer than promised. …

States, including Pennsylvania, have argued that income tax receipts from newly hired workers make up for the subsidies in a matter of a few years.

But some experts say studies have tended to show otherwise.

“I’m certain there are cases where they do pay off, but on average they don’t and it’s difficult to ensure that the promises that are made are kept,” said David M. Hart, an associate professor of public policy at George Mason University in Virginia.

Diffley, of Global Insight, said states would be better off lowering taxes for all businesses than essentially betting on a few. He also said other factors usually drive company decisions on where to locate or expand — including proximity to supply chains and skilled work forces — and not subsidies. …

Under Rendell, Pennsylvania added 172,600 jobs through July, a 3 percent rate of growth that puts the state in the middle of the pack of 10 other states that either neighbor Pennsylvania, compete with it for jobs or have similar economies. The nation had double the job growth rate during the same period.

Also check out this follow-up story from Levy and Patrick Walters and Tony Phyrillas’ take on the story