(WASHINGTON) -- In a time of pinched public budgets, should governments still be giving tax credits to companies? Recent examples of economic development money gone awry range from the egregious to the silly.
In California, solar panel maker Solyndra went bust after having soaked up $528 million in federal development aid. In New Jersey, angry taxpayers are protesting the so-called Snooki-subsidy -- a $420,000 tax break given by the state's Economic Development Authority to producers of the TV show Jersey Shore, which some residents say depicts the state's citizenry in an unflattering light.
In Washington, poultry farmers get tax-free chicken-bedding. Georgia gives a tax break to people who patronize companies that refurbish corporate jets. Michigan subsidizes restaurant meals eaten by restaurant employees.
Still, other breaks apply to corporate relocations: One company is paid millions to stay put, while another is paid millions to move.
In every case, the rationale is the same: Public money is being used to promote what development authorities believe is public good -- job creation or job retention; the nurture of a promising new industry or the protection of one old and ailing.
Economic development spending by states and cities totals $70 billion a year, according to Kenneth Thomas, associate professor of political science at the University of Missouri at St. Louis. The biggest chunk of that, he says -- some $46.8 billion -- goes for incentives effecting the location of private investment: ensuring, for example, that the company filming the Jersey Shore films it on the Jersey shore.
Thomas says there's little evidence that this spending results in net job creation. What more typically results, he and other experts say, is a re-shuffling of existing jobs. At a time when governments are cutting programs and collectively laying off hundreds of thousands of workers, he asks if now might not be the time to re-think economic development.
Greg LeRoy, executive director of Good Jobs First, an organization that rides herd on economic development, says if he were given a choice between no development and spending the way it is now, he'd opt for none.
"The better course of action would be not to provide any credits," he says. "It's not that credits cannot have their place," it's that most turn out to be nothing more than "windfalls" to corporations that would have done the same thing they're being incentivized to do, without incentives. When credits are given, he says, they always should include clawback provisions, so that if the beneficiary fails to provide the hoped-for jobs or otherwise fails to live up to his end of the deal, the state or city isn't left holding the bag.
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