Mr. Chairman, members of the House State Affairs committee, you have before you Senate Bill 235, which is being hoghoused to carry an omnibus bill addressing economic development, education funding, and affordable housing. This hoghouse appears to be a result of brilliant bipartisan compromise. Republicans and Democrats have worked together to identify common interests and craft legislation that addresses the concerns of voters who rejected a less accountable, less targeted, and less fair economic development plan last November.
However, the SB 235 hoghouse still revolves around one fundamental assumption: that economic development incentives work. Unfortunately, a wealth of evidence says they do not.
...[T]here is virtually no association between economic development incentives and any measure of economic performance. We found no statistically significant association between economic development incentives per capita and average wages or incomes; none between incentives and college grads or knowledge workers; and none between incentives and the state unemployment rate [Richard Florida, "The Uselessness of Economic Development Incentives," The Atlantic: Cities, 2012.12.07].
The SB 235 hoghouse refunds sales and use tax incurred on qualified projects worth over two million dollars in equipment replacement costs or over twenty million in new construction costs. As Mr. Florida points out, and as I have noted in past public testimony, we will get less out of those tax dollars by handing them to big corporations than we will investing them in genuine public works or in smaller local businesses.
The SB 235 hoghouse proposes accountability in requiring grant recipients to report the number of jobs their projects will create. But the actual job-creating capacity of businesses receiving incentives may be less than that of businesses expanding without government incentives:
A detailed 2002 study, published in the Journal of Regional Science [PDF] of more than 350 companies that received incentives, found incentives had a negative effect on these companies's ability to create jobs. Using detailed statistical models to control for a wide variety of factors, the study found that companies that received incentives expanded more slowly than others, and worse yet that overall effect of incentives was a reduction of 10.5 jobs per establishment. Incentives had their biggest effect by far not on actual jobs, but on "announced growth," finding that the average business receiving incentives overestimated its future employment by 28.5 jobs [Florida, 2012.12.07].
The Legislature has expressed its commitment this session to passing bills based on solid evidence of their effectiveness. I urge the House State Affairs committee to consider the lack of evidence of the effectiveness of economic development incentives before it hoghouses and passes and Senate Bill 235.