Washington, D.C. — Economic development subsidies are one of the most controversial policy tools in local and state policymakers’ toolkits. While the short-term political payoff can seem big, a growing body of research suggests that these deals are not nearly as effective as advertised. In fact, one literature review found that the majority of studies on economic development subsidies found mixed effects or no effect on economic growth.
A new report by Zoe Willingham, research associate for Economic Policy at the Center for American Progress, creates a framework for improving economic development subsidies so that they create jobs, provide a good return on investment, and increase equity rather than exacerbate inequities.
The policies and best practices outlined in this report call on federal, state, and local governments to:
- Target genuinely distressed communities through investments with higher economic returns, particularly workforce training and business services.
- Use economic development to support good jobs by setting high wage and labor standards for any jobs created through subsidy deals.
- Ensure that subsidies do not come at the expense of other services and programs essential to economic growth and prosperity, namely, education, infrastructure, and housing.
- Promote accountability by publicly disclosing the details of subsidy deals; conducting annual assessments of investments; adopting clawback stipulations to hold companies accountable for their promises; and requiring site consultants to register as lobbyists.
“State and local lawmakers often clamor to win over companies with subsidies, with the promise that they will generate economic growth. However, while many subsidies look good on paper, they can often end up harming the very people they were ostensibly designed to help,” said Willingham. “Equitable economic development policies can and should ensure high labor standards, require transparency and accountability, and direct investments toward the people who need them most.”
Read the full report here: “From Giveaways to Investments: 4 Ways To Improve Economic Development Subsidies” by Zoe Willingham
For more information on this topic or to speak with an expert, contact Julia Cusick at [email protected] or 202-495-3682.