Vermont Business Magazine Governors and state legislators routinely praise small businesses for their contributions to economic growth and job creation, but states actually give big businesses the dominant share of their economic development incentive awards, according to a study of 14 states. In Vermont, 63 percent of awards valued at 83 percent of dollars awarded went to "big businesses," according to the report.
This analysis of more than 4,200 economic development incentive awards in 14 states finds that large companies receive dominant shares: 70 percent of the deals and 90 percent of the dollars. The deals, worth more than$3.2 billion, were granted by programs that are facially accessible to both small and large companies.
That is the key finding ofShortchanging Small Business, a study released today by Good Jobs First, at:www.goodjobsfirst.org/shortchanging. It was funded by the Surdna Foundation and the Ewing Marion Kauffman Foundation. All findings and policy conclusions are solely those of Good Jobs First.
"State economic development spending is profoundly biased against small, local and entrepreneurial businesses," saidGreg LeRoy, executive director of Good Jobs First and lead author of the study. "Our findings definitively confirm what many small businesspeople have long believed."
The 14 states where the awards were analyzed areFlorida,Indiana,Kansas,Kentucky,Louisiana,Missouri,North Carolina,New Mexico,Nevada,New York,Pennsylvania,Vermont,VirginiaandWisconsin.
Vermont Employment Growth Incentive
The Vermont Employment Growth Incentive (VEGI) program is structured as a cash grant disbursed in five annual installments pending continued performance. There is no minimum job creation/retention or investment threshold nor any limitation on industry sector, however the new jobs must meet a wage standard and provide a minimum level of benefits. Each potential project is evaluated against nine “quality guidelines” and a cost-benefit analysis is used to determine the size of the award. The authors of the study analyzed the program’s recipients between 2009 and 2013, when there were 60 awards valued at $50 million; just one of these deals was removed from its final sample, leaving 59 deals valued at $49.9 million. Large companies captured 63 percent of the deals and 83 percent of the dollars.
The slight variation in the degree of big-business dominance among the states (80 to 96 percent of the dollars) is meaningless, since the programs and states vary. The key finding is how consistently the programs grossly favor big businesses, the report states.
The study, based on a close examination of the recipient companies, designates businesses as large or small based on their employment size as well as their total number of establishments and whether they are locally or independently owned.
"As a policy solution, we do not recommend simply reallocating deals and dollars," said LeRoy. "These tax-break deals often mean little to small businesses. Instead, states should reform their incentive rules by tightening eligibility to exclude large recipients. The resulting savings could better fund public goods that benefit all employers and help small businesses with the persistent credit crunch."
Short of excluding big businesses, the report recommends states spend much less on large companies by using safeguards such as dollar caps per deal, dollar caps per job, and dollar caps per company.
Small Business Definition
According to the report: "Our definition of small business was developed to reflect the membership criteria of the groups that we surveyed for In Search of a Level Playing Field. These groups primarily consisted of independent and locally owned businesses, with 98 percent of their member firms employing 100 or fewer people. As such, we developed a definition of small business that uses the 100-employee threshold as a first test, then tests again for characteristics of local and independent ownership. Our definition is more targeted than many, such as the standard SBA definition, in order to tease out those firms that METHODOLOGY SUMMARY www.goodjobsfirst.org SHORTCHANGING SMALL BUSINESS 5 are not just small but are also the most rooted in their local economies. Specifically, we used these criteria:"
• Small Business: 100 employees or less, and independently and locally owned, and with 9 or fewer establishments.
• Large Business: greater than 100 employees, or a company of any size that is not independently and locally owned, or has 10 or more establishments.
SOURCE:WASHINGTON,Oct. 20, 2015/PRNewswire-USNewswire/ --Good Jobs Firstwww.goodjobsfirst.org/shortchanging