Subsidy Sheet: 20 Major Studies Showing Taxpayer Subsidies to Businesses Don’t Work
In a healthy democracy, facts matter. That’s why Reinvent Albany just released our new report: “20 Major Studies Showing Taxpayer Subsidies to Businesses Don’t Work.”
New York State spends roughly five billion dollars every year subsidizing big businesses. Unfortunately for New Yorkers, there is overwhelming evidence that government subsidies to businesses are a very poor way to create good jobs and local economic growth. Worse yet – as some of the studies we’re highlighting show – taxpayer handouts to businesses are often hidden from public view, highly politicized, and pose a corruption risk.
There is a massive amount of independent research showing government subsidies to businesses are more expensive political theater than smart investment. Ideally, New York State will heed actual facts and scholarship by experts who are not profiting from subsidy deals, and:
- Do no harm: Create no new tax abatement programs and stop providing state and local grants to businesses. Freeze or reduce the total tax abatements and direct subsidies provided by the state.
- Create a more robust “Database of Deals” that goes beyond what is mandated in the FY 2023 budget and includes a uniform definition of “job” that applies to all state subsidy programs which would enable apples-to-apples comparisons among different subsidy programs and deals.
- Freeze all state subsidy mega-deals, including the Penn Station Vornado deal until the extent of the subsidy to Vornado and potential loss of NYC tax revenue is made public.
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More chipaganda from Micron: Two weeks after the Hochul administration announced that the state will give Micron, a computer chip manufacturer, up to $5.5 billion in tax breaks, the company is still repeating the same misleading claims about its projected jobs (Post-Standard).
The article largely repeats company talking points – that’s unfortunate for the public (and distressingly common), but it does allow us yet another opportunity to examine the company’s inflated jobs numbers:
“A workforce for a massive project like this — 50,000 jobs added to the community over 20-plus years — is an important consideration,” [Micron CEO Sanjay] Mehrotra said. “Tapping into communities that are today underrepresented in technology will be an important priority for us.”
“50,000 jobs added to the community” is misleading for two reasons. First, according to Micron’s own projections, only 9,000 of those are going to be Micron jobs. Many of the other projected 40,000 are going to be construction jobs that will show up for a few years at most, then disappear.
Second, companies and governments exaggerate job projections when they announce deals, particularly in mega-subsidy deals. When Wisconsin’s Foxconn deal was announced in 2017, for example, 13,000 jobs were promised. Four years later, that number was reduced by nearly 90% to 1,454 jobs.
Micron’s Mehrotra continues:
“Tapping into communities that are today underrepresented in technology will be an important priority for us.”
Scholars say that’s not how tech jobs actually work: jobs go to in-migrants, not residents of the community. According to Tim Bartik, for companies receiving subsidies, 4 out of 10 jobs go to in-migrants in the short term, and 7 to 9 out of 10 go to in-migrants after 5-6 years. And even “those familiar with the company’s thinking” say that the company will be hiring “locally, nationally, and globally.”
Finally, the state’s oversight of the Excelsior jobs program – under which Micron will receive the tax breaks – is notoriously poor. According to a 2016 audit of the program by the State Comptroller’s office, Empire State Development does not adequately track the program’s success or whether jobs are even being created [emphasis ours]:
We found little evidence to show ESD retained, or in many cases even obtained, sufficient documentation to support companies’ self-reported job growth and investment data before authorizing annual tax credits. Without such documentation to substantiate self-reported data, ESD lacks adequate assurance that it is properly issuing tax credits only to companies that have actually met eligibility requirements and are entitled to them.
Make no mistake – this deal is going to create jobs. But the numbers being trumpeted are likely closer to pipe dream than to reality.
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Other subsidy stories from this week:
- Kent Gardner has a thought-provoking piece about Micron’s job claims in the Rochester Beacon. The state also issued draft rules for the “Green” CHIPS subsidy program that will provide most of Micron’s tax breaks.
- Opponents of Governor Hochul’s Penn Station plan – and $1.2 billion tax break for developer Vornado – have a plan of their own (The City).
- Local groups have no idea what’s going on with the community benefits agreement from the Buffalo Bills stadium subsidy deal (Buffalo News). In the Times Union, Mary Anne Hahn asks why the Bills got millions when small businesses are struggling.
- The Manhattan DA files charges against six developers for receiving 421-a tax breaks despite not providing affordable housing as required under the program (The City). The program, which costs NYC $1.7 billion annually, lapsed last year, though it could be renewed in 2023. A bill in the state legislature sponsored by Assemblymember Emily Gallagher and Senator Brad Hoylman would audit recipients of the tax break.
- At Boondoggle, Pat Garofalo writes about Louisiana’s successful subsidy reforms, including a provision that lets school boards reject certain tax breaks. According to Good Jobs First, New York schools lost at least $377 million – and likely much more – to tax breaks in 2019.
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If you got this from a friend, sign up here. Subsidy Sheet is written by Tom Speaker and Elizabeth Marcello, and edited by John Kaehny.
Please send questions and tips to tom@reinventalbany.org. We look forward to hearing from you!