Economic Development Accountability

The Problem: 

Each year, to create or retain jobs in Pennsylvania, state government spends up to $260 million annually in economic development subsidies and tax breaks targeted to individual businesses. Local government spends an unknown additional amount of money. 

Unfortunately, we don't know a lot about how well those subsidies are targeted or their effectiveness because no comprehensive information is collected and publicly disseminated on subsidies or their actual economic effects. Pennsylvania does make more information on economic development subsidies available online than most states (see http://www.dced.state.pa.us/investmenttracker/). That information, however, does not always include

where the money goes (the address and prior land use of the business site--enabling consideration of how much subsidies focus on already developed areas accessible to public transit and to workers in high-unemployment and low-income areas). 

the quality of jobs created (wage levels and whether health benefits are provided, or

the industry of the subsidized company. Best-practice economic development practitioners today care about the industry of companies because they use subsidies to bolster key sectors for a region--such as health care in the Harrisburg-Hershey area or advanced metal working in York.

There is some evidence that economic development practitioners in Pennsylvania are using scarce subsidy dollars in more targeted and selective ways. For example, a 2010 Keystone Research Center study, Making Smarter State Investments (or see http://keystoneresearch.org/21st-century-economic-development), shows that, between 2003 and 2008 "older Pennsylvania" (cities, inner-ring suburbs, and boroughs--older towns) received 25% more funds per capita from three major Pennsylvania business subsidy programs that "outer Pennsylvania" (second-class townships that are more often undeveloped and sometimes former farmland). From 1998 to 2003 these same programs gave equal per capita amounts to older and outer Pennsylvania. Interviews with economic development practitioners also indicate growing efforts to encourage potential new businesses to consider brownfield locations, as well as reserving subsidies for companies in industry clusters that fit into regional economic strategies. 

Comprehensive information on economic development subsidies would reinforce the smarter targeting already taking place on the ground, It would also allow policymakers and the public to make their own independent assessments of whether subsidies focus adequately on the "right places," good jobs, and industries that make sense for the region. 

The Solutions: 

What would solve these problems? Some very simple steps that Pennsylvania's state government could take right now.

Pennsylvania should publicly report on the internet--and make available in data sets suitable for researchers--comprehensive information on state and local subsidies and tax breaks, the jobs they create, the wages and benefits paid on the jobs created, and the address (and former land use) of the business using the subsidies (modeled on the KRC map at www.keystoneresearchmap.org.). Most of this information is already collected for state subsidies and tax breaks (but only partially reported), so making it available should not be cost prohibitive. an adaptation of the Pennsylvania's "single application" for economic development assistance could also help localities capture the needed information. 

Pennsylvania should also take the following additional simple steps to reinforce the efforts of leading economic development organizations to target assistance in ways that maximize the bang for the buck. 

Make the jobs created by business subsidies comply with basic wage and benefit standards and pay enough to support a family. Since most businesses don't get subsidies, why should scarce state dollars go to companies that pay substandard wages?

Make businesses refund subsidies to the extent that they do not deliver promised jobs and wage levels.

Give priority for subsidies to high unemployment and distressed areas and areas accessible by public transit. Subsidies should not go to Greenfield locations where they would undercut the effectiveness of other state and local government programs to preserve open space and revitalize older communities. 

The Commonwealth should produce a comprehensive annual economic development report (or "Unified Development Report") that adds up all the money spent on direct subsidies plus the revenue foregone because of state and local tax breaks.

The Commonwealth should consult the communities involved and provide an opportunity for public input before subsidies are distributed.

The Commonwealth should also rely less in its economic development effort on subsidies to individual companies, which unavoidably run the risk of being politicized in their distribution and which can translate into private gains rather than public benefits. Pennsylvania should rely more on "growing its own" businesses rather than competing with other states to attract new companies. This means investing more in new business development, innovation by industry clusters and networks ("industry centers of excellence"), skills development, and infrastructure--"21st century public goods that benefit lots of companies, workers, and communities. 

Toward a 21st Century Pennsylvania Economic Development Strategy
KRC Map

Check out our interactive map! 

Click on the map above to see where Pennsylvania is spending its money.

News

Media Coverage of Keystone Research Center Report, Good Jobs, Strong Industries, A Better Pennsylvania: Towards A 21st-Century State Economic Development Strategy

Media Coverage of Keystone Research Center Report, Making Smarter State Investments: The Geographic Distribution of Business Subsidies in Pennsylvania