Subsidies and Sprawl

Subsidies and Sprawl

Economic Development Subsidies: A Newly Documented Part of the Sprawl Problem—and An Emerging Part of the Smart Growth Solution

Good Jobs First has produced six studies—more than any other organization— asking the question: how do company-specific job subsidy deals affect regional land use patterns?

The studies cover 13 metro areas in 5 states: Illinois, Michigan, Minnesota, New York, and Ohio. Especially for large metro areas, they reveal a very clear pattern: economic development subsidies are a substantial contributing factor to sprawl. That is, they fuel the thinning out of economic activity in a way that concentrates poverty at the urban core and rapidly consumes land at the fringe.

That’s the bad news: the current rules governing economic development subsidies allow them to be pro-sprawl. The good news? Rules can be changed. States can re-write subsidy rules to make them a powerful smart growth policy solution to revitalize our metro areas, reduce urban poverty, and reduce global warming air pollution.

This research finding about subsidies fueling sprawl is a new addition to the scholarship on the issue. To be sure, sprawl is a complicated issue that has many other causes as well, such as: racial discrimination in home lending (known as redlining); crime and perceptions of crime; brownfields or contaminated land that makes redevelopment of some abandoned sites more difficult; transportation policies that favor highways over transit; exclusionary zoning that blocks apartment construction in some suburbs; and federal capital-gains rules that for decades encouraged people to buy ever-larger homes.

However, we are excited that a few states are beginning to exercise their dormant power to reform job subsidies to curb sprawl. It’s another example of how we can reform economic development to spend less and get more.

The Studies: Key Findings from Five States

We believe our 2006 Michigan study, The Geography of Incentives, is the largest study of job subsidies and land use ever performed. It analyzes almost 4,000 deals between 2001 and 2004 in the state’s seven largest metro areas. It found a pro-sprawl bias, especially in the two largest metros, Detroit and Grand Rapids. For example, even though the City of Detroit had suffered almost one fifth of its nine-county region’s job loss due to plant closings and mass layoffs, it received only one out of 81 deals under the state’s most generous incentive, the Michigan Economic Growth Authority. The next ten most densely populated localities (mostly inner-ring suburbs) in the region received none.

We released a Minnesota study, The Thin Cities, in 2006. Based on rare disclosure data tracking subsidized corporate relocations within the state, it examines 86 cases in which companies simply moved around within the Twin Cities metro area. The moves, made between 1999 and 2003, affected 8,200 jobs, and the companies received more than $90 million in subsidies—mostly tax increment financing (TIF) . Comparing the “before and after” locations by several measures, the study found the relocations to be very pro-sprawl. For example, 27 of the companies moved away from locations that were accessible via public transit to locations that are not accessible; only 2 did the opposite. Overall, 70 percent of the firms remained or became transit-inaccessible at their new locations. Such lack of access disproportionately harms low-income families who lack a car, including 28 percent of the region’s African-American households.  The Thin Cities was a follow up to our smaller 2001 Twin Cities study, Another Way Sprawl Happens, which was the first study to link job subsidies and sprawl.

In 2011, we released Paid to Sprawl in Ohio, an even larger study examining subsidized relocations—164 moves affecting 14,500 workers in the Cleveland and Cincinnati metro areas. In this case, the relocations were into enterprise zones (EZs) and Community Reinvestment Areas (CRAs). (Ohio is the only other major state that tracks and discloses some subsidized relocations.) Again we found a very strong pro-sprawl bias, especially in the Cleveland region. Overall in both cities, more than three-fourths of the relocations were outbound, and 23 of them were more than 10 miles outbound. As well, about four-fifths of the workplaces ended up in a location that is not accessible via public transit. Cities that lost jobs had higher rates of unemployment and poverty and more people of color that did cities that gained jobs. And, as in the Twin Cities, local economic development officials on each end of the moves did not talk to each other or cooperate in any way during the negotiations.

In 2007, we released Gold Collar about Illinois. It studies State of Illinois spending over 15 years within the six-county Chicago metropolitan area, covering almost 800 deals worth $1.2 billion. It finds that state investments have needlessly worsened regional inequality. For example, the small corridor around O’Hare International Airport—already made attractive by massive public investments in both the airport and surrounding freeways—received one out of six dollars granted to specific companies. The City of Chicago, by contrast, received only 15 percent of the dollars, even though it began the period with 38 percent of the region’s population and 30 percent of its business establishments. Low-income and predominately minority inner-ring suburbs south and west of Chicago were also short-changed, while high-income suburban counties received disproportionately large shares.

In 2007, we also released Sprawling by the Lake about the Buffalo-Niagara region in upstate New York. It maps property tax exemptions given to businesses in 2005 by the nine state-regulated Industrial Development Agencies (IDAs) in the two-county metro area. It concludes that the exemptions subsidized job creation outside of the region’s oldest, most densely populated and most transit-accessible areas, especially in Erie County.

 

Fixing The Core Problem: State “Policy Silos”

The core policy problem here can only be fixed by state lawmakers. In post-war America, there have grown two separate “policy silos” within state law and state government: one for economic development subsidies and another for transportation and land use planning. Our studies clearly indicate that the left hand is fighting the right hand. Subsidies—because they are largely untargeted geographically—are undermining good planning. (Even those like TIF and enterprise zones that started out as urban revitalization incentives are often Straying from Good Intentions, we found.)

Therefore, the challenge for state policymakers is to break down these silos. Good Jobs First would go farther: we believe that economic development subsidies should be made subordinate to transportation and land use planning. In the same way we have long argued that subsidies should be subordinate to workforce development, we say: subsidies are only a tool, a means to and end. In this case, the end should be efficient land use and a transportation system that promotes broadly shared economic opportunity and a cleaner environment.

 

The Transit Disconnect: One Revealing Measure

As we discuss in detail on another page, linking job subsidies to public transportation corridors is a priority solution. However, in a 50-state survey done in 2003 (Missing the Bus), we found that not one state had a subsidy program that does anything intentional to make jobs accessible to people who cannot afford a car.

At the local level, the situation is brighter: in 2006 we published Making the Connection, a set of 25 case studies of exemplary Transit-Oriented Development projects that provide for greater job access; many also include affordable housing.

Three States’ Modest Progress Breaking Down the Silos

Three states—California, Maryland, and Illinois—have enacted reforms that begin to break down these wasteful “silos.”

In California, at the urging of then-Treasurer Phil Angelides, the state’s Infrastructure and Economic Development Bank adopted land use efficiency standards for its Infrastructure State Revolving Fund Program that strongly favor transit-oriented, higher density projects. 

Using a 200-point scoring system, the loan program gives preference to projects that: serve environmental and housing goals by being located in or adjacent to already developed areas; are “located in or adjacent to and directly affecting, areas with high unemployment rates, low median family income, declining or slow growth in labor force employment;” and improve the quality of life by contributing to public safety, healthcare, education, day care, greater use of public transit, or downtown revitalization.

Other favorable criteria include cost-effectiveness, linkages to local employment and training entities, the involvement of “economic base employers” (those that draw revenue from outside the region), low ratios of public financing versus private capital, and project readiness.

Illinois, at the urging of business-civic group Metropolis 2020 and others, enacted the Business Location Efficiency Incentive Act in 2005. It gives a small additional corporate income tax credit under one common state incentive (Economic Development in a Growing Economy, or EDGE) for deals in which the job site is accessible by public transportation and/or proximate to affordable workforce housing.

Transit access is defined as regular service within a mile of the worksite plus pedestrian access to the transit stop. Housing affordability is pegged to 35 percent of the median non-executive salary and home prices within 3 miles of the job site. Companies that do not initially meet the criteria can qualify with a site remediation plan that includes measures such as an employer-assisted housing plan, shuttle services, pre-tax transit cards, and carpooling assistance.

In Maryland, then-Governor Parris Glendening led the enactment of the state’s Smart Growth Areas Act in 1997. The law designates Priority Funding Areas (PFAs), defined as those areas already served by water and sewer infrastructure or that are planned to receive them (both urban and rural). Under the law, projects located outside PFAs are ineligible for both state infrastructure aid and economic development incentives. Combined with several other initiatives to promote rural preservation and urban revitalization, the Maryland law has helped reorient development in the state back towards existing communities.

Contact us if you know of other states debating such reforms; we believe more progress is likely soon on tearing down the “silos.”