Reform #3: Ensure that Subsidized Companies Create Quality Jobs
Is every job a good job?
Governments offering subsidies to companies have historically focused on the amount of money the company will invest and the number of jobs the project will generate. These are important features of a project, but indicate nothing about the quality of the jobs the project will produce.
Often no one checks up on the quality of jobs created, but when we do, we too often find subsidies going to companies offering part-time work with low pay and poor benefits. An analysis by Good Jobs First of more than 500 deals all over Minnesota found that almost two thirds of the companies were paying wages so low that a family of three would qualify for Medicaid, and more than a fourth paid so low the same family would qualify for food stamps (see Economic Development In Minnesota: High Subsidies, Low Wages, Absent Standards). In Kentucky, the Democracy Resource Center found that, in a two-year period, the state had granted tax breaks to at least 31 companies that paid average wages below the federal poverty line for a family of four (see the DRC's report Kentucky's Low Road to Economic Development).
When workers at subsidized companies are paid poverty-level wages, taxpayers end up subsidizing the company twice: once with the economic development subsidy, and again when our taxes pay for social support programs such as food stamps, Medicaid, and housing and energy assistance that low-wage workers need to get by.
Targeting subsidies to create quality jobs
Increasingly, states and cities have moved away from the idea that "any job is a good job" – particularly when taxpayer-funded subsidies are involved – and are working to structure subsidies to create family-sustaining jobs for local residents.
Job quality standards are requirements that subsidized companies create jobs that meet certain criteria, including wage levels, availability of health insurance, and full-time hours. Standards can be used in all types of subsidy programs, including training grants, tax abatements, industrial revenue bonds, enterprise zones, tax increment financing (TIF), and tax-free loans.
In December 2011 Good Jobs First published Money for Something, a comprehensive evaluation of major state subsidy programs on two main issues: whether they have job-creation or other quantifiable performance standards and whether they impose job quality standards on recipients. We looked at 238 programs in all 50 states and the District of Columbia and rated them on a scale of 0 to 100. We then averaged the scores of the programs in each state to derive a state score. Here are the main findings of that report:
- Nearly all the programs (222 of 238) have some kind of quantifiable performance requirement, but only 135 relate directly to job creation, job retention or training of a certain number of workers. Of the other 87 that require some specific activity, most are based on capital investment or qualified expenditures.
- Those programs without a job-related performance requirement cost taxpayers more than $7 billion per year.
- On the positive side, many programs seek to promote job security and prevent shell games: 98 of the 135 programs with job-related requirements require that new jobs remain in existence for a minimum period of time and/or that a subsidized facility remain open for a designated period, and 92 bar companies from receiving subsidies for simply moving existing jobs from another facility.
- Fewer than half (98) of the 238 programs impose a wage requirement on subsidized employers, and only 53 of those wage standards are tied to labor market rates, which are a more effective benchmark for economic development than fixed amounts that can stagnate in the manner of the federal minimum wage.
- Only 11 of the wage requirements serve to raise overall wage levels by mandating rates that are somewhat above existing market averages for the geographic area or industry sector.
- Wage requirements, which can be found in 42 states, vary enormously—from just above the federal minimum wage to more than $40 an hour in certain circumstances for a handful of programs. Using the lower end for those with ranges, the average of the hourly wage requirements is $14.76; the median is $11.82. See a complete list of wage standards here.
- Those programs without any wage requirement—which together cost more than $8 billion a year—can potentially result in jobs that pay so little that workers must rely on social safety net programs such as food stamps, Medicaid, State Children’s Health Insurance and the Earned Income Tax Credit. These hidden taxpayer costs may also occur from wage requirements that are sometimes set below market levels.
- Only 51 programs (in 28 states) require that a subsidized employer make available healthcare coverage of some kind, and only 31 of these require that the employer contribute to the cost of the premium. See a complete list of benefit requirements here.
- Based on our criteria, the states with the best average program scores are: Nevada (82), North Carolina (79), Vermont (77), Iowa (70), Maryland (68), and Oklahoma (66). The worst averages are: District of Columbia (4), Alaska (5), Wyoming (10), Oregon (13), Washington (18), Hawaii (19) and North Dakota (19). Twenty-three states score above 40, which is the average for all the states. See below for a complete list of state scores and ranks.
- There is much greater variation in the scores by individual program, with 12 scoring 100 or above (thanks to extra credit). At the same time, many programs have abysmal scores: 13 get a zero and another 80 score below 25.
- While almost every state has more than one program with job-creation and/or job quality standards, some states are quite erratic: 13 have divergences of more than 80 points between programs. The biggest divergences are in Rhode Island (98 points), Iowa (96), Kansas (93), Nebraska (93), North Carolina (93), and South Carolina (90). Clearly, states know how to build in strong safeguards but some fail to do it uniformly for all their subsidy programs.
Information in this section came from Good Jobs First’s report Money for Something