How Will the Pandemic Change Economic Development Subsidies?

By Kasia Tarczynska

April 16, 2020

coronavirus

Like everything else, economic development is adapting to a new reality. Some states and localities are making special efforts to help small businesses to stay afloat, yet at the same time some of the worst giveaways to large companies are continuing as if the global public health emergency and the national financial crisis were not happening. 

First, the positive moves. Colorado shifted dollars from its economic development recruitment fund to a microloan fund to help small businesses. Sarasota County in Florida is using its untapped economic development funds to provide no-interest loans to retain small businesses.

Pennsylvania’s governor vetoed a natural gas tax credit, arguing “the state must protect its limited resources as it battles the coronavirus outbreak.” New York Governor Andrew Cuomo included in the state budget a prevailing wage requirement on projects that are at least 30 percent funded with tax payer subsidies (the last two examples most likely have been in works for some time but the pandemic seems to make a stranger case for the gubernatorial actions.)

Even some companies are doing the right thing. Deloitte asked Seminole County, Florida to postpose its expansion subsidy application until a “more appropriate time.”

However, the usual wasteful subsidy game has not paused. In the midst of pandemic, JobsOhio, the state economic development and recruitment agency, approved $37.5 million in tax credits to Sherwin-Williams for a new headquarters. This is on top of $114 million subsidies approved (also during the pandemic) by Cleveland and Cuyahoga County.

The Nassau County Industrial Development Agency in New York approved a 15-year tax freeze and sales tax exemptions to retain 1-800-Flowers.com’s headquarters on Long Island. A consortium of DHL & Siemens asked a local economic development agency in Memphis for $2.3 million in property tax breaks.

The most outrageous move, however, comes from Tesla, which last month decided to stage a multistate competition among Midwest states for its new electric car factory. The practice of making states compete for a project, usually by pressuring them to offer excessive subsidy packages, is always a bad economic development practice, but doing it during the midst of the COVID-19 pandemic is particularly irresponsible. Already, one desperate locality-- Joplin, Missouri—has offered Tesla a package of $1 billion in subsidies, including a 12-year 100 percent tax abatement.

Experts say that the pandemic will change how we behave, how we do business, and how we relate to each other. It remains to be seen whether economic development changes more for the better or the worse.