Workforce training is a cheaper, more cost-effective economic development option for states and cities than corporate “megadeals,” a new report from Good Jobs First has found.
States and cities could get more bang for their economic development bucks if they focused less on company-specific “megadeals” and more on workforce training programs, a new report shows.
Good Jobs First categorizes megadeals as subsidies worth at least $50 million and awarded by governments to specific companies for economic development purposes. The deals cost taxpayers over $658,000 per job, on average, according to the research.
“Spending so much on such few companies, a strategy often called buffalo hunting in economic development circles, is both risky and wasteful: deals with such high per-job price tags can never break even from a fiscal perspective, much less generate a positive taxpayer return on investment,” the report reads. “That is, workers at such facilities will never pay that much more in taxes than public services they and their dependents consume.”
On the other hand, workforce development programs are far cheaper per job and more cost-effective, according to Good Jobs First. The researchers reviewed 33 state-level job training programs, and just two — one in Montana and another in New Mexico — cost more than $10,000 per trainee, on average.
“Both theory and practice suggests that workforce development and training programs are more cost-effective than other kinds of economic development subsidies,” the report authors wrote. “As we argue: investing in public goods such as skills and infrastructure are low-risk investments because they don’t depend on any single firm’s success or regional loyalty.”
Good Jobs First’s report used information from the group’s Subsidy Tracker, a database of over 500,000 subsidies totaling $250 billion from more than 740 federal, state and local economic development subsidy programs. The organization identified 14 megadeals that cost more than $2 million per job.
“States and localities can spend less and get more by avoiding megadeals and investing instead in workforce development, infrastructure, clusters and entrepreneurs,” the report reads. “The trend in megadeals is far too costly, with hundreds of deals guaranteed to lose money for taxpayers — even assuming they remain open at current employment levels — while history tells us many will fail to do so.”
More economic development programs should cap the amount of subsidy per job, the experts recommend. Such standards are already used in two federal and at least 19 state incentive programs, according to the report.
Good Jobs First also supports the idea of limiting “aid intensity,” which is calculated by dividing a project’s subsidy amount by the amount of private capital investment.
“By using the available toolkit of policy precedents, capping costs per job and capping aid intensity, governments can redirect their economic development budgets to lower-risk, higher-return investments,” the researchers wrote. “Let’s put those buffalo muskets in a museum where they belong and start growing a smart skills future.”