Let's Do Better With Economic Development Incentives

by Jim Simon

by Jim Simon

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Yesterday, I was fortunate to be the instructor of CALED’s Advanced Certificate course on Business Retention and Expansion, where we spent a full day diving into the purpose, structure, and best practices for retaining businesses.  Studies have demonstrated that roughly 4 out of every 5 new jobs created in a city are a result of existing business growth.  The overwhelming number of businesses that close are not a result of failure, but rather a result of acquisitions, consolidations or other corporate decisions.  Yet, we continue to hear about incentives for new businesses as critical to economic development success.  

I get that, after all, you don’t break out the “big scissors” when a business stays in town for another year, and it would be hardly exciting to run for city council on the record that during your tenure, 99% of the businesses stayed around.  So incentives, particularly financial in terms of rebates, continue to be the area of effort and investment.  Few EDOs talk about the amount spent on business retention versus incentives for recruitment.  From Amazon HQ2 to Foxconn and others, throwing tax dollars at a project seem to be the measure of impact.

As evidenced by the Brookings March 2018 study, these incentives are missing the greater need beyond the project they aim to benefit.  For example, the study found that poor Latino and Black residents were left out of any benefit from the resulting project, that workforce investments for the existing community were rare, and the existing workforce rarely benefited from incentives. Meanwhile, nearly billions are being spent annually by communities across the country under the banner of necessary economic development. 

These sobering realities were startling for our group of 3 dozen economic developers, but rather than simply feeling incentives are not good policy, we need to be seeking much better parity between these incentives and the fundamental purpose for economic development to begin with.  Certainly it’s difficult, particularly where tax revenue growth is often central to the focus for California communities, but I see an opportunity for California to do better.  Irlanda Martinez and I will be back at Fresno State for CALED’s Keys to Local Economic Development course on October 21-24, 2019 where we will look into how communities are getting more results and the best practices that can be employed in your communities.  Hope to see you there!