Study: Small Businesses Get Short End of State Subsidy Stick

Oct 14th 2015
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When it comes to who gets state economic development incentives, it's not even a close race between large and small companies: The big guys win and the bias keeps the little guys small.

That's the gist of a new study, In Search of a Level Playing Field, by Good Jobs First, a nonprofit and nonpartisan resource center in Washington, DC.

“Our findings are absolutely consistent with what we have heard for years from small business leaders,” Good Jobs First Executive Director Greg LeRoy said in a prepared statement. “Despite their pro-small business rhetoric, state officials' programs are perceived as biased in favor of large companies that receive big tax-break packages.”

The results are based on interviews with 41 leaders of 39 small business associations that represent 24,000 members in 25 states (including 14 of the 15 most populated) and one multistate region. The study was funded by the Ewing Marion Kauffman Foundation, a Kansas City, Missouri-based nonprofit that focuses on grants and operations in educational achievement and entrepreneurial success, according to its website.

Specifically, the states are: Arizona, California, Florida, Iowa, Illinois, Kansas, Missouri, Kentucky, Louisiana, Massachusetts, Maine, Michigan, Minnesota, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Virginia, Vermont, Washington, Wisconsin, and the Northeast region.

The primary affiliations of the groups in the study include the Business Alliance for Local Living Economies, American Independent Business Alliance, American Sustainable Business Council, Main Street Alliance, Small Business Majority, Institute for Local Self-Reliance, and the Democracy Collaborative.

The study's key findings include the following:

  • Ninety-two percent of respondents believe (69 percent strongly) that the spending balance for incentives between small and large businesses is biased toward big businesses.
  • Seventy-nine percent believe (56 percent strongly) that their state overspends on big incentives, which hurts state finances.
  • Seventy-seven percent believe (46 percent strongly) that incentives in their state are not fair to small businesses.
  • Eighty-seven percent say (36 percent strongly) that small business interests in economic development issues are not effectively represented in their state's capital.
  • Eighty-five percent believe (36 percent strongly) that economic development incentives in their state are not effectively addressing the current needs of small businesses that want to grow.
  • Seventy-two percent (23 percent strongly) don't believe their state's incentive policies effectively promote economic growth.
  • Sixty-two percent say (31 percent strongly) traditional incentives like tax breaks are less valuable to small businesses than other forms of assistance.

Many respondents also said the incentives given to big businesses strain the tax base for public goods, such as education and infrastructure, that help all employers “and truly form the bedrock from which small businesses can grow,” the report states.

Good Jobs First plans another study to test the accuracy of respondents' perceptions in this one. The organization intends to analyze and compare the distribution of economic development deals and funds between large and small businesses in 15 states.

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