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Economic development subsidies and (the absence of) equity

In 1995, Minnesota led the nation by passing “The Business Subsidy Accountability Act” a first-of-its-kind economic development accountability law.  This provided a transparent process in awarding development subsidies, and tying these dollars to job creation. Enhancements to the law required companies that receive subsidies but fail to reach job creation goals to repay the subsidy with interest. The legislation also mandated increased corporate disclosure, wage standards for the jobs created, and public hearings before large subsidies could be granted.

One of the largest investments enacted by the 2013 Legislature was $30 million for the Minnesota Investment Fund (MIF), money disbursed to local governments that make loans to companies to offset capital expenditures as a way to incent them to locate or remain in their jurisdictions. MIF loans are forgivable for companies that meet minimum requirements for private investment, jobs created and retained, and wages paid. In addition, the legislation includes $24 million for Minnesota Job Creation Fund in the next biennium to help businesses make capital investments and create jobs. This fund will provide up to $1 million to businesses that meet certain performance measures, including minimum requirements for job creation and private investments.

So far, however, our economic development subsidy programs have not lived up to their promises. A 2011 investigation by the Star Tribune found that 56 companies that committed to hiring goals in return for loans, local tax abatements, discounts on land, and other benefits created just 551 of the 2,111 jobs promised. Evidence suggests that these dollars have actually contributed to jobs moving away from the more racially diverse and poorer areas of the Twin Cities to more affluent, predominantly white suburban areas.

It is possible that the movement of these subsidized jobs away from areas of high unemployment or communities of color is due to a perception that qualified labor was not readily available. A promising response to this problem in Iowa was the initiation of “laborshed studies” that identify the skills and interests of existing residents in a region, so that information can be used by economic development practitioners to attract businesses who can use the available labor pool. This practice has promised to help counter the “subsidy exodus” trend identified in Minnesota.

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