Economic-development tax incentives more than tripled over the past 25 years, offsetting about 30% of the taxes the companies receiving incentives would have otherwise paid in 2015, compared with about 9% offset in 1990, according to an analysis of incentives covering more than 90% of the U.S. economy.
By 2015, the total annual cost of these incentives was $45 billion, according to the analysis, by Timothy Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich. The study looked at 47 cities in 32 states plus the District of Columbia.
Total incentives are likely higher because the analysis didn’t include some used by cities, including Elyria, such as city income tax rebates for companies.
“The national headwinds are not in favor of these older, industrial small-to-midsize places,” said John Lettieri, senior director of policy and strategy at the Economic Innovation Group, a nonprofit, bipartisan research and advocacy organization. The cities are often tied to a single sector and tend to have more-static economies, with a low rate of firm formation and little growth or even declines in population, he said.
St. Louis in 2015 began reworking its formula for development incentives, raising standards for approval and shifting more attention to struggling neighborhoods, said Otis Williams, executive director for the city’s economic development arm. St. Louis is now re-evaluating its corporate-incentive program, “to make sure we raise the bar for that as well,” he said.
Some mayors don’t feel they have a choice. “We would be dead in the water without economic incentives,” said Virg Bernero, the mayor of Lansing, Mich. Old, vacant buildings and contaminated industrial properties can be impossible to redevelop without incentives because they aren’t cost competitive, he said. The competition is heightened because suburbs now routinely offer tax incentives, too, he said.
Manufacturing still accounts for roughly twice as many jobs in smaller, heartland Ohio cities as in the nation as a whole, according to a November 2016 report by the Center for Community Solutions, a nonpartisan think tank based in Cleveland.
The greater Cleveland metro area, which includes Elyria, posted the nation’s largest drop in the number of firms between 2010 and 2014, losing 712 of its companies, the Economic Innovation Group found.