In an era of declining entrepreneurship nationally, you'd think state governments would want to do everything they can to encourage small businesses to thrive. After all, the nation's estimated 28 million small businesses account for 99.7 percent of all businesses in the United States.
Instead though, the money that states spend on economic development overwhelmingly goes to large corporations. That's the news from a report released Thursday by Good Jobs First, a national organization that advocates for government accountability in economic development.
The report, funded by the Kauffman Foundation, took a deep dive into state allocation of funds for economic development in Florida, Missouri, and New Mexico. It found that nearly 70 percent of development spending goes to big businesses in those states, while small businesses receive a scant 19 percent. An additional 13 percent of state funding goes to businesses of any size. That means the odds are significantly stacked against small businesses for economic development funds or tax credits for things like research and development or job creation.
In Florida, for example, for fiscal year 2014, $20 million went to large companies--defined as those with more than 500 employees--as part of an innovation incentive fund. No money went to smaller companies from that fund. Similarly in Missouri for fiscal year 2014, $41 million went to large companies from a fund for quality job creation, whereas small businesses took in only $10 million. And in New Mexico in fiscal year 2013, large businesses received $20 million worth of tax credits for the creation of high-wage jobs, while small businesses received just $1 million.
"The economic development budgets of these states are dominated by assistance to large and better-established companies," the report's authors write. "Far fewer resources are committed to the creation or growth of smaller businesses, despite the fact that they are far more numerous."
Among the policy changes Good Jobs First suggests are a sort of means testing for economic development funds, caps on big business handouts, and budgets that focus specifically on helping entrepreneurs.
The findings follow other reports produced by Good Jobs First, including one from last fall that analyzed small business sentiment about state funding for economic development. In that report, entrepreneurs overwhelmingly said states supported big business, to the detriment of small business development.