Despite the fact that small business is the engine of the U.S. economy, big business is still scoring the vast majority of the nation's economic development incentives--whether in the form of tax credits for job training or creation, or subsidies for capital projects.
More than 250 major economic incentive programs dole out an estimated $12 billion in subsidies to businesses of all sizes annually. But small-business advocacy group Good Jobs First found that, in the 14 states it surveyed, big businesses get 80 to 96 percent of the total funds available.
Why? Politics. Local and state pols, who authorize the programs, like to trumpet the number of jobs they helped create, says Chris Bouchard, state director for the Missouri Small Business and Technology Development Centers, in Columbia, Missouri. "If you can bring a lot of jobs to a community, it looks really good," he says. So program administrators will offer subsidies to Amazon to bring a distribution center and 600 jobs to town, but not to a local stationer who might add two or three jobs in a storefront.
Unrelated to politics is the fact that founders are often too busy to apply for subsidies and incentives, and startups often don't have the profit to qualify for tax breaks. Greg LeRoy, executive director of Good Jobs First, says the money used on incentives should be redirected to projects that benefit all companies, like infrastructure to boost the customer base, or to fund low-cost credit, which many founders say they need most.
One founder's frustration
Missouri Works overwhelmingly favors large businesses, according to Good Jobs First. In the past year alone, it's approved multimillion-dollar subsidies for large companies including Kraft Heinz, Pepsi, Russell Stover Candies, and the recently public Square, which opened a new office in St. Louis with plans to add 246 workers. That riles bookstore owner Jarek Steele, of Left Bank Books. The store, which has been a St. Louis institution since 1969, has 14 employees and about $2 million in revenue. He's convinced there's no point in applying for any subsidies, because the state programs are clearly biased toward large businesses. "I can't imagine a scenario under which we would be in competition for something like that," he says.
A bridge too far
The One North Carolina Fund is set up to allow the state to "respond quickly to competitive job-creation projects." Yet it clearly favors big businesses, apportioning 93 percent of subsidy deals to them. One reason may be the program's conditions. To qualify, businesses must create 20 to 40 jobs, depending on location. And, in addition to paying the average prevailing wage or more, businesses must provide employee health insurance and pay at least 50 percent of all premium costs. Such complexities at the state level led Mark Gorges, the president and co-founder of RyderRacks, to seek assistance from a privately run nonprofit subsidy program in Wilmington to build out a $1 million manufacturing facility. Even there, he was out of luck, as he was told Wilmington requires the creation of at least 75 jobs and an investment of $5 million in local projects to qualify for the subsidies.
Moving the needle
New York City has a great track record for small business. The majority of its deals, though not dollars, go to small businesses. That's intentional, says Anthony Hogrebe of the New York City Economic Development Corporation, which oversees the program. "The EDC and the city administration are making sure we are targeting our resources toward the types of businesses that have the greatest challenges and the potential, with some help, for the greatest growth," he says. For fiscal year 2016, eight of the program's 11 awards went to small businesses with fewer than 100 employees.
Needs-based, not size-based
Now dubbed the Business Development Tax Credit, one of the state's biggest development tax subsidies does a good job looping in small businesses. One way it achieves this is by evaluating the projects it subsidizes through tax abatements on the basis of specific regional needs, and without a minimum threshold for either job creation or investment, says Steven Michels, a spokesman for the Wisconsin Economic Development Corporation. In 2013, the state provided another important subsidy to small businesses, by virtually eliminating its corporate tax for all manufacturers and agricultural producers.