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Relocations Study: Incentives often fail on job growth

August 28, 2018

In a study published this month, a University of Connecticut economist casts doubt on state incentives as a tool to spur the relocation or expansion of existing businesses, suggesting regions fare better in supporting “homegrown” businesses and technology.

Mary Donegan and co-authors William Lester and Nichola Lowe of the University of North Carolina published their findings via the Upjohn Institute for Employment Research, with the study supported by a grant from the Kansas City, Mo.-based Ewing Marion Kauffman Foundation. In the paper, the researchers suggest states strike a better balance in investing in startups versus spending big to attract corporate relocations.

“State and local incentive use in the United States has seen a notable uptick in the wake of the 2008-2009 Great Recession ... reflecting increased desperation for additional jobs,” Donegan, Lester and Lowe wrote. “We need to look no further than ... Amazon and Google’s decision to establish a second U.S. headquarters to see that communities throughout the country and decision makers within them are willing to pull out all the stops.”

Correlating deal-flow data tracked by Good Jobs First, Donegan and her co-authors studied more than 11,000 economic incentive deals nationally that resulted in commitments for at least 100 new or relocated jobs. The study found little evidence that incentive grants generated much in the way of new jobs or other direct economic benefits to the states that issued them, though Donegan established that incentives for small businesses tend to have a positive effect.

“Incentive use for smaller firms appears to be less risky,” the UConn and UNC researchers stated. “It could be that large firms that seek incentives are moving activity from one state to another in a process of consolidation that is proximate in time with an overall downward trend in business activity. Alternatively, large establishments may simply be more likely to play the incentive game and are less likely to be experiencing a positive growth cycle or inventing new goods and services.”

Southwestern Connecticut has had its share of success stories and cautionary tales. In 2012 under Gov. Dannel P. Malloy’s First Five program that awards incentives to companies adding at least 200 employees, Stamford attracted in the headquarters of Charter Communications, which after acquiring Time Warner Cable is planning a larger campus in downtown Stamford to accommodate more employees than originally envisioned.

Across the city’s South End, however, Marriott International is subleasing out the huge waterside office complex it inherited in the 2016 acquisition of Starwood Hotels & Resorts Worldwide, with Connecticut incentives having bought the state less than a decade of Starwood as a major corporate employer after its 2012 relocation from Westchester County, N.Y.

Norwalk, meanwhile, continues to benefit from a pair of homegrown companies in Booking Holdings and Datto that generated exponential growth on the dime of outside investors, with both having recommitted to their Norwalk headquarters the past few years.

Alex.Soule@scni.com; 203-842-2545; @casoulman

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