States Shift Gears to Create Jobs

E-Newsletter #68/March 31, 2011

In his State of the State speech earlier this year, Montana Gov. Brian Schweitzer made clear what he hoped to accomplish in 2011: Create more jobs in his state.

“Please bring me bills that unite Montana. Bills that help businesses and create jobs and bills that prepare our students for a better tomorrow. I’ll sign them,” Schweitzer, the 2011 president of The Council of State Governments, told legislators.The people who sent us to this capitol had two messages for us: Work together and create more job opportunities in Montana as soon as possible.”

Just like in Montana, job creation is a top priority in state capitols across the country. Since the Great Recession began in 2007, the U.S. has shed millions of jobs and unemployment has remained high. In 2010, 15 states reported unemployment rates of 10 percent or more, above the national average annual rate of 9.6 percent.

To create the jobs that will bring unemployment rates down and help close estimated budget gaps totaling $112 billion for the upcoming fiscal year, many states are beginning to systematically reassess their current economic development strategies and incentive programs—including business tax incentives and corporate tax rates in general. 

When economic conditions were good, many states’ default position was to throw money at potential business opportunities in the hope that they would be chosen over the competition. Increasingly, however, this thinking is coming under attack, and how best to spend limited development dollars is a matter of intense debate—particularly the use of targeted incentives.

Robert Tannenwald, former vice president of the Federal Reserve Bank of Boston and current senior fellow for the Center on Budget and Policy Priorities, suggests states take a holistic approach to development, building human capital and infrastructure rather than providing tax incentives to particular firms.

“States trying to grow their economy should maintain vital public services, invest in infrastructure, keep their teachers in the classroom, and provide excellent public universities and junior colleges. More than ever before, businesses seek locations with a suitably skilled workforce, universities sharing cutting-edge technology, and infrastructure that is modern and reliable,” said Tannenwald.

The use of tax incentives to encourage business attraction is one approach states have relied upon heavily in the past, but some, like Tannenwald, think this is a strategy states need to move past. “Tax incentives take precious public resources away from these proven building blocks of a thriving 21st century economy,” he said.

These issues and much more will be discussed during a live webinar at 1 p.m. EDT April 12. Join CSG for a spirited and informative conversation with Greg LeRoy of Good Jobs First and Tannenwald about the various options and approaches being explored by states to effectively pursue new business prospects, sustain existing businesses, promote job growth and foster emerging opportunities from within.

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