Feelings and facts may start with the same letter, but they are often as far apart as alpha and omega. A case in point is the rather sobering findings from a recent statistical study of Arkansas' Quick Action Closing Fund (QACF).
The QACF is a discretionary fund authorized by the Legislature available to the governor to use as a deal sweetener in negotiations with large employers seeking to locate or expand in Arkansas.
It was intended to be an economic development tool, based on the assumption that investing state money to attract employers would deliver a favorable return on that investment. The feel-good theory was that if, for example, a major automaker plant was deciding between Arkansas and some other state, the ability to flash a financial carrot might make the competitive difference in closing the deal. The reality is that no such scenario has successfully played out with a huge manufacturer, which might be OK if, overall, the program still did manage to deliver widespread economic benefit.
But has it done so?
That justifying question was the very subject of a Mercatus Center project paper published by Jacob Bundrick and Thomas Snyder, "Do Business Subsidies Lead to Increased Economic Activity?"
The first order of analysis for the study was where QACF money went. From inception in 2007 to the end of calendar year 2015, some $102 million was disbursed to companies in 24 of Arkansas' 75 counties.
Five of those counties (Pulaski, Faulkner, Washington, Craighead, and Sebastian) received three-quarters of the fund's total distributions.
"Given that not all of Arkansas' counties have had companies within their borders receive QACF subsidies," the authors wrote, "it is natural to ask whether differences exist between the counties where subsidized projects have taken place and the counties where they have not."
The study analyzed the two sets of counties using various measures, means and averages in median household income, unemployment rate, private employment and establishment growth, and more.
Certain correlations were unsurprising. Most of the funds went to wealthier and more populous areas, which is where most larger companies and employers are located. Counties with QACF projects showed more population and household income growth than counties without projects, but that's an intrinsic quality for the state's wealthier counties anyway.
In order to try and determine the fund's effectiveness as a program, the researchers looked specifically at private employment per 1,000 population and private establishments per 1,000 population with regard to QACF subsidies provided to businesses within a given county in $100,000 increments or units.
Controlling for factors such as labor cost, work-force education level, rural population density, county wealth, and age and racial makeup of populations, the study found there to be no statistical difference over a four-year period in either the employment or establishment model in counties receiving QACF subsidies.
Moreover, the results also quashed a familiar caveat: QACF subsidies also produced no meaningful job growth in counties bordering those that received funding, nullifying the idea of oft-touted "spillover" employment benefits. The test statistic formulations actually indicated a slightly negative effect on bordering counties for establishment growth, but not enough to be economically significant.
For a program devised specifically to foster job creation, it's more than a little distressing that the research could link no county-level job growth whatsoever to its activities across a four-year span involving tens of millions of dollars in grant giveaways.
Like many other states, Arkansas has legislated incentive programs at a faster rate than it has created empirical analysis and accountability measures to evaluate them. What study literature exists in other states has shown a murky connection at best between incentives of all sorts.
The studied conclusions on enterprise zones, tax-increment financing, property-tax incentives and other forms have consistently included phrasing such as "no noticeable impact," "no evidence of positive effects," "negative relationships with employment" and "not effective at stimulating improvements."
It does not disparage the original good intentions of incentive programs like the QACF to wonder aloud after a decade's time if there's not a better way to incite job creation in Arkansas.
Perhaps the first step would be to bring a more rigid structure to front-end analysis with some sort of Job Creation Index. It could statistically account for the fact that not all jobs created are equal, even if the wage is.
We need some in-depth analysis to quantify and compare the value of homegrown companies' jobs with their out-of-state counterparts. An Arkansas-headquartered firm's growth produces compounded revenues that reverberate across both county and state economies. Profit dollars stay in-state and recirculate at an accelerated rate. Their roots reduce likelihood of total relocation.
At least those are the general assumptions.
A sophisticated Job Creation Index, using data analysis and statistical modeling, could bring solid information to light about the effects entrepreneurial investment, factory expansions, infrastructure inputs and other factors have on county level employment growth, retention and comparative wage scales.
We have universities and skilled economists at our disposal. Funding further study to quantitatively understand the real value of Arkansas-first investment in business and industry would be money well-spent.
------------v------------
Dana D. Kelley is a freelance writer from Jonesboro.
Editorial on 01/26/2018