Prioritizing Approaches to Economic Development in New England: Skills, Infrastructure, and Tax Incentives Findings in Brief
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PRIORITIZING APPROACHES TO ECONOMIC DEVELOPMENT IN NEW ENGLAND: SKILLS, INFRASTRUCTURE, AND TAX INCENTIVES FINDINGS IN BRIEF Jeffrey Thompson Political Economy Research Institute University of Massachusetts, Amherst August 2010 FINDINGS IN BRIEF Along with the rest of the country, New England is be- increasing the efficiency of our electricity transmission ginning to pull out of the “Great Recession,” but the lines, etc. — are particularly effective ways for state and recovery is expected to be slow and uneven. With hun- local governments to create jobs in the process of car- dreds of thousands of workers having lost their jobs, rying out the necessary functions of governments. Most tens of thousands of families having lost their homes, of these activities bring in matching funds from the and the prospect of continued high rates of unemploy- federal government as well as motivating investment ment in the region for years to come, policy makers will from the private sector. A new port, for example, is continue to face pressure to create jobs and improve likely to attract increased shipping traffic, which in turn the economy. The policies available to states are lim- creates jobs at the port and in its surrounding busi- ited, both in their range and their potential to create nesses; a rapid transit line extension may allow an em- large numbers of jobs, but there are options that can ployer to expand into a new neighborhood. Even after help create jobs and increase economic growth. accounting for the taxes needed to finance these pro- jects, infrastructure investments are powerful job crea- UNEMPLOYMENT RATE FORECASTS IN NEW ENGLAND tion engines because, by necessity, they 14% employ local workers, equipment, and Rhode Island 12% New Hampshire materials: it’s just not possible to have Maine Connecticut an underground water main in Bangor 10% * * Vermont ◊ ◊ Massachusetts replaced in China. 8% The benefits of investment in infrastruc- 6% ture are not limited to short-term job creation: infrastructure has a lasting 4% impact on a region’s productivity. Re- 2% search demonstrates that state-level 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 infrastructure investments have a posi- The evidence suggests that the most effective options tive and significant impact on economic growth. Among for creating jobs, in the short and long term, are invest- the recent findings are: ing in the region’s infrastructure and building the skills In New England, each small investment in infra- of the current and future workforce. Tax cuts and busi- structure—installation of a culvert, extension of a ness subsidies, on the other hand, do little to create bus route—leads to a small, but significant increase jobs in the short run, and are not the most effective in demand for workers. Correspondingly, larger in- approaches to generating growth over the long term. vestments lead to larger demands for workers. The value of building infrastructure1 The most effective options for The economy of New England—the businesses and creating jobs are investing in households that make up our region—-depends on the the region’s infrastructure and roads, bridges, ports, drinking water, sanitation, and energy production and transmission built and main- building the skills of the current tained by our state and local governments. In 2007, and future workforce. state and local governments spent $325 billion on this regional infrastructure. Building and repairing infrastructure projects — Increasing the total value of the public infrastruc- constructing and maintaining our bridges and roads, ture in a state by 10% boosts total output of that replacing our deteriorating water and sewage pipes, state’s economy by 1.2%. By investing in infrastructure, states lower costs for 1 Figure sources: CT, NEEP CT Economic Outlook May 2010; MA, DOR Briefing manufacturers, which attracts manufacturing firms Book, FY2011 Consensus Revenue Estimate December 2009; RI, Consensus Economic Forecast by Moody's, May 2010; VT, NEEP forecast, May 2010. to the state. PRIORITIZING APPROACHES TO ECONOMIC DEVELOPMENT IN NEW ENGLAND / FINDINGS IN BRIEF / PAGE 1 Each dollar the state spends on public infrastruc- education and training received by workers is delivered ture returns as much as $1.37 in benefits to busi- by public schools at all levels. nesses and households in the state. For the individual, education and training mean in- There is an important added benefit from some of creased skills and opportunities for higher earnings; for these investments: investments in mass transit sys- businesses, it means more productive workers who are tems and clean-energy production and transmission able to learn quickly and adjust to changing economic systems also reduce carbon emissions, helping to build conditions. A skilled New England workforce not only more sustainable, less congested, and more productive helps attract firms and investment, but public spending urban communities. on education has been found to raise gross state prod- uct, increase employment in metropolitan areas, and The decline of New England’s infrastructure raise personal income at the state level. The infrastructure that supports New England has been Additional research has documented the impacts of allowed to deteriorate for many years, and today, some specific educational and training investment, including: of that infrastructure is in dire condition. Our state and The benefits of reducing elementary school class local governments have failed to keep up investments sizes from 25 to 15 students exceed the cost of in infrastructure at levels which can maintain, let alone doing so by nearly $66,000 per student over 20 enhance, this scaffolding for our region‘s economy. years. Comprehensive high school reform efforts raise the Between one-quarter and two-thirds long-term earnings of graduates by 17%, boost at- of major roads in New England are tendance, reading and math scores, and generate benefits that exceed program costs by nearly in poor or mediocre condition, and $150,000 per student over 20 years. 40% of bridges are structurally Customized training programs, in which community deficient or functionally obsolete. colleges collaborate with employers to develop training programs for workers, have saved and cre- ated thousands of jobs in Massachusetts at a cost of less than $9,000 per job. As infrastructure investments have declined, the list of Participants in community colleges’ occupational critical infrastructure in need of replacement and repair and vocational training programs received in- has grown. Between one-quarter and two-thirds of ma- creased earnings of $400 per quarter for at least jor roads in New England are in poor or mediocre condi- four years following program completion. tion, and 40% of bridges are structurally deficient or functionally obsolete. Our drinking water facilities—the reservoirs, water treatment plants, and pipes that bring Public spending on water to homes and businesses—are long overdue for education has been found repairs and replacements throughout the region. Tran- sit systems and schools are similarly in need of repairs, to raise gross state product, expansions, and maintenance just to maintain the cur- increase employment, and rent levels at which they support our communities. raise incomes in the state. Improving the education and training of the future and current workforce New Englanders have long recognized that a highly edu- The benefits to the economy from education begin as cated workforce has powerful positive effects on the early as preschool. Recent long-term studies of high- health of our regional economy. High quality education quality preschool programs for low-income children has become a requirement for accessing good jobs and show that participation has substantial positive effects developing a productive workforce. The vast majority of on high school graduation rates, college attendance, PRIORITIZING APPROACHES TO ECONOMIC DEVELOPMENT IN NEW ENGLAND / FINDINGS IN BRIEF / PAGE 2 avoiding incarceration, employment, and earnings. six New England states spend less than the national These evaluations suggest that adoption of universal average on higher education. All six states impose high-quality preschool would, over the long-term, gen- higher tuition than the rest of the nation, making af- erate more than 130,000 jobs in New England. fordability a real problem for New England students. Infrastructure and education investments are unmis- Only four New England states have public preschool programs--and in three of those states the programs takably job-creation engines, key to helping the region turn the corner toward a real economic recovery. They reach few students and are funded at low levels. would create not only direct hires through government spending (such as teachers and construction workers) but also indirect jobs (machinists at the cement factory A $875 million annual corporate which supplies a school repair project) and induced tax incentive program in New jobs (cooks at the restaurant where school construction workers eat lunch). All told, direct, indirect and induced England would produce 9,000 jobs can create between 12 and 39 jobs for each mil- jobs, compared to over 130,000 lion dollars spent by state and local governments. jobs if that money were invested GROSS JOB CREATION FROM $1 MILLION INVESTMENT2 in universal preschool. CT ME MA NH RI VT Education spending Tax incentives and corporate Total jobs 25.5 31.5 27.0 27.0 26.3 30.8 subsidies have little impact direct 16.2 19.8 17.2 17.1 17.0 19.2 Despite the evidence of the impact that infrastructure indirect 2.0 2.7 2.1 2.2 1.8 2.8 and education investments can have on our region’s induced 7.3 9.0 7.7 7.7 7.5 8.8 economy, tax incentives and subsidies remain a large part of the economic development toolbox in the New Early childhood spending England states.