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Department of Economic Development's economic forecasting model questioned

Marie French
State Capitol Bureau
January 30, 2013 - JEFFERSON CITY — The state administration's claims about the number of jobs created by business tax breaks drew criticism during a House committee hearing last week.

Howard Wall, a Show-Me Institute research fellow, said the model used by the Department of Economic Development drastically overstates jobs created. The Show-Me Institute is a free-market oriented, conservative think tank based in St. Louis.

"It's nothing more than a reflection of the model builder's belief in how the economy works," Wall said during the Jan. 28 hearing.

Wall and others testified about the Quality Jobs program, a state that gives companies tax breaks for creating high-paying jobs with health benefits. The House Government Oversight and Accountability committee originally was created in response to the failure of Mamtek, the Moberly venture with Chinese investors that went bankrupt.

The chair of the committee, Rep. Jay Barnes, R-Jefferson City, also criticized the model.

"The (state's) model also assumes that the jobs created were created as a result of the tax credit," Barnes said. "Even the Department (of Economic Development) would probably admit you can't prove that."

The department's legislative affairs director, Jason Zamkus, said the Quality Jobs program had created 11,000 jobs since it began in 2005.

Wall called that number into question with his testimony. His research on tax incentive programs showed that the Quality Jobs program actually resulted in a net loss of jobs in the state.

"Instead of looking at what happens in some fictitious model world, I look at what actually happened," he said. "At best, it'll just be a waste of money."

Barnes asked each of those giving testimony about improving the Quality Jobs program so more of the companies create the jobs they plan to create when they're approved for incentives.

Based on data Barnes requested from the department on the Quality Jobs program, he said both large and small projects had a success rate of less than 35 percent in terms of number of jobs created versus the number companies said they would create.

"How do we avoid the complete whiffs and end up with more home runs?" Barnes asked.

Businesses do not receive any credits until they create the jobs, Zamkus said during his testimony. He said calling businesses that had not created any jobs within two years "complete whiffs" was not necessarily fair, since businesses have time before they must meet the minimum requirements.

"A lot of these companies when they start contemplating their projects they need to acquire real estate, they need to build a building, they need to equip it with machinery, they need to hire their employees," Zamkus said.

Barnes disagreed but said it seemed giving the Department of Economic Development more discretion may give better results.

Zemkus said the department has supported legislation to have discretion in awarding tax credits to businesses in the past. Currently, if a business meets the minimum threshold, it can receive benefits from the Quality Jobs program.

"It's an entitlement program," Zemkus said. "If you meet the requirements, you are allowed the benefits."

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