New evidence finds that supporting "home-grown" startups and young, fast-growing in-state companies is likely to be a more effective strategy for states to create jobs and build a strong economy than attempts to lure businesses from elsewhere.
In "State Job Creation Strategies Often Off Base," a new report from the Center on Budget and Policy Priorities, Senior Fellow Michael Mazerov and Director of State Fiscal Research Michael Leachman conduct new research showing that the vast majority of jobs are created by businesses that start up or are already present in a state. They conclude that "many state policymakers pursue economic development strategies that are bound to fail because they ignore these fundamental realities about job creation." When states pursue tax breaks, they divert resources needed to help home-grown startups and young, fast-growing companies deliver maximum job growth and to build a climate that supports their growth.
In the past, a lack of useful data severely limited research about which kinds of firms create jobs. Now, though, the federal government has developed databases that track over time the job-creation record of specific businesses of various sizes and ages while accounting for ownership changes. The U.S. Census Bureau has developed two such "longitudinal" databases. The U.S. Labor Department has developed one as well, and a private company using the Dun & Bradstreet business registry has created yet another.
Research using the improved data has revolutionized our understanding of which businesses create jobs, and where they create them – calling into serious question the value of the various tax breaks states offer businesses to move. Among the facts that counter tax-cut strategies:
- About 87 percent of 1995-2013 private-sector job creation in the median state was home grown. It came from startups, the expansion of employment at existing establishments, and the creation of new in-state locations by businesses already headquartered in the state.
- Jobs that move into one state from another typically represent only 1 to 4 percent of total job creation each year.
- To promote and assist job-generating entrepreneurship, state policymakers would be wise to invest in schools and colleges, improving workers’ skills, and maintaining communities that are attractive to residents who want to start a business. Successful entrepreneurs report these factors were key to where they founded their companies.
- The most commonly cited reason among entrepreneurs for starting their companies where they did was that it was where they lived at the time; 80 percent of them had lived for at least two years in the city where they started their companies.
Now that Tim Eyman’s harmful Initiative 1366 has been struck down by the King County Superior Court for violating the state constitution, lawmakers should put this damaging distraction behind them and focus on improving schools and ensuring that all Washingtonians have opportunities to thrive.
Judge William Downing found that I-1366 – a law designed to force lawmakers into amending the state constitution to require a two-thirds “supermajority” legislative vote or a vote of the people to enact a tax increase of any size – violates the state constitution in multiple ways. His ruling invalidates the law, which voters passed by a narrow margin in a November 2015 election that had an especially low turnout (only 38 percent of registered voters cast ballots), in its entirety. As such, he spared lawmakers from having to grapple with the toxic choice it foisted upon them.
Eyman has indicated that he will appeal the ruling to the State Supreme Court. However, Judge Downing found the measure to be invalid on all three counts put forward by the plaintiffs – illegally strong-arming the people’s representatives into amending the state constitution under threat of an enormous reduction in revenues; putting multiple, unrelated subjects in the initiative; and binding the hands of future legislatures. Such a thorough repudiation means it’s highly unlikely that the Supreme Court will bring the measure back to life.
That’s good news for Washington state. The supermajority amendment included in I-1366 would have given all power over state tax and investment policies to a small minority of lawmakers and corporate lobbyists opposed to important investments in schools, public safety, and other building blocks of a thriving economy. What’s more, if lawmakers had failed to muster the two-thirds vote required to pass the constitutional amendment required under I-1366, the state sales tax rate would have automatically fallen to 5.5 percent from 6.5 percent in April. That would have drained $1.4 billion annually from vital state revenues that support our economy and people. In short, I-1366 would have made it virtually impossible for lawmakers to come up with the billions of additional dollars required by the Supreme Court in the McCleary decision to improve Washington’s schools.
As Judge Downing wrote:
The court's ruling makes it abundantly clear that I-1366 is unconstitutional. The measure has been thoroughly invalidated, meaning lawmakers need not waste any more time on preparing to implement it. Instead, they should focus on building a state revenue system capable of amply funding good schools and other investments that will help kids, families, workers, and seniors succeed in the 21st century economy.
For more analysis on what the I-1366 decision means for our state budget and the legislature, save the date for our Budget Beat webinar on Friday, January 29, at 11 a.m. It will feature Budget & Policy Center Associate Director of Fiscal Policy Andy Nicholas and Pacifica Law Group Partner Kymberly Evanson – who represented the plaintiffs on both the pre- and the post-election challenges against I-1366. [Stay tuned to our website and social media sites for the registration link.]
In order to live up to the promise of a brighter future for our state, we need public policies that create opportunities for all communities to succeed. However, the policies and programs that lawmakers enact often run the risk of creating barriers to success – particularly for people of color and people with low incomes. Racial equity assessment tools, like the ones proposed in House Bill 2076 and Substitute Senate Bill 5752, should be incorporated into the legislative process. These assessment tools help lawmakers better understand the real impacts of their proposed policies by highlighting how they either promote opportunity by advancing racial equity or reinforce barriers by perpetuating institutional racism.
Below is a summary of HB 2076 and SB 5752:
- Both bills would require key government agencies to develop a procedure for implementing racial impact statements for resolutions and legislative bills. These statements would be intended to demonstrate how a given policy would impact a range of potential outcomes -- from economic security to community safety to environmental health -- in communities of color.
- HB 2076 is stronger than SB 5752 by requiring that agencies actually complete a racial impact statement for a bill or resolution at the request of any legislator. Producing such statements would be an important, measurable step toward fixing a system that, in too many cases, has contributed to keeping Washington state’s people and communities from reaching their full potential.
Both bills could be strengthened even more by requiring racial impact statements be completed for all bills affecting health and human service caseloads. Because to make meaningful change, policymakers must institutionalize practices that seek to undo racism.
As legislators consider the implementation of racial equity assessments in our state, they don’t have to look far for inspiration. Several states across the nation, including Oregon, have successfully instituted racial equity impact statements for various forms of legislation. In addition, King County has an Equity Impact Review Tool and the City of Seattle has a Racial Equity Toolkit, both of which have led to important changes in how policies are drafted. HB 2076 and SB 5752 are a great start toward ensuring these types of efforts are happening statewide in Washington.
We all want to build a better future for our families and our state, but to fulfill that promise we must change the way we do our work. Racial equity impact statements are an important tool in the larger efforts to ensure that all members of our communities have access to the building blocks of a strong economy. And they also will help to undo the systemic inequities that have all too often played a role in keeping communities of color and people with low incomes on unstable and unequal footing.
Learn more about various racial equity impact assessment tools and see local examples, including the tool we developed with our Washington KIDS COUNT partners at Children’s Alliance, here. Racial equity impact assessments were also a key topic at our Budget Matter Summit this year. If you missed it, check out this video of the summit panel.
The research is clear – when children grow up in poverty, it has long-term consequences for their future well-being, as well as that of the state. With nearly one of every three children in Washington state living in families at risk of not meeting basic needs, poverty poses a significant threat to future generations, as well as to the contributions they can make to our communities and economy.
Lawmakers can help improve the well-being of children by passing House Bill 2518, which supports a two-generation approach to family economic security (see graphic) – so that both parents and their children have the opportunity to get ahead.
Nationally, two-generation approaches – those that focus on economic success of whole families, as opposed to a focus on children or adults in silos – are gaining momentum. HB 2518 joins these national efforts by creating a results-focused, evidence-based state effort to improve child and family well-being in our state by:
- Directing state agencies across sectors – early learning, health and human services, and higher education – to create a data system to track intergenerational poverty each year;
- Creating a state commission to summarize the data in an annual report; and
- Creating a community advisory committee – made up of advocates, faith-based leaders, government representatives, and academic experts – to provide input on the data and on the creation of a long-term plan to improve intergenerational family economic security.
It is noteworthy that this legislation rightly puts a focus on results and aims to create a commission that has the power to act. We further encourage lawmakers to strengthen this bill by developing explicit goals to achieve equity for children and families of color. We also recommend that policymakers include families with low incomes in a decision-making capacity with the commission. With these additions, HB 2518 would be a strong first step at laying a foundation to create economic security for future generations of Washingtonians.
In November, the Budget & Policy Center highlighted the need for a two-generation approach to reduce child poverty in Washington state. Listen to the audio of the presentation given by the Center’s Research & Policy Director, Lori Pfingst.
Today's filing of an initiative to increase the statewide minimum wage to $13.50 over four years is a necessary step to help workers and families in Washington state. No matter where a family lives in our state, a parent working full time at today’s minimum wage and raising two children cannot meet their family's basic needs without assistance or without cutting back on necessities like food or utilities.
This proposal would raise wages for 730,000 low-wage Washington workers. Women and people of color would especially benefit, given that nearly 30 percent of women workers and more than 40 percent of Black and Latino workers currently make less than $13.50 per hour.
An increase from $10 per hour to $13.50 per hour would provide an additional $607 to a low-wage worker per month for basic needs. This is equivalent to feeding a family of four for a month, or covering the cost of buying health insurance for an adult in most parts of the the state.
Overall, this would mean an additional $2.5 billion more in earnings for low-wage workers. Because those workers are likely to spend additional resources on necessities like food and clothing, communities and businesses throughout the state would benefit. (See our updated minimum wage fact sheet, "Three Reasons to Raise Minimum Wage," for more details. )
Click on image to enlarge and see full graphic.
The proposed initiative to increase the minimum wage – which also pushes for improving paid sick leave policies – will help us build an economy that works for everyone.
And for more analysis on the many reasons why raising the wage is good for Washingtonians, read our updated minimum wage FAQ.
As the 2016 Washington state legislative session gets underway today, policymakers have an opportunity to keep the momentum going from the 2015 session by promoting policies that advance the long-term growth of our state's economy and the well-being of all Washingtonians. At the Washington State Budget & Policy Center, we'll be working to continue progress on several common-sense policy ideas we developed for the 2015-2017 biennium.
In the last session, legislators took steps to support workers, families, and children by closing four unproductive tax breaks, partially restoring the cash grant for Temporary Assistance for Needy Families, allowing families to stay on Working Connections Child Care for a continuous 12 months, and restoring funding for the State Food Assistance Program. [See our 2016 final budget analysis for more details.] In addition, many other items from our Legislative Agenda -- including implementing a tax on capital gains, raising the statewide minimum wage, and fully funding the Working Families Tax Rebate -- were included in one or more budget proposals or approved by either the House or Senate. These proposals are all ready for the Legislature to take action on in 2016.
As we enter this session, new opportunities are emerging to advance more policies that create the building blocks of a strong economy. For example, the Budget & Policy Center is working on ways to bolster family security from generation to generation so Washingtonians who struggle today can build a future. This session, we will advocate for better data on intergenerational poverty and for the creation of long-term goals – that the State is held accountable for – to promote prosperity for parents and their children. In addition:
- As advocates plan ballot initiatives in 2016 to improve the well-being of Washingtonians – including raising the statewide minimum wage and creating a statewide carbon reduction program – legislators could also take their own steps to help move these priorities forward.
- The Legislature can respond to the State Supreme Court’s McCleary case mandate to act on school funding, especially in terms of teacher compensation. Governor Inslee’s recent supplemental budget proposal that closed four unproductive tax breaks to partially address the need for better teacher pay was a good start. Now the Legislature should go further to reform our revenue system and make the public investments needed to end the teacher shortage in our state.
During the 2016 session, which is expected to last 60 days, the Budget & Policy Center will continue to promote our 2015-2017 priorities for shared prosperity in Washington state. We will put particular emphasis on advancing racial equity and on some other key areas where there is likely to be most potential for progress in a short session:
- Racial Equity: Policymakers should pass legislation, like Senate Bill 5752, to require racial and ethnic impact statements that assess how proposed policies close the opportunity gap for people of color.
- Revenue: Policymakers should close even more unproductive tax breaks, advance a capital gains tax, and improve tax-break transparency and accountability. These steps will rightly support a revenue system that provides the resources needed for all Washingtonians to make ends meet – such as living-wage jobs and good public transportation. And if Initiative 1366 is not struck down by the courts, the Legislature should overturn it in order to preserve essential investments and prevent endless gridlock around state tax and budget decisions.
- Economic Security: Legislators should support meaningful public investments to help people who are falling behind in Washington state, including programs like Working Connections Child Care. They should also establish and be accountable to a long-term vision to increase family economic security.
- Education: And they should support basic education at the level of funding required by the McCleary ruling, without taking resources away from other vital services. Focus needs to be put on improving salaries for teachers and ensuring that there is an equitable, high-quality K-12 school system that enables all our children to do their best.
Find our full 2015-17 legislative agenda here.
"We need to develop a shared understanding of what equity means and how we can advance our work through equity." That's what one Budget Matters Summit audience member tweeted when the audience was asked to share on social media how they will continue to work to advance racial equity. And it is just one of many powerful thoughts we've heard about the topic of racial equity since we held our summit on December 9.
We were honored to host this event that focused on how to advance equity in our state policies and budget as well as within our organizations, schools, communities, and more. Our 4th Annual Budget Matters event brought together more than 300 activists, legislators, decision makers, students, and concerned citizens from around the Pacific Northwest.
This year's event featured keynote speaker Patrisse Cullors of #BlackLivesMatter (pictured at left), and her opening presenter, Janaya "Future" Khan of #BlackLivesMatter Toronto. It also featured a panel of inspirational community leaders as well staff and a board member from the Budget & Policy Center.
Now, we're pleased to share this video that offers a snapshot of the summit's highlights.
And at the request of many summit attendees, we have created this video of the full panel presentation. It features the insights and wisdom of leaders from Black Out WA, Children's Alliance, Washington Community Action Network, Washington Environmental Council, Washington State Commission on Asian Pacific American Affairs, and the Budget & Policy Center! If you were unable to attend, it is well worth your time. And if you were there, it's worth re-watching. No matter what, please share this far and wide. (The accompanying PowerPoint slideshow is here.)
In addition, here are some of the photos from the event. And below are a couple of the materials referenced during the summit:
- Creating an Equitable Future in Washington State: Black Well-Being & Beyond 2015: Co-authored by the Budget & Policy Center and Imago LLC; co-produced by The African American Leadership Forum - Seattle, Centerstone, and the Washington State Commission on African American Affairs
- Facing Race 2015: Co-produced by the Budget & Policy Center and Washington Community Action Network
Thank you again to everyone who was able to attend the summit...and to all those of you who made #BudgetMatters2015 a trending topic in Seattle on Twitter that day! We know our summit was part of an ongoing dialogue in our country on the topics of racial equity and Black liberation. And we know there are many more conversations to be had about how we must keep working together to demand racial justice. The progress of Washington's children, families, individuals, and communities depends upon it.
We also want to give one final shout-out to the summit sponsors, without whom the event wouldn't have been possible: