Department of Economic Development’s economic forecasting model questioned

Posted March 7, 2013 at 11:23 am

by Marie French

The state administration’s claims about the number of jobs created by business tax breaks drew criticism during a House committee hearing Monday, Jan. 28.

Howard Wall, director of the Institute for the Study of Economics and the Environment at Lindenwood University and a Show-Me Institute research fellow, criticized the model for over-emphasizing economic multiplier effects from new jobs.

“It’s nothing more than a reflection of the model builder’s belief in how the economy works,” Wall said. “Instead of looking at what happens in some fictitious model world, I look at what actually happened.”

The Show-Me Institute is a Missouri-based conservative think tank.

Wall and others testified about the Quality Jobs program, which gives companies tax breaks for creating high-paying jobs with health benefits.

The chair of House Government Oversight and Accountability Committee, Rep. Jay Barnes, R-Jefferson City, also criticized the model.

“The REMI (Regional Economic Models, Inc.) 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.

However, Wall called that number into question and said his research on tax incentive programs showed that the Quality Jobs program actually resulted in a net loss of jobs in the state. 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, said Zamkus 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.