By Sarah Kleiner
The Virginian-Pilot
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A nonprofit focused on government accountability in economic development is expected to release a report today that shows big businesses receive a disproportionate amount of the incentives offered by programs in Virginia and about a dozen other states.
Three-quarters of the 339 economic development grants awarded through the Virginia Jobs Investment Program from 2011 to 2014 went to large businesses, according to an advance copy of the study Shortchanging Small Business by the Good Jobs First nonprofit.
Those awards represented 91 percent of the $36.7 million spent on incentives through the program in the period studied, according to the report, which analyzed 16 economic development programs in 14 states.
Large companies by definition are less likely to need help: they have management depth, access to credit and established markets for their products or services, according to the reports authors.
Virginias top economic development official cautioned that the study looked at just one program in a toolbox full of incentives the state uses to help businesses expand or relocate, and that a true measure of effectiveness would examine the return on investment each award reaps for the state.
For the study, a small business was defined as one with 100 or fewer employees, independently and locally owned, and with nine or fewer establishments.
Of the 14 states, 70 percent of the awards were given to big businesses, representing 90 percent of the $3.2 billion handed out.
Given small businesses important role in the economy – and their still-lingering credit access problems coming out of the Great Recession – this massive allocation of tax breaks to big businesses is wasteful and ineffective economic development policy, according to the report.
Maurice Jones, Virginias secretary of commerce and trade, said shifting focus away from big businesses is a recipe for getting left behind.
The moment Virginia stops using incentives for any size business will be the moment other states start sending Virginia thank-you notes, said Jones, a former publisher of The Virginian-Pilot.
The Small Business Administration attributes about two-thirds of new private-sector jobs to small businesses, as well as almost half of private nonfarm gross domestic product, the report says.
Jones said small businesses are a critical part of Virginias economy, but the size of a business should not factor into whether a company gets an incentive. The state needs businesses of all sizes creating jobs, so its myriad incentive programs are applied across the board.
We need more tools for all of them, Jones said. What we are finding is the most likely candidates for job growth are businesses that are already existing in Virginia.
The Virginia Jobs Investment Program, which was studied by Good Jobs First, is based on job creation, Jones said. He wasnt surprised most of the money in that program has been awarded to bigger businesses because they typically hire more workers.
Jones said the states Small Business Financing Authority focuses specifically on companies with fewer workers. It provides loan guarantees.
Cash flow is the biggest problem facing most small businesses, said Jack Leach, a counselor at the Suffolk office of the Small Business Development Center.
Whoever is lending money expects to get paid back, Leach said. Small businesses, unless they have a mighty good track record, could be risky.
The authors of the Good Jobs First study suggest narrowing the eligibility of public incentive funds to exclude large businesses. But rather than redirect money toward smaller ones, they recommend spending it on programs that help all businesses, such as transportation projects, job training and education.
Leach said small-business owners would rather have the cash.
The study doesnt delve into how incentives are doled out on a local level.
Chesapeake started focusing on small businesses in 2011 because the city was missing out on opportunities to attract and retain employers with fewer workers, said Steven Wright, director of the citys Economic Development Department. Since then, 19 of the 24 grants handed out have gone to businesses with 50 or fewer employees.
Sarah Kleiner, 757-446-2318, sarah.kleiner@pilotonline.com