This week, Governor Deval Patrick signed a bill titled “An act promoting economic growth across the Commonwealth.” The bill funds a whole range of things, including tax breaks, worker training, regulatory changes, and educational programs.
Despite the many initiatives, the total amount of spending in the bill is actually quite small — probably too small to have a meaningful impact on our economy.
That’s not necessarily a failing; it just means the bill is actually less about economic growth and more about promoting pilot programs and encouraging economic experimentation.
What’s in the bill?
Some of the more prominent proposals in this omnibus bill include:
• Sales tax holiday. One weekend a year, shoppers in Massachusetts pay no sales tax on most retail items. This kind of sales tax holiday can be quite popular, but it costs the state about $26 million, and economists generally agree that it will have little or no economic benefit.
• Worker training. The biggest of several workforce training efforts is a $12.3 million fund to help workers gain the skills and credentials they need for IT and advanced manufacturing jobs.
• Alternate R&D tax break. Massachusetts already has a research and development tax credit, but the new bill provides a second option. It’s modeled on the federal R&D tax credit, but it’s actually far more generous and would end up costing the state about $56 million a year (the governor has proposed two amendments to limit that cost).
• Big data. Big data is a big deal in the innovation economy, and more than $2 million is devoted to helping students develop necessary statistical and IT skills and, more generally, ensuring that government, business, and academia work together to identify and solve policy challenges using available data.
• Transformative development. $16 million is set aside to support ambitious projects in Massachusetts’ gateway cities, the kind of projects that aim to revitalize whole downtown areas.
How much does it all add up to?
Not as much as you might think. All told, there’s about $80 million in direct spending and potentially the same amount in annual tax breaks, for a total of $160 million.
That’s less than we spend each and every two days through the state budget, and it’s minuscule compared with the size of the state economy.
For context, when the federal government passed the American Recovery and Reinvestment Act during the early days of the great recession, the total spending amounted to about 2.5 percent of GDP.
In this economic development bill, total spending is 0.04 percent of the state economy. The Massachusetts economy is 2,500 times as large as this bill.
So what does the economic development bill accomplish?
Picture a town with 2,500 houses, and imagine the town council votes to thoroughly renovate one of those houses. Would that have a significant impact on the economy of that community? Probably not.
But what if the town council isn’t really attempting to promote economic change? Imagine if it’s using the house as an opportunity to run some pilot programs and try out different development strategies: different techniques for training construction workers, perhaps, or different approaches for raising capital.
That’s one way to think about this economic development bill.
Even if it is too small to provide any real stimulus to the economy, it’s an opportunity to test a variety of initiatives and see how they fare.
That way, if legislators do someday need to pursue a larger or more aggressive plan to promote economic development, they’ll have data to work with and experience to tap.