The Policy Shift To Good Jobs
Cities, States and Counties Attaching
Job Quality Standards
to Development Subsidies

A Project of the Institute on Taxation and Economic Policy
1311 L Street N.W.
Washington, DC 20005
202-737-4315 www.goodjobsfirst.org

Greg LeRoy
Katie Tallman
Fiona Hsu
Sara Hinkley

Table of Contents

A new study by Good Jobs First finds that a rapidly-growing number of U.S. jurisdictions - at least 46 - now apply job quality standards to recipients of economic development subsidies. The standards - in 26 cities, 16 states and four counties - have mostly been enacted within the last five years. The rules range from wage and health insurance requirements to full-time hours rules. They represent a more than sevenfold increase in the number of such jurisdictions since 1994, when the book No More Candy Store: States and Cities Making Job Subsidies Accountable identified only six jurisdictions using this tool.

Collectively, the standards represent a major policy shift in state and local economic development, with public officials increasingly requiring job-quality quid pro quos in exchange for subsidies. Compared as a group to "living wage" ordinances, wage standards applied to job subsidies are more often based on labor-market rates, and are therefore higher and more varied as a group. They also cover more workers, especially since 16 states now embed standards in one or more program. (Forty cities and counties now have living wage laws; 16 are among the 46 standards reported here.)

The study finds three general types of wage standards: those based on federal subsistence measures such as the minimum wage or family-poverty line; those set at static dollar amounts; and those based on local market wages. Generally, those wages pegged at the poverty line are lower and those tied to the market are higher.

The standards are attached to almost every kind of development incentive, from property tax abatements and training grants to enterprise zones and industrial development bonds. More than half the jurisdictions apply a standard to more than one incentive program or to total development assistance above a fixed-dollar threshold, beginning between $5,000 and $100,000.

The histories of the new standards vary widely. They are alike, however, in that they reduce the likelihood that subsidized jobs will generate "hidden taxpayer costs" (e.g., Medicaid, the Earned Income Tax Credit, or food stamps).

There is no indication that the standards have adversely affected the "business climate" of their respective jurisdictions. Indeed, the standards apparently mesh well with employers' needs today for employee retention and skills enhancement.

The study was conducted by Good Jobs First, a project of the Washington, DC-based Institute on Taxation and Economic Policy. Substantial survey assistance was provided by the Council for Urban Economic Development (CUED), the nation's largest association of state and local economic development officials.

Introduction and Acknowledgments

This study is the result of ongoing work by Good Jobs First, a national clearinghouse tracking best practices in economic development. GJF, born in mid-1998, is a project of the Institute on Taxation and Economic Policy. ITEP was founded in 1980 and is one of the nation's leading research centers on taxes and economic policy.

This survey is a first update on the job quality chapter of No More Candy Store: States and Cities Making Job Subsides Accountable. The book is now being revised and expanded for a second edition. Good Jobs First director Greg LeRoy authored No More Candy Store.

The Council for Urban Economic Development generously assisted our research efforts by providing space in its January 1999 newsletter for our survey on both job quality benchmarks and clawbacks. Thirty CUED members responded (17 cities, five counties, and eight states); 15 reported at least one program with a job quality standard.

Good Jobs First administered the survey to other precedents collected from numerous other sources over the last five years. Those sources include living wage advocates, community groups, state and local development officials, legislators, auditors, comptrollers, state and national associations of development officials, and unions.

As a quick analysis of prevalence, we also surveyed the ten largest cities. The findings summarized here include only those programs that mandate standards in all deals. The survey uncovered additional places that negotiate such standards case-by-case in company-specific development deals, but those jurisdictions are not included.

This survey is not believed to be complete and its findings will be subject to active updating on our Website: www.goodjobsfirst.org. We urge anyone with additional information about standards to contact us by e-mail at goodjobs@ctj.org, phone at 202-737-4315, fax at 202-638-3486, or by mail at Good Jobs First, 1311 L Street NW, Washington, DC 20005.

For the latest nationwide information on living wage ordinances, we recommend contacting ACORN's Living Wage Resource Center at 202-547-2500 or on the World Wide Web at http://www.livingwagecampaign.org.

Good Jobs First was launched thanks to the Stern Family Fund's 1998 Public Interest Pioneer Award to director Greg LeRoy. Additional support has since come from the Unitarian Universalist Veatch Program at Shelter Rock, the Joyce Foundation, the Discount Foundation, the Ford Foundation, the Ottinger Foundation, and the Rockefeller Family Fund.

The new wave of job quality standards span a wide variety of places and economies, from Maine to San Diego and from Ypsilanti to Louisiana. They include 26 cities, 16 states, and four counties.

Listed below are the jurisdictions:

("†" indicates that the standard is part of a living wage law covering both contractors and incentives, "‡" indicates a living wage law covering incentives only):

As denoted in Table I, 16 cities or counties attach standards to incentives as part of living wage laws. In ten cases, the living wage laws span both contractors and incentive recipients. In six cases, they apply only to companies receiving incentives.

More than half the jurisdictions apply a standard to multiple programs or to total assistance above a fixed-dollar threshold, beginning between $5,000 and $100,000.

As is detailed in the Appendix summary matrix, the standards are found attached to almost every kind of development incentive, from tax abatements and training grants to enterprise zones and industrial development bonds.

Although most of the standards have not been in effect for many years, some already cover very large numbers of workers. For example, the Texas Smart Jobs Fund reports that in 1998 and to date in 1999, the fund has covered 98,392 workers under 1,097 grants.⁽¹⁾

The City of Houston reports that as of July 1, 1999, its tax abatement standard (including healthcare) has covered 23,840 workers.⁽²⁾ Colorado's FIRST Customized Training Program covers 47,000 workers.⁽³⁾ The Kansas High Performance Incentives Program covers 67,000 workers.⁽⁴⁾

Such large numbers reflect the fact that 16 states apply standards to one or more program and that some other standards are in large cities. They also reflect the facts that economic development incentives have become ubiquitous in the last 20 years⁽⁵⁾ and that large employers are especially aggressive about seeking them.

By contrast, all of the 40 living wage ordinances are either city or county laws (also including some large cities) and some of them include exemptions for certain kinds of businesses (e.g., non-profits).

One caveat: any kind of wage law, such as the minimum wage, covers some workers who, for various reasons, would otherwise be compensated as well as or better than the law requires. It is often difficult, therefore, to determine how many workers receive higher wages or other benefits as a direct result of the standards.

Because this survey is believed to be incomplete, we made no attempt at this stage of the research to quantify coverage nationally.

Wage requirements are the most common standard, followed by health care, retirement and other benefits, and a set number of work hours. The survey found three general types of wage standards: those based on federal subsistence measures such as the minimum wage or family-poverty line; those set at static dollar amounts; and those based on local market wages. Generally, those wages pegged at the poverty line are lower and those tied to the market are higher.

Twelve jurisdictions' standards, or more than a fourth, are pegged to market rates, such as county or Metropolitan Statistical Area (MSA) average wages. Other market benchmarks include occupational wage rates, regional industry averages, and state averages. By contrast, only three of the 40 living wage laws are market-based.

Effective hourly wage levels range from lower rates, such as the Michigan Economic Growth Authority (150% of federal minimum wage, or $7.73) or Minneapolis (110% of poverty for a family of four, or $8.83), to higher, market-oriented rates such as the Texas Smart Jobs Fund (as of January 1^st, equal to or higher than average county wage, or $18.61 in Dallas County) and Indianapolis ($14 in three townships).

About half of the standards call for wages that effectively track increases in either the cost of living or average wages; the other half are either fixed-rate or cover non-wage issues. Several jurisdictions have a two-tier wage standard: one for employees receiving health benefits and a higher one for those without.

Twenty-one of the standards either require employers to provide health care benefits, or to pay a set percentage of them, or encourage employers to provide health care by specifying a wage differential for it. The differentials in required wages range between $1.00 and $1.50 per hour, and between 10% and 25% of the federal poverty rate.

Two jurisdictions' standards call for retirement benefits or access to them; one specifies an ERISA-qualified retirement plan.

Ten jurisdictions require a set number of work hours, with weekly rates of between 25 to 40 and annual rates of 1,750 to 2,080. Additionally, four jurisdictions require a certain number of paid vacation days, sick leave days and/or paid holidays.

Two jurisdictions apply a standard which imposes little ultimate cost to employers but could result in substantial additional income for workers. Los Angeles and Oakland require employers to inform employees earning less than $12 an hour of their possible right to the Earned Income Tax Credit (EITC), and their possible right to receive advance EITC payments from the employer. Oakland requires the information to be in writing, in all languages spoken by a significant number of employees.⁽⁶⁾

In a few jurisdictions, the amount of the subsidy is tied to the wage level of the subsidized jobs. In Mississippi, for each $1 or fraction thereof that the company pays above the state's current average hourly manufacturing wage, the interest rate on a Mississippi Business Investment Program loan is reduced by one half percent, to a minimum allowable interest rate of 3.0%. Minnesota's enterprise zone grants higher credits for wages above a threshold and for manufacturing jobs. In Washington, companies receiving tax credits in one program receive $4,000 for each job with wages and benefits exceeding $40,000, but only $2,000 for each job below that rate.

Some of the standards are administrative requirements; most are statutory. Some that are statutory began as administrative procedures, were honed and later enacted.

Anecdotes gathered during the survey suggest that development officials (and their elected leaders) are motivated by a mixture of shrewd labor-market analysis and a desire to move away from subsidizing dead-end, poverty-level jobs. To paraphrase one Midwestern official: "We came to the conclusion that we weren't making the best use of our land. We were creating a lot of jobs with wages well below the county average."

While some incentive programs remain intended for lower-wage entry-level positions, in today's tight labor market, more employers are worried about employee retention and skills improvement among incumbent workers. Hence, job quality standards are often consistent with employer needs, because they generate higher wages and better benefits.

A few agencies, such as those providing training programs, had surveyed other jurisdictions, analyzed official poverty benchmarks, or produced their own estimates of local family-subsistence budgets from which to derive wage standards.

A February 1999 study by Good Jobs First, analyzing 525 development deals in Minnesota, found that almost half of the subsidized employers were paying wages to workers in subsidized jobs that were 20% or more below market rates for the same industry and region. More than 90% of the deals lacked wage standards. The Minnesota legislature in May enacted new rules requiring all cities and other public agencies to embed wage standards into all future deals. As the law is now phasing in, Minnesota cities, regional agencies and state agencies are adopting standards for wages and other public purposes against which the deals will be monitored.⁽⁷⁾

Compliance monitoring procedures vary, with some jurisdictions requiring payroll reports quarterly or annually. Some officials spot-check workers compensation or unemployment insurance records; others use site visits. Although many jurisdictions have the right to recapture (or "claw back") a subsidy if an employer fails the wage standard, wage restitution or other negotiated remedies appear more common.

(A future Good Jobs First study will analyze clawback outcomes on job quality standards as well as other accountability measures, such as job creation and investment levels.)

The most common rhetorical objection to rules placed on development incentives is that such restrictions harm the "business climate" and discourage new corporate investments. We asked respondents to comment on this issue. The overwhelming response was that job quality standards have not harmed development efforts, but do help officials target their resources more effectively. Only two respondents indicated that some businesses had expressed business climate concerns about the standards.

One West Coast official said his city's standards enable him to send clear signals to applicants about program intentions, helping sort out eligible deals, such as denying subsidies to retail projects because nearly all of the projected jobs would be part-time and low-wage. To paraphrase a New England official: We are aggressive but prudent; we attract the kinds of companies we want and avoid the bottom-feeders. A Mountain state official essentially said: We are encouraging a workforce that is cutting edge and more loyal to employers. A Southwestern official's sense: Employers are not surprised by the wage standards because so many communities are leaning towards them.

While the number and value of development incentives continues to rise, a strong parallel trend is also emerging: more quid pro quos such as poverty-free wages. Over time, because job subsidies have become so ubiquitous and because some of the standards are required by states and larger cities, this new wave of development policy will cover millions of Americans.

If economic development is defined as raising the living standards of average working families, this new shift in development policy indicates a "back to basics" trend. Job quality standards are the first step in redefining economic development. The breadth and variety of these new rules suggest that a new definition is already being written.