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Small businesses losing out in subsidy game: Survey

92 percent of small business owners believe their state's economic development incentives are biased toward big business.

States spend billions of dollars every year to attract and retain businesses and jobs, but owners of small businesses overwhelmingly believe they are getting the short end of the stick.

That is one of the findings in a new survey by Good Jobs First, a nonprofit, nonpartisan think tank that has been critical of state business subsidies in the past. The group said it surveyed 39 organizations representing 24,000 small businesses nationwide.

Respondents "overwhelmingly believe that state economic development incentives favor big businesses, that states are overspending on large individual deals, and that state incentive programs are not effectively meeting the needs of small businesses seeking to grow," the study said.

Construction of the Tesla Gigafactory just outside Reno, Nevada, as of February 18, 2015
James Glover II | Reuters
Construction of the Tesla Gigafactory just outside Reno, Nevada, as of February 18, 2015

"It's reverse Robin Hood in corporate welfare," Good Jobs First executive director Greg LeRoy told CNBC.

Financial incentives such as tax breaks and discounted utilities have become major weapons in the war between the states for business and jobs. In one of the most recent high-profile examples, Nevada beat out four other states to be the site of a new, $5 billion Tesla after promising $1.25 billion in tax breaks.

The Good Jobs First study, released Tuesday, concludes that small-business leaders believe states are neglecting a key driver of job growth in the pursuit of high-profile deals with big corporations.

Among the key findings of the study:

  • 92 percent believe their state's economic development incentives are biased toward big business.
  • 79 percent believe their state is overspending on big incentive deals, hurting state finances.
  • 72 percent believe their state's incentive policies are ineffective at promoting economic growth.

"We have nothing against big businesses, but we want fairness for everybody," one respondent is quoted as telling researchers.

It is not that small businesses want the subsidies that currently go to big corporations, the study said. Rather, respondents say state economic development policies are out of tune with the needs of small businesses. For example, tax breaks may be attractive to big companies, but small-business owners say a much more pressing concern for them is access to capital, with credit still tight following the Great Recession.

Respondents also favor more state investment in workforce development, education and transportation.

"We oppose funding that goes out of the community by attracting global corporations that will leave after their incentive is finished," one respondent said. "We should be looking for what we have here in the community and investing there. It's better to grow local businesses that will stick around."

CNBC's annual America's Top States for Business rankings award points to states offering large incentives as part of the study's Cost of Doing Business category. New York and Louisiana are the most generous with subsidies, according to the 2015 study. But that was not enough to propel either state to a top-tier ranking overall, perhaps bolstering the Good Jobs First study's conclusion that there is much more to competitiveness than subsidies. Still, several respondents told Good Jobs First that there is not enough transparency in the subsidy process to gauge the impact.

"We don't know whether incentive practices are effective, because the research is not being done," one business leader said.

The survey, conducted between April and July, was funded by the Ewing Marion Kauffman Foundation, a nonprofit group that promotes entrepreneurship.

Good Jobs First says it plans to follow up this survey in the coming weeks with a new study examining subsidy programs on a state-by-state basis.