Shaky job findings in Life Sciences Center study

Barry Bluestone and Alan Clayton-Matthews are respected economists at Northeastern University, but their just-released report on the Massachusetts Life Sciences Institute, and particularly the tax credits the agency hands out, is another failed attempt at sorting out whether public handouts to private industry pay off.

Launched in 2008, the goal of the Life Sciences Institute was to help an already vibrant business sector expand using $1 billion in taxpayer-funded loans, research grants, capital investments, workforce training, internships, and tax credits over the next 10 years. Gov. Deval Patrick said nationally respected economic forecasting firms were predicting the institute would create 250,000 direct and indirect jobs.

Halfway through the 10 years, Bluestone and Clayton-Matthews set out to evaluate the initiative’s effectiveness. Their analysis of why the life sciences industry is growing quickly in Massachusetts is fascinating. Instead of the traditional industry growth model of a large firm or group of firms spawning a supply chain of smaller companies, Bluestone and Clayton-Matthews argue that Massachusetts has developed an abundance of small, minnow-like life science companies that are attracting the interest of the industry’s big fish. Nine of the world’s 10 major drug companies have set up shop in Massachusetts to keep tabs on cutting-edge research and gobble up the occasional minnow.

The two economists credit the Life Sciences Center with creating a minnow-friendly ecosystem. The argument makes some sense, but there’s little quantitative proof. Instead, the economists rely on confidential interviews with industry officials who not surprisingly say the tax dollars the state is showering on the industry represent money well spent.

Jim Stergios, executive director of the Pioneer Institute, points out in a blog post that halfway through the state’s 10-year initiative the life sciences industry has only 8,000 more jobs than it did in 2006. That’s a long way from the 250,000 jobs Patrick was projecting back in 2007. Stergios also notes the 8,000-job payback on the Life Science Institute’s $300 million investment isn’t very good. “How many $40,000 jobs can we afford to pay for?” he asks.

Bluestone and Clayton-Matthews correctly note that a lot of the state’s life sciences money is going for capital projects and internship programs that are designed to buttress the minnow-friendly ecosystem. The economists generate a much lower cost-per-job calculation by examining only the return on the tax credits issued by the Life Sciences Institute.

According to their report, which was funded by The Boston Foundation, participating companies have received $56.6 million in tax credits and created 2,537 jobs, at a cost per job of $22,175. The average salary of the jobs was $105,037 and Bluestone and Clayton-Matthews estimate the job holders will pay an estimated $93.1 million in state taxes over the next five years. Bottom line: every $1 of taxpayer investment yielded $1.66 in new state tax revenue.

The return is impressive, but the two economists admit they don’t know whether the tax credits led to the creation of the new jobs or whether the tax credits were just an added bonus for jobs that would have been created anyway. “It is possible that these firms would have generated some or perhaps even many of these jobs without the Massachusetts Life Sciences Center award,” they write. “But given the importance of the life sciences ecosystem created in the Commonwealth, at least partly as a result of center activity, it is reasonable to suggest that many of these jobs and their associated tax revenue would not have been created without the help of the center.”

Unfortunately, their wishy-washy conclusion is typical of most tax credit analysis.

                                                                                                                                                            –BRUCE MOHL

BEACON HILL

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Meet the Author

Bruce Mohl

Editor, CommonWealth

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

About Bruce Mohl

Bruce Mohl is the editor of CommonWealth magazine. Bruce came to CommonWealth from the Boston Globe, where he spent nearly 30 years in a wide variety of positions covering business and politics. He covered the Massachusetts State House and served as the Globe’s State House bureau chief in the late 1980s. He also reported for the Globe’s Spotlight Team, winning a Loeb award in 1992 for coverage of conflicts of interest in the state’s pension system. He served as the Globe’s political editor in 1994 and went on to cover consumer issues for the newspaper. At CommonWealth, Bruce helped launch the magazine’s website and has written about a wide range of issues with a special focus on politics, tax policy, energy, and gambling. Bruce is a graduate of Ohio Wesleyan University and the Fletcher School of Law and Diplomacy at Tufts University. He lives in Dorchester.

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