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.
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.
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