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Economic development incentives are risky investment, Montgomery Co. report says

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Since 1996 Montgomery County has spent nearly $70 million on tax credits, grants and loans to attract or retain businesses.

So what does the county have to show for its investment? Hard to say. That’s one of the takeaways from a new report evaluating the county’s economic development incentive programs.

The study, prepared by the County Council’s Office of Legislative Oversight and released Tuesday, found that 23,246 jobs have been created or preserved by firms that received some form of assistance from the county. Most of them are in IT, biotechnology, business services, retail or hospitality.

Just under $26 million in grants and loans have gone to 155 companies. The average award amount was relatively small—about $170,000— but the largest was $6 million to the developers of the Wheaton Plaza Regional Shopping Center. Since 1999 the county also has granted $35 million in tax credits for firms that create jobs, expand their businesses or locate in an enterprise zone or arts district.

The problem, county researchers said, is that real gains are difficult to measure. It’s hard to establish a solid causal connection between a specific incentive and a company’s decision to locate or expand in Montgomery.

“It is analytically challenging to design a study that can distinguish between change caused by the economic development program itself versus change caused by external factors, such as business cycles, natural firm growth and development, or program participant selection bias,” the report said.

This is not an issue unique to Montgomery County. A 2012 investigation by The New York Times estimated that states, counties and cities provide $80 billion a year in economic development incentives to companies, but the long-term public benefits are unclear. The Montgomery County report cites a 2012 study by Virginia’s Joint Legislative Audit and Review Commission noting that the current best estimate by economists is that a typical incentive package plays a decisive role in a companies’ location decisions about 10 percent of the time.

Steve Silverman, the county’s director of economic development, is out of the country until next week and declined to comment on the report by e-mail. The department’s Web site touts success stories, such as United Therapeutics. It said the biotech company was considering a move to Massachusetts, but remained in Silver Spring after it was able to purchase a county-owned parking lot to aid in its expansion.

On the whole, however, the results are mixed, according to the Office of Legislative Oversight.

Of the 155 companies that were grant or loan recipients, 32 percent moved or went out of business; 42 percent of small businesses that received revolving loans left the county or went belly up. According to an appendix at the end of the report, it appears that most of the firms attracted to the county had to pay back their incentives because they didn’t meet private investment or job creation criteria.

About 1 in 5 both fail to meet criteria and don’t pay back the money, leaving the county with nothing to show for its outlay.

The County Council will discuss the report at a March 11 hearing.

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