Economic Development
Social Mobility, Incentives, and Partnerships
Regardless of their formal powers, mayors are called on to act as economic ambassadors for their communities. Amazon’s decision to create a highly publicized national competition for its second headquarters, while not emblematic of the typical location/relocation dynamics, brought to light the range of ways that cities might lure new enterprises. This year’s Menino Survey features a series of detailed questions on local economic development to elicit mayors’ views on everything from infrastructure financing to corporate recruitment. This section delves into the roles that mayors play in promoting economic development, supporting workers, and making their communities attractive to businesses.
Mayors see housing costs and a lack of living-wage jobs as key obstacles to social mobility. A lack of social mobility is a critical policy issue facing many American cities. In previous years of the Menino Survey, mayors highlighted issues related to socioeconomic inequality as one of their top policy priorities. This year’s survey reveals that mayors believe that insufficient living-wage jobs (32 percent) and high housing costs (27 percent) are the top two obstacles to achieving social mobility for residents.
Figure 2: Obstacles to Social Mobility
Which of the following, if any, is the biggest obstacle to social mobility in your city?
Similar percentages of Democratic and Republican mayors (26 and 27 percent, respectively) state that housing costs are the biggest obstacle to social mobility. In contrast, Democratic and Republican mayors differ starkly as to whether they see insufficient living-wage jobs as a significant obstacle, with Democrats 30 percentage points more likely to cite living-wage jobs than their Republican counterparts. Perhaps most notably, Republican mayors are markedly more likely — by a margin of 17 percentage points — to believe that there are no obstacles to social mobility in their cities. The top cited challenges to social mobility vary, in ways consistent with housing prices. Mayors of cities with high housing prices (those above the national median for cities with populations over 75,000) are more likely to say housing costs stymie social mobility, while those in less competitive real estate markets more often say the “lack of living-wage jobs” prevent social mobility. Notably, the percentage who said “no obstacles” is similar irrespective of housing prices.
Figure 3: Obstacles to Social Mobility by Party
Figure 4: Obstacles to Social Mobility by Housing Cost
A plurality of mayors do not agree that cities should have strong living-wage ordinances if it means fewer overall jobs. While many mayors view insufficient living-wage jobs as a key obstacle to social mobility, as a group, they do not necessarily think that strong living-wage ordinances at the local level are the best way of addressing the challenge. Forty-one percent of mayors agree that cities should have strong living-wage ordinances, “even if it results in some companies moving away or fewer jobs”; 48 percent disagreed with this proposed trade-off. Thus, to the extent there is a trade-off between local wage policy and jobs/economic development, there is no consensus among mayors on this policy intervention.
Figure 5: Living-Wage Ordinances
Cities should have strong living-wage ordinances, even if it means that some businesses may locate elsewhere or hire fewer people.
The partisan divide in responses is stark. No Republican mayors agree that cities should have strong living-wage ordinances when coupled with a potential loss of economic activity and jobs. In contrast, 60 percent of the Democratic mayors surveyed agree that cities should have strong living-wage ordinances, even if it could result in fewer jobs and some companies relocating elsewhere. This 60 percentage point gap — the biggest partisan gap in the five years of Menino Survey reports — reveals that Democratic and Republican mayors are highly polarized on wage policies.
While mayors are divided on their support for living-wage ordinances, and whether or not access to living-wage jobs are an obstacle to social mobility, they agree on the importance of attracting new businesses to their communities.
Nearly all mayors view using financial incentives for economic development as “good policy,” but they do not agree on whether it is also good politics. Eighty-four percent of mayors say that recruiting economic investments with financial incentives is good policy for their cities. Among these 84 percent, 52 percent (44 percent of all mayors) feel that such incentives are good for the city, but unpopular with constituents. The remaining 48 percent (40 percent of all mayors) believe that financial incentives as part of the recruitment process are both popular and beneficial. Mayors consistently link their own support for incentives and/or popular support for using them directly to job creation. As one Midwestern mayor says, “No one is thrilled about tax breaks [to corporations], but we would do almost anything to get jobs for the city.” Others note that financial incentives are not especially salient. One southern mayor states, “I don’t hear complaints about incentives, I hear complaints about growth,” and another Midwestern mayor notes, “It’s not that it’s unpopular with constituents, it’s more that they don’t care [about incentives].”
Despite rarely naming tax breaks and financial incentives as something they emphasize in recruiting new businesses (see Figure 10), nearly all mayors see using them as beneficial for their cities. Perhaps not surprisingly, the vast majority of mayors see their own cities as effective at using financial incentives to pursue development even while seeing the strategy as generally problematic (see Figures 6 and 8). While they agree on the policy benefits, about half of mayors see pursuing economic development as a case in which they work against public opinion to pursue good policy. The other half see the use of financial incentives as a place where politics and policy align. A few (though a minority) did say that nearly all cities collectively misuse incentives. One southern mayor bluntly states, “We have [incentives] and use them, but in most cases they’re ‘me-toos’ not ‘differences makers’.” This mayor went on to say, on the politics, “It’s a place where we all cower.”
Figure 6: Recruiting Investments with Financial Incentives
In general, recruiting jobs and investment to your city with financial inducements is:
A majority of mayors believe that cities reap long-term benefits from winning competitions to bring new enterprises to their communities. Fifty-five percent of mayors agree that the city that wins a competition to recruit a company or facility sees net benefits in the long run. This is consistent with their views that the use of financial incentives in economic development is a good policy. A sizable minority (23 percent), though, disagree, suggesting that at least some mayors are more skeptical of the value of offering firms financial incentives in exchange for economic investments.
Figure 7: Recruitment Competition Benefits the City That Wins It
When multiple cities compete to recruit a large company or facility, the city that wins the competition sees clear net benefits from the new investment in the long run.
Mayors also believe that other cities overuse incentives. While mayors generally think that economic development incentives are “good policy,” they also believe that their counterparts overuse these incentives. Sixty-one percent of mayors agree that other cities “offer too many incentives.” As one says quite candidly, “Some [cities] would give away their firstborn.” Mayors are largely supportive of financial incentives for economic development; however, they also clearly see downsides to unfettered competition between local governments over limited development opportunities. Essentially, most mayors see their own cities’ use of incentives as measured and effective, while also seeing others’ use as excessive.
Figure 8: Other Cities Offer Too Many Financial Incentives
Do you agree or disagree with the following statement: Other cities tend to offer too many tax breaks and other incentives to companies in pursuit of economic development.
Collective action to refrain from an ‘incentives arms race’ will not likely happen, though many mayors believe it would be good if it did. Reflecting their concerns over competition for economic development, 62 percent of mayors say it would be good if cities could commit to refraining from offering incentives, but that doing so is “unlikely to happen.” Some explicitly mention the challenge of collective action. Others say that there is no one right approach with regard to incentives for all cities. According to one western mayor, “I don’t know how you would tell [struggling cities] not to give incentives to improve their city. They will do what they think they need for economic development.” Another 29 percent agree that collective action is, fortunately, unlikely because agreeing to refrain from incentives would be bad policy. Only 10 percent of mayors said such a collective agreement could happen. Indeed, with the creation of new employment opportunities a top priority for mayors, giving up potential opportunities to attract job creators and investment represents an extraordinarily unattractive political option.
Figure 9: A Commitment to Refrain from Incentives for Investment
Some have suggested that mayors commit to refrain from using tax breaks and other financial incentives to compete for employers and investment. In your opinion, refraining from this type of competition:
When pursuing economic growth opportunities, mayors emphasize workforce skills and quality of life. Mayors were asked which two factors they are most likely to highlight when meeting with business leaders considering relocating or opening major new facilities in their cities. Sixty-two percent selected workforce skills and composition and 56 percent chose perceived quality of life (see Figure 10). Mayors are much more likely to highlight factors related to jobs and workforce skills rather than to the business regulatory climate. Indeed, only 16 percent of mayors say that they emphasize tax breaks and financial incentives. Similarly, 15 percent highlight land availability and the regulatory environment in these meetings. While they state that financial incentives are important and effective public policies, they say that they more often discuss factors related to employee caliber and quality of life with prospective business and industry leaders.
Figure 10: Factors in Economic Recruiting
When you engage with companies, which two of the following factors do you primarily emphasize?
Mayors perceived the competition for Amazon’s second HQ as abnormally focused on tax incentives, although a talented workforce still topped the list of perceived consequential factors. Not surprisingly, given the size and skills of the workforce that Amazon requires, workforce skills and composition was the most frequently cited factor in Amazon’s decision-making. Beyond an emphasis on workforce skills, gaps emerge between mayors’ answers when thinking about the Amazon case and corporate recruitment more generally. Forty-five percent of mayors say that “tax breaks and other financial incentives” was one of the top two factors influencing Amazon’s location decision. This contrasts with just 16 percent of mayors who said they emphasize tax incentives when recruiting companies generally. Quality of life was lower on the perceived priority list for Amazon, with 34 percent of mayors expressing the view that it was a key consideration for Amazon compared to 56 percent of companies generally. Once again, regulatory issues and housing were infrequently mentioned as priorities, with seven percent of mayors selecting each.
There are a number of reasons mayors may view Amazon’s priorities as differing from those of other firms. First, they may simply be reacting to the proposals put forth by fellow mayors in response to Amazon’s request for bids. A second possibility is that the specific example of Amazon elicits more frank assessments than the more abstract question about companies in general. A third possibility is that the Amazon case is an actual outlier and thus not representative of typical economic development interactions and policy. To the extent that this is true, here and elsewhere, analysts should cautiously generalize from it. The fact that so many mayors emphasized workforce traits, and often explicitly noted the very large number of technically skilled people that Amazon would need, at least suggests they were thinking about the specifics of this very salient example.
Figure 11: Factors Important for Recruiting Amazon’s HQ2
Last year, Amazon solicited bids from cities as part of their process for selecting a location for their second headquarters. Which two factors do you think will have the biggest impact on Amazon’s decision?
Mayors are divided between prioritizing jobs or tax base. While mayors highlighted a dearth of job opportunities as an obstacle to social mobility, there was little consensus as to whether to prioritize jobs for their residents or to enhance the tax base. We asked mayors to choose whether they would prefer a new large business that is located inside their cities but “primarily employs people who live outside the city” or a business that “employs a large number of city residents, but is located outside of the city.” Fifty-nine percent of mayors say that they would choose a new large employer located inside their cities that primarily provides jobs for non-city residents. When weighing an enhanced tax base — and the fiscal flexibility that comes with it — against new jobs for their residents, a majority of mayors prioritized the tax base. Still, a sizable minority — 41 percent — chose a business that “employs a large number of city residents, but is located outside the city”.
Figure 12: Prioritizing Jobs or Tax Base
In general, which of the following would you prefer: