Lies, Damn Lies, and Economic Impact Reports

How taxpayers spend billions of dollars based on corporate propaganda.

Photo credit: Mark Dixon

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In 2012, Pennsylvania lawmakers approved the largest corporate subsidy deal in state history, providing Shell more than $1.6 billion for an ethane plant that was to be built in Beaver County, in Western Pennsylvania. Shell was also exempted from a slew of state and local taxes, benefiting in an amount that’s still to be determined, but is most definitely a lot. This was the epitome of a mega-subsidy deal.

The plant came online in late 2022, and during that intervening decade, Shell’s deal was bolstered by a pair of studies, released in 2014 and 2021, claiming that it would have huge positive economic impacts for the local economy. Those studies were clearly meant to shore up support and ensure no one had any second thoughts about the wisdom of Shell’s subsidy package.

However, it turns out the studies, which were paid for by Shell itself, were built on a lot of dodgy work, and included fundamental errors that vastly overstated the benefits Shell’s plant would have.

Not only is this bad news for Pennsylvania, but it’s a perfect example of how “economic impact” reports literally bought and paid for by the recipients of corporate subsidies warp the public debate about how taxpayer resources are spent. The old saying is that there are “lies, damn lies, and statistics.” In corporate subsidy deals, there are lies, damn lies, and economic impact studies.

According to an analysis released by the Ohio River Valley Institute last week, the two studies Shell paid for, which were conducted by professors at Robert Morris University, suffer from serious problems. You can read the full report to see all the gory details, but a few highlights:

• The economic modeling in the two studies was conducted using a program called IMPLAN, which is a well-known joke in economic development circles, because it consistently produces wildly optimistic projections. As one researcher put it, “Beware [IMPLAN] is frequently used to confirm an advocacy position of those who commission studies, rather than a search for truth.”

• The RMU studies simply didn’t take into account any effects of the lost revenue, either on taxpayers’ bottom line or whether that money could have had a larger positive effect if spent on something else. Throwing losses down the memory hole are a pretty convenient way to make the deal look good; the downside simply doesn’t exist!

• The RMU studies estimate 40 years of benefits from the Shell plant, when there’s no reason to believe it will be online that long, when compared to other similar projects.

The 2014 RMU study isn’t even publicly available anymore, because it’s literally Shell’s property.

Unfortunately, this new dose of reality comes far too late to save the Pennsylvania public from a project that is almost certainly not going to pay off. Indeed, it already looks like the job creation totals promised by the plant’s boosters are going to be missed, and by a lot.

This is a very common scenario in the world of economic development and corporate subsidies. A “study” or “economic impact report” gets released into the world, usually paid for by the corporate beneficiaries of those subsidies or one of their front groups, and it’s chock full of numbers purporting to show a massive benefit to the public, which get uncritically regurgitated through the media.

By the time anyone gets around to debunking it, it’s already too late, and the subsidies have been approved, the deal announced, the press releases blasted, and everyone has moved on. Best case scenario, a quick debunking leads to a bunch of he-said, she-said media coverage, with the competing studies placed side by side on equal terms, no matter their respective quality. And instances in which someone goes back and checks the original study against what actually occurred in the real world are vanishingly rare.

Promises make headline news, but broken promises are yesterday’s news.

I’ve written about this before with regard to sports stadium subsidies, where there is an entire ecosystem built around crafting and releasing economic impact numbers that sway media coverage and the wider debate, no matter how bogus the data or suspect the entity that produced them. But the tactic is used everywhere, to great effect. The point isn’t to accurately predict what a community will experience; it’s to ensure there’s a veneer of justification for corporate extraction.

As always, I want to insert the caveat that I don’t really blame the local journalists who report these made-up studies as concrete fact: They’re put in an awful position, with far too few reporters asked to churn out stories at a rate that makes critical investigation impossible. Simply repeating numbers is an easy way to get copy up and out, keeping the paymasters happy.

There’s no quick and easy fix to this problem that I can suggest: Understaffed media, savvy corporate PR teams, and researchers willing to put their name on some nonsense in order to make a buck is a potent combination, and even fixing the first issue doesn’t eliminate the latter two. But the taxpaying public needs to be aware that this is how the corporate subsidy machine works. Being wise to the tactics is the first step in providing at least some level of organizing counterweight.

Indeed, the rule I will leave you with is this: When you see an “economic impact report” justifying some massive public expenditure in your community, treat it as propaganda, not fact. You’ll be a lot better off.

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UPDATE: I wrote recently about price-fixing in rental housing, where landlords use a centralized corporation in order to collude with each other, share private data, and ultimately push rents higher. A new federal bill from Oregon Sen. Ron Wyden, along with seven other Democratic senators, would ban this form of price-setting. A bill to do the same at the state level passed out of a Colorado House committee yesterday.

“Setting prices with an algorithm is no different from doing it over cigars and whiskey in a private club,” said Wyden. "These cartels are already violating existing antitrust laws. I want the law to be painfully clear that algorithmic price fixing of rents is a crime.”

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— Pat Garofalo