The Eastern Ontario Development Fund gives tax dollars to eligible companies that promise to spend a set amount of their own money on certain projects and hire a minimum number of employees.
Previously, only rural areas of Ottawa - along with more than a dozen other eastern Ontario municipalities - were covered by the program. In 2010, the government gave Renfrew-based Deslaurier Custom Cabinets $880,659 to help it create 25 new jobs.
Local Liberal MPPs Bob Chiarelli and Yasir Naqvi announced Friday that companies in urban and suburban Ottawa would now be eligible for funding at a press conference at the Invest Ottawa offices off Preston Street.
Since its inception in 2008, the EODF has handed out $57.7 million in tax dollars. The government says this has “leveraged” more than $595 million in investments and created or retained 13,200 jobs.
A 2011 study by KPMG found that many of these projects would have gone ahead anyway, even without the government funding, but with different outcomes.
The same study, conducted for Ontario’s Ministry of Economic Development and Trade, concluded it is “clear that EODF has made a positive impact with respect to economic development.”
“Jobs are being created and companies are becoming increasingly competitive,” an executive summary of the program review stated.
However, this emphasis on job creation drew flak from former TD chief economist Don Drummond in his report on the province’s finances and program delivery earlier this year.
While not explicitly mentioning the EODF, Mr. Drummond wrote that “business subsidies are often not an efficient use of public resources and have done little to raise living standards.”
He recommended government support for businesses “shift from an emphasis on job creation towards encouraging firms to enhance productivity.”
In an interview Friday, Invest Ottawa CEO Bruce Lazenby defended the program and said it helps attract private-sector dollars.
“(An investor) doesn’t want to be the only one putting money in, because that’s a lot of risk,” he said.
“You can syndicate with other private investors, but if you syndicate with what we call friendly and patient government money, that can be a great way to tip them over the edge. People who might not have been willing to put that million dollars in might put half a million dollars in if they can match it with some government money.”
However, Mark Milke, a senior fellow at the Fraser Institute think tank, said such an investment would likely just be a substitution for one the individual would have made elsewhere.
“What would that angel investor have done with the money otherwise?” he asked in an interview. “They might let it sit in the bank for the next 60 years. But if they are an angel investor or some pension fund, they are more likely to always be looking for opportunities to invest that money, and they will invest that money … where they can get the best return vis-a-vis the risk.”
Mr. Milke argued many reviews of publicly funded regional economic development programs ignore the fact that the money comes from taxpayers. As such, he said they typically have no net economic benefit or positive impact on tax revenues.
“It is a failed policy of picking winners and losers, and governments often end up with a lot of losers.”