Politicians brag about economic development programs; these plans invariably include “incentive” dollars that state and local governments provide to companies in the name of job creation, usually: property tax abatements, corporate income tax credits, sales tax exemptions and rebates, etc.
What kind of transparency exists for these tax give-aways? What kind of accountability is demanded in return?
An increasing number of states are disclosing the names of companies that receive economic
development subsidies, but there is wide variation in the quality of such reporting. A few states
have created exemplary online disclosure systems, while many release recipient information only in obscure reports tucked away in remote corners of official websites. About a dozen states still keep taxpayers in the dark on the use of job subsidies, even though they cost taxpayers nationwide tens of billions of dollars each year in direct outlays and lost tax revenue.
Alabama is included in that dozen. How did Alabama score: a D-, 37th according to the report. That ranking actually makes us look better than the truth. While the average score for states with some disclosures was 59; our score was a miserable 10 out of 100. We barely missed the group of 12 states with absolutely no transparency or accountability.
Alabama has been involved in several high-profile development projects. For instance, Alabama offered a subsidy package that the ultimate cost of the subsidies could exceed more than $1 billion to Thyssen-Krupp.
At least 10 Wal-Mart locations have received subsidies worth about $49.8 million in Alabama.
Curently, the details of all the packages from across the state are hidden or are not readily accessible. The details of every package should be fully and completely available to the public. After all, how do we know if these projects are worth it.
This study not only addresses the disclosure of actual subsidies and tax breaks, but it also addresses performance assessment of the corporate promises. Accountability is as important as transparency.
Effective subsidy disclosure also requires the release of data on outcomes, especially job creation/retention as well as wage rates and benefit levels in those jobs. Information on the location of subsidized facilities is also valuable.
Why is this important? As suggested here,
At a bare minimum, we ought to ensure that every economic development deal our government makes includes a strong clawback provision . . .
If we are looking to increase the efficiency of the state’s economic development agencies, then we need to be collecting the performance management data that will allow us to make informed decisions and ensure that our economic development dollars [are] being spent as efficiently as possible,” the bill states. “Quite simply, you can’t manage what you can’t measure.”
. . . Uniform reporting requirements would require all applicants to economic development programs to meet certain data-reporting requirements, including existing as well as proposed job numbers, benefit levels and salaries.
Several states are models for greater transparency and openness. For instance, we could follow the example of other states which scored well.
- Illinois programs requires reports of both projected and actual jobs and wage rates. The reporting actually appears on the Illinois Corporate Accountability website, also stand out for dis-aggregating the wage data by occupational category and for requiring recipients to report annually on whether they are meeting job goals, and if not to explain why.
- Illinois, Kentucky, Missouri, Ohio, Pennsylvania and Wisconsin all have their reports available on the internet.
The report authors suggest the essential elements of a sound economic development disclosure program:
- For every company receiving subsidies, the public has the right to know how much it is receiving (both projected amounts and actual) from each program.
- The public should be told the exact location of the subsidized facility, including street address and ZIP code.
- The public needs to know how many jobs the recipient company proposed to create or retain and how many it actually did.
- There also needs to be information about the quality of those jobs. That means the projected wage rates of the positions and the actual pay levels achieved.
- In addition to broad average wage rates, which can be skewed by a few very highly paid employees, recipients should divide individual wage rates into ranges. Occupational breakdowns are also helpful.
- Agencies that oversee subsidy programs should report on whether recipients have met job creation and other targets. They should also report what the state agency has done (or not done) when recipients have failed to meet their projections.
- Agencies should make use of up-to-date web technology to create databases that allow users to search disclosure information from all of its programs in a single place.