It’s like signing a blank check
Because tax incentives for businesses are not automatically subject to annual or bi-annual legislative review through the budget process, like spending programs, Chapman said that there are incentive programs in some states that have been on the books for years without ever having been evaluated for effectiveness or cost.
In a story reminiscent of Robert Lynch’s independent study of New York’s IDA program, the North Carolina legislature in 2007 commissioned the first comprehensive study of the state’s incentive programs. Confidentiality agreements with companies had previously made an independent, detailed cost-benefit analysis nearly impossible. The report concluded that the recipients of the state’s largest tax incentive program were actually creating jobs at a slower rate than companies that had not received the incentives, and recommended several policy changes.
In some cases, lawmakers are asked to enact incentive programs without even being given the most rudimentary information about the proposals.
When the South Carolina legislature voted, in 2009, to offer Boeing a subsidy package to locate a factory in North Charleston, lawmakers were not presented with any detailed cost-benefit analysis beforehand, nor did they demand to see one. While the package was initially reported to be worth $450 million, it was later estimated that the full cost was at least twice that amount, far more than the $750 million that Boeing had agreed to invest.
Another example concerns a complicated instrument called Tax Increment Financing (TIF). The mechanism was born in California in the 1950s as a way to bring investment into underserved and impoverished communities. In general, municipal officials divert a portion of present or future revenue that would normally be destined for the municipality’s general fund into a dedicated fund that can only be used in and for the TIF district itself. In some cases, the diverted revenue is used for projects that benefit the TIF district as a whole, such as road repair. In others, however, the revenue is used to benefit a specific company, including direct payments to real estate developers and the financing of infrastructure to serve a particular corporation.
“TIFs are probably the most-used economic development incentive at the local level,” said Baxandall, “but in most places it’s almost impossible to figure out what they’re being used for.”
From 2007 to 2009, for example, a series of investigative reports on Chicago’s TIF districts found that the administration of former Mayor Richard Daley had for years produced a secret budget of TIF revenue and spending. Not only was that budget not released to the public, it was not even shared with all of Chicago’s Aldermen. When that budget was finally examined, it showed that nearly a third of the city’s land had been designated as TIF districts, and that a significant amount of money was used to subsidize private developers in the most affluent neighborhoods.
“If the politicians don’t even know what it is they’re voting for, then clearly we are doing something wrong,” said Mattera of Good Jobs First.