It’s like signing a blank check

Original Reporting | By Mike Alberti |

What we know and what we don’t

States are not alone in the subsidy-granting business. Most municipal governments also offer both company-specific subsidies and incentive programs that are available to all companies that meet the profile that the municipality is trying to attract. Thomas estimates that at least half of his $70 billion estimate comes from local governments. Most of those incentives come in the form of tax abatements and specialized financing for projects through bond sales.

But disclosure of those incentives is extremely patchy, at best. Only a few large cities, like New York City and Chicago, provide details online about the costs and recipients of their incentive programs.

“If states really wanted to improve transparency, they would require detailed reports from all local governments, and they would have enforcement mechanisms in place and audit them regularly.” — Phineas Baxandall, U.S. PIRG

The secrecy at the local level is especially galling to good government advocates. “Transparency at the local level is extremely important,” said Phineas Baxandall, a senior tax and budget policy analyst for the United States Public Interest Research Group (U.S. PIRG). “That’s the level where decisions about tax and spending policy has the most direct impact on residents, so it’s especially important that localities disclose where their revenue goes.”

In some cases, localities do not even track the recipients of their incentives. In 2011, the East-West Gateway Council of Governments, which represents the local governments in the St. Louis area, published an evaluation of all non-cash incentives offered in the St. Louis metropolitan area, which comprises all of the municipalities in seven counties in both Missouri and Illinois.

“It took us more than three years to put that information together, and even now there are big gaps,” said Mary Rocchio, one of the report’s main authors. Rocchio said that while local governments in both states are required to report some data to the state governments, there are no enforcement provisions in place that can require them to do so, and many of the reports that are filed are incomplete.

“Even when we could get a dollar amount, often there was no way of knowing why that money was diverted in the first place, what the context was,” Rocchio said. “That makes a comprehensive economic analysis pretty much impossible.”

For the most part, Baxandall said, tracking local incentives should be the role of state governments. “Trying to convince tens of thousands of towns to put this information on their website would be very difficult,” he said. “If states really wanted to improve transparency, they would require detailed reports from all local governments, and they would have enforcement mechanisms in place and audit them regularly.”


Where’s the evidence?

Many good-government advocates say that the disclosure of information regarding economic development incentives is important because without it, voters cannot make informed decisions about the policies that affect them. But there is also another argument for transparency: without detailed reporting on subsidies and incentive programs, it is difficult for researchers to evaluate their effectiveness, meaning that lawmakers often cannot make informed decisions, either.

Earlier this year, the Pew Center on the States published a report entitled “Evidence Counts: Evaluating State Tax Incentives for Jobs and Growth.”  The report ranked states on the quality and consistency of the internal evaluations of their incentive programs, and found that only four states — Washington, Oregon, Iowa, and Arizona — undertake regular, rigorous assessments of all major tax incentives.

“Tax incentives are a decision about what the state’s priorities are,” said Jeff Chapman, a research manager for the Center and one of the report’s authors. “If they are deciding to lower taxes for some businesses then that will require either cutting spending or raising taxes elsewhere, and that’s a decision that’s important to assess.”

State-level disclosure

Most states do disclose the recipients of cash grants, though there are exceptions. Delaware, for example, maintains a special “deal closing” fund called the Delaware Strategic Fund that provides grants and loans to companies for major relocations and expansions. The state makes an annual appropriation to the Fund, which amounted to more than $30 million in 2011. But when Remapping Debate requested a list of the recipients of Strategic Fund grants and the amount each was ultimately paid, the Economic Development Office said that the only way to obtain that information was by filing a formal Freedom of Information Law request.

When it comes to less direct forms of spending on subsidies, like tax credits, there is even less disclosure.  Only a few states — such as Ohio, Missouri, North Carolina, and Wisconsin — disclose the recipients of all of their major tax credit programs online, while many more disclose none, according to Good Jobs First.

California, for example, offers tax abatements to companies in designated areas called Enterprise Zones. The program is controversial, and it had an estimated total cost of $270 million in the last fiscal year. The state does not disclose any of the program’s recipients, nor the recipients of any of the state’s other tax incentive programs. Idaho, a much smaller state, doled out $130.4 million last year on a sales tax exemption for manufacturers, miners, and farmers, representing nearly six percent of the state’s entire budget; it does not disclose the recipients of those subsidies, either.

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