As the use of U.S. economic development subsidies grows, the once-arcane topic is attracting national scrutiny from watchdog groups and policy experts who recently delved into problems and best practices.
Their work produced recommendations for state and local agencies, including:
Transparency
The amount and type of information available on incentives varies widely. Economic development officials in some states, using easy-to-access digital databases, publish information about companies and the subsidies they've received. Other states bury the information on obscure webpages or keep paper files locked in cabinets.
Ten states report the actual number of jobs created by individual companies, in addition to the job commitments made before the subsidies were awarded, according to a report by the state's Center for Economic Research in Tennessee. Only Arizona lists the actual value of capital investments, the number of jobs and the average wages of new employees, making it easy to fully evaluate each subsidy.
Deborah Fisher"The most important thing for citizens to know is, do they work? Are they successful?" said Deborah Fisher, executive director of the Tennessee Coalition for Open Government.
In Tennessee, the number of jobs promised by individual companies and the amounts of the grants are listed online, but not the actual jobs created. Tennessee Department of Economic and Community Development officials say they meet the state requirements for grant disclosure and aren't planning to release company-specific performance information publicly.
Tim Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research who studies business incentives, said one key measure is how long companies retain positions after receiving a subsidy. While the state ostensibly keeps tracks of employment levels for five years after some grants are awarded, the comptroller found records to be incomplete.
At the county level, the Economic Development Growth Engine for Memphis and Shelby County (EDGE) details a company's progress on hiring and investment goals online, along with posting contracts and subsidy projections. The Clarksville-Montgomery County Economic Development Council, in contrast, doesn't list any subsidy agreements online and provided records only after the USA Today Network-Tennessee threatened legal action.
Transparency advocates such as Washington-based Good Jobs First point to EDGE as a leading example for best practices.
"Economic development shouldn't get a pass when it comes to careful scrutiny," said Greg LeRoy, executive director at Good Jobs First. "Government knows how to watch the score. They just choose not to do it very well in economic development."
Clawbacks
Tennessee's two largest business tax credit programs, and some of the state's main economic development grant programs, don't include provisions to recoup funds, known as "clawbacks," from companies that lose jobs or leave the state after receiving subsidies.
Some states hold companies accountable for years. Nevada requires a clawback for some of its business tax abatement amounts, plus interest, if businesses don't maintain for five years the approved level of jobs, wages and capital investment. In Maryland, businesses must repay job creation tax credits if they fall below 95 percent of job targets over three years.
"To what extent is this permanently creating jobs?" said Bartik from the Upjohn Institute about the state's tax credit programs. "You would want to make sure you have clawbacks to be sure the jobs persist."
In Tennessee, some local industrial development boards will reduce a property tax break if a company doesn't meet an employment target in a given year, but this practice varies widely.
Independent verification
Tennessee, like many other states, relies on companies to self-report their progress after receiving subsidies. For many grants, state economic development officials have no way to tell if the information is accurate, and there's no penalty for companies reporting inaccurate employment figures.
Companies, however, report their employment levels and wage information to the federal Bureau of Labor Statistics' Quarterly Census of Employment and Wages, which is managed by each state's workforce agency. In some states, such as Virginia, government agencies share that information to evaluate whether companies meet their commitments, according to Pew Charitable Trusts. Pew recommends that collaboration to improve the effectiveness of subsidy programs.
"Do we have adequate controls to be sure companies meet their commitments?" said Josh Goodman, senior officer for Pew's project on economic development tax incentives. "In many states, economic development is really fragmented. That's proven to be one of the challenges."
In Tennessee, the Department of Economic and Community Development collaborates with other agencies when evaluating incentive applications, but it does not use labor data to independently verify whether companies met their job commitments. Ted Townsend, chief operating officer of the agency, said it may consider using that type of evaluation in the future.
At the local level, some county industrial development boards check with the county assessor's office to monitor the value of property tax breaks, while others do not.
"There really has been a lack of good information on tax incentives going back many years," Goodman said of states across the country. "Compared to other economic programs, there's really been less accountability. ... We're really seeing lawmakers demanding better information on these programs - do we have adequate controls to be sure companies meet their commitments and that these programs are working as intended?"