States have made progress with budget portals that allow citizens to see how tax dollars are spent, but a new report shows they remain lacking in online transparency about economic development subsidies.
More than half of all U.S. states received a grade of “F” or “D” for online spending information on subsidies given to businesses for economic development, according to a recent report by the U.S. PIRG Education Fund and Frontier Group.
The report, titled “Following the Money 2019: How the 50 States Rank on Online Economic Development Subsidy Transparency,” is the 10th edition of an ongoing series about online government spending transparency. In the report, 17 states got an “F,” which means they failed to meet “basic standards of online spending transparency,” while 14 states got a “D,” which means they didn’t “provide critical information to citizens in a readily available format.”
“Citizens deserve the ability to see what’s being done in their name with their taxpayer dollars,” said R.J. Cross, policy analyst and first author of the report. “You can’t hold your government accountable without information about what your government has actually done. And on top of that, when government hands cash to a specific company that they’ve chosen, there’s so much room for corruption and favoritism that it’s especially important to be transparent from beginning to end of that process.”
Only one state, Ohio, received an “A” in the report. Three other states, Wisconsin, Connecticut and Mississippi, were graded a “B.” While most of these states also scored well in last year’s edition of the transparency report series, Mississippi jumped from a “D+” in 2018 to a “B-” in 2019, which Cross said is “proof that all states can do this.”
Cross, however, also recognizes that states may face significant challenges when it comes to reporting such spending. States were given the opportunity to comment on and confirm the report’s findings. According to the report, Alabama cited the “sheer number of administering agencies and types of subsidies that a single company can receive as a serious barrier to providing even basic information, like the total cost of a project statewide.”
Another challenge relates to how the report series will change its criteria for transparency. Marc Nicole, deputy secretary of the Maryland Department of Budget and Management, told Government Technology months ago that Maryland’s new budget transparency portal was a response in part to Maryland’s “D+” grade in the 2018 report. Because the 2019 report focuses on economic development subsidies, Maryland’s grade didn’t improve. In fact, it got worse.
“Our intent is … in next year’s report or the year after, to go back and continue evaluating those portals and to recognize those states that have made big jumps,” Cross said. “But because subsidies spending is so notoriously opaque and not acceptable to the public, we felt it was appropriate to take a closer look at exactly what efforts states are putting into being open.”
The report presents evidence that a lack of transparency not only takes power away from citizens but also gives more bargaining muscle to companies. There is a prevalent belief among states that more transparency on economic development deals can hurt states’ ability to be competitive. Some states legislate based on this concern. One example is Utah’s Government Records Access and Management Act, which states that subsidy negotiation records can’t be accessed by the public “if disclosure would … place the governmental entity at a competitive disadvantage.”
The report indicates, though, that “a growing body of evidence shows that shielding deals does little to protect a state’s competitive advantages, calling the usefulness of keeping deals in the dark into question.”
“Companies seeking these subsidies have become skilled,” Cross said, “at playing cities and states off one another using the secrecy around those deals to get better offers from state and local governments — sometimes even after the companies have already made up their minds about where to locate.”
Earlier this year, the governors of Kansas and Missouri recognized this lesson when they signed executive orders ending a “border war” between the two states. According to the 2019 transparency report, “companies including AMC, Applebee’s and J.P. Morgan have moved corporate offices just a few miles across the [Kansas-Missouri] border to claim the subsidies of one state while still cashing in on a non-expired tax break from the other.”
Poor transparency also affects public officials who must gauge the effectiveness of their decisions on economic development packages. Cross said legislative reports have found that a lack of clarity on spending can compromise the efforts of senators and representatives to increase accountability and measure performance.
“Even your elected officials who are making decisions about some of these programs can’t even get access to a real, true, full picture of spending in their state,” Cross said.
Cross said if she were a leader who wanted to address transparency of economic development deals, she would talk to the agencies administering subsidies about existing barriers to financial transparency. She also recommended talking to communities about economic development projects that are unpopular.
“Bottom line, there are a number of ways that states could choose to go about making this happen, and we’re excited to see which ones end up being the most successful that other states can replicate,” she said.