How Transparent are State Business Subsidies?
May 16, 2022
By Kasia Tarczynska senior research analyst with Good Jobs First and the lead author of “Financial Exposure: Rating the States on Economic Development Transparency.”
Next year, the state of Georgia will be sending mostly major film and TV production companies over $1 billion in film tax credits. That state spends more in this way than another other in the country, with one economist estimating that in 2020 every household in Georgia paid $200 for this program – enough to not only pay for the entire early childhood budget but more than double its capacity. Despite its enormous cost, the program has no provisions that would require the administering agency to release data on which companies benefit from the subsidy, how much they are getting, or if they are creating jobs as required.
In fact, Georgia releases no meaningful company-level disclosure on any of its state economic development programs. And though the numbers are particularly high in Georgia, it isn’t alone in the absence of transparency about them.
Good Jobs First, a non-profit research and policy organization, recently released a national study which examines recipient-level transparency of major economic development subsidy programs in each state. Out of 250 state programs we analyzed, we found that 38% of them provide no company level disclosure whatsoever (for a program to be transparent, a company recipient name must be disclosed online). Besides Georgia, Alabama also does not provide any transparency of subsidies we looked at – they tied for last place. North Dakota, New Hampshire, and Maine have only minimal disclosures showing which companies benefit from their tax breaks and grants.
States subsidize companies in many ways. They offer cash grants, tax credits and exemptions against every tax type, pay for workers’ training, and build infrastructure for projects. They subsidize every aspect of a business operation. Amazon gets subsidies for its warehouses, Google for its data centers, Walmart for retail stores. Companies get income tax credits for creating jobs or spending money on research; manufactures are exempt from paying sales tax when they buy new equipment.
By one estimate, economic development subsidies cost state and local governments about $95 billion a year. The companies that receive the public money, how much and for what, should be easily accessible information. The internet is no new creation.
In fairness, the level of transparency – while still short of ideal -- has been improving. Our report found 62% of the programs disclose at least some information about which companies benefit from subsidies, an increase from 55% in 2014, the last time we did this analysis. Overall, Nevada scored highest, followed by Connecticut and Illinois.
Nevada’s subsidy transparency is especially heartening considering that in 2014, it received one of the state’s worst scores. South Carolina and Kansas have also significantly improved, progressing from little recipient transparency to having disclosure for at least some of their programs.
But states have a lot of work to do. Among our other findings:
- Only one in five programs disclosed both subsidy amounts promised, and actual subsidy amounts paid out.
- Only a quarter of programs disclose how many jobs individual companies promised and how many they actually created. Considering “jobs” is the single biggest justification for so many subsidies, this was especially striking.
- Only 8% of programs provide comprehensive data on promised and actual wages paid to workers.
- Just 4% of programs disclose the full incentive details ahead of a public hearing so that residents can knowledgeably oppose, support, or suggest improvements to deals. The lack of pre-approval disclosure is evident in practice – just think about the Amazon HQ2 debacle from a few years ago when state governments offered the company often undisclosed amounts of public money in hopes of luring it to their states. Many of these offers to this day remain undisclosed.
Just because a state publishes good quality data online, it does not mean a program is effective in growing local economies or encouraging job creation for residents. However, it enables research and program evaluations and allows researchers to answer basic questions about return on investment and equity.
Transparency is a cornerstone for economic development accountability. It enables state residents to know if public officials are managing public financial resources well. People will trust their governments more and will feel respected if a government’s actions are transparent. It benefits the economy and society by empowering communities with knowledge and information.
Every state that uses public money to subsidize business operations – that is, all of them - should create easy-to-use and easy-to-navigate databases with company names, project locations, jobs created, wages paid, investment data, company identification data, and advance notice of the deals well before a project is approved (we suggest at least 60 days).
Companies get billions in dollars from communities big and small each year. At the very least, residents should know their names, how much they got, what their neighborhoods get in return, and the opportunity to weigh in before approval. Only then, can they decide whether the tradeoffs – cuts in public services, lost school revenues, and tax increases among them – are worth it.
The contents of this blog post reflect those of the author, and not necessarily those of the GFRC.