Report: States Lack Sound, Consistent Policies to Enforce Job-Creation and Other Performance Requirements in Economic Development Subsidy Programs
January 19, 2012 (Washington D.C.)—Despite the fact that many economic development deals fall short on job creation or other benefits, states are highly inconsistent in how they monitor, verify and enforce the terms of job subsidies that cost taxpayers billions of dollars per year. Many states fail to even verify that companies receiving subsidies are meeting their job-creation and other commitments, and many more have weak penalty policies for addressing non-compliance.
These are the key findings of Money-Back Guarantees for Taxpayers: Clawbacks and Other Enforcement Safeguards in State Economic Development Subsidy Programs, a study published today by Good Jobs First, a non-profit, non-partisan research center based in Washington, DC.
The report is a companion to Money for Something, a Good Jobs First study issued last month on the performance standards built into subsidy programs. Money-Back Guarantees rates states on how well they enforce those standards. Both reports are online atwww.goodjobsfirst.org.
California ranks among the bottom half of the states. On a scale of 0 to 100, its major subsidy programs receive an average score of 43, ranking the state 36th in the nation. The Employment Training Panel program receives a respectable score of 69, while enterprise zones and the film and R&D tax credits all come in below 40. California’s results are brought down by the fact that the scoring system takes into account the relative weakness of state’s performance standards.
“It is not enough for states to have good job-creation and other performance requirements on paper in their subsidy programs; they must also enforce those requirements diligently and consistently,” said Good Jobs First Executive Director Greg LeRoy.
"Economic development programs are intended to strengthen the economy by creating good quality jobs," said Clare Crawford, executive director of the Center on Policy Initiatives, in San Diego. "But without enforcement of job standards, they become just another corporate giveaway, at taxpayers’ expense.”
“Strong standards and strong enforcement are inseparable in making sure subsidy programs are not mere corporate giveaways,” added Philip Mattera, research director of Good Jobs First and principal author of the report.
Using a scoring system that combines performance standards and enforcements policies, Money-Back Guarantees rates 238 subsidy programs in the 50 states and the District of Columbia (the same sample used in Money for Something). The scores of the programs in each state are averaged to provide a state score. The report’s key findings:
- Ninety percent (215 of 238) of the programs require companies receiving subsidies to report to state government agencies on job creation or other outcomes. Yet in 67 (or 31 percent) of those 215 programs, an agency does not independently verify the reported data. The District of Columbia and South Carolina have no performance verification in any of their five major programs examined.
- About three-quarters (178) of the programs contain a penalty provision of some kind, including recapture of benefits already provided and the recalibration or termination of future subsidies. An additional 41 programs are “performance-based,” meaning that the company does not receive benefits until it has satisfied program requirements. But 19 programs (or 8 percent) have little or no recourse against companies that fail to deliver on their job creation and other promises.
- The penalty provisions in 84 of the 178 programs with penalties are weakened by the fact that their implementation is discretionary rather than mandatory or by the presence of various exceptions.
- Disclosure of enforcement data is a prime indicator of whether an agency is serious about dealing with non-compliance. But only 21 programs publish aggregate enforcement data; only 38 programs disclose the names of companies deemed to be out of compliance; and only 14 disclose the names of companies which have been penalized (and the dollar amounts).
- The states with the highest program scores are: Vermont (79), North Carolina (76), Nevada (74) and Maryland (70); those with the lowest averages are: the District of Columbia (4), Alaska (19) and North Dakota (30). Below is a table with each state’s score and rank.
- While every state engages in at least minimal enforcement, practices vary greatly even within many states. Clearly, states know very well how to apply rigorous enforcement techniques but they often fail to do so consistently across their entire portfolio of subsidy programs.
- State economic development policies typically evolve over many years, so current administrations do not deserve all the credit or blame.
To best protect taxpayers, the study recommends:
- All recipients in all programs should be required to report to agencies on job creation, wages, benefits and other performance benchmarks—and those reports should be verified by agencies using techniques including cross-checking of company claims against separate reliable data sources such as unemployment insurance records.
- Agencies should penalize recipients found to be out of compliance, employing techniques such as recapture (clawbacks), recalibration of future benefits and rescission/termination of subsidy agreements. Programs that are performance-based should operate without penalties only if recipients are required to fulfill all programs requirements before receiving any subsidies.
- Penalty systems should be straightforward and consistent and not weakened by subjective exceptions or official discretion on whether to implement them. Agencies should publish detailed online data on their enforcement activities.