Recession or not, state lawmakers should be closely watching how they’re spending scarce tax dollars on economic development, to make sure those public investments really pay off. Here are four ways Washington’s legislators can make sure taxpayers are getting the most for their money.
1. More Sunshine: Let taxpayers see the costs and benefits of every tax deal – every year
One of the most common ways state governments try to promote (or protect) a particular industry or economic sector is through a tax deal of some kind. At last count, Washington had over 560 different tax subsidies, incentives, differential rates, etc. on the books. Legislators propose and pass more every year, and it’s very difficult to get a complete and accurate accounting of which companies are receiving how much in subsidies – much less quantify the benefits. That’s why taxpayers should be able to easily see the costs and benefits of every tax deal on the books, every year.
Lawmakers should direct the state Department of Revenue to create a freely accessible online database that allows Washington residents to review not only current tax subsidies, but also proposals for new tax deals. At a minimum, such a database should include the dollar value of the tax subsidy or benefit, the number of jobs created by the tax expenditure (as reported by the company), the wages and benefits paid for those jobs, and other public or private benefits that may have accrued due to the tax deal.
Beyond allowing taxpayers to assess whether the benefits of a proposed tax break are worth the cost, having such a system would create some built-in checks and balances when deciding whether to create or continue a particular tax expenditure:
- Companies could take a closer look at each other’s deals, to ensure it doesn’t favor one business over another in a particular sector.
- Small businesses can look at what their bigger competitors (who usually have more lobbyists!) are getting.
- Journalists can match companies receiving subsidies with their lobbying expenditures and/or political campaign donations.
- Local governments can review the geographic distribution of tax deals for regional fairness. Advocates can see whether/how subsidies help create good jobs for working families and communities.
2. Get Our Money’s Worth: Make sure tax deals create better jobs, not just any jobs
Let’s face it, tax dollars are scarce these days – but there’s no shortage of good places to spend them, from education to health care to transportation and more. So if a state or local government want to use a taxpayer subsidy to “create jobs”, it stands to reason they’d better be good jobs, not just any jobs.
Any companies that wants public dollars to support their business should face a simple quid pro quo from the state: Use those tax dollars to create good jobs (ones that can support our local families and sustain our local communities) or you don’t get the tax break. At a minimum, Washington’s job quality standards for tax deals should: include a living wage requirement, ensure workers have affordable health insurance and paid sick days, and set a minimum number of hours per job, so employees can bring home a decent paycheck.
It is also important that job quality standards prevent a company from using a subsidy simply to move existing jobs from another location, whether within the state or from another state. That’s a zero-sum game for our economy, and Washington shouldn’t play it. There are plenty of businesses out there that actually want to grow, so there’s no need for us to “race to the bottom”.
Without these kinds of job quality standards, there’s no guarantee taxpayers are getting their money’s worth – and no way to compare the actual cost per job. In fact, past experience has shown that some taxpayer-subsidized companies will actually lay workers off or pay poverty wages in an effort to fatten profits. A subsidized company paying wages that are too low, or failing to provide health insurance, is sticking taxpayers with a higher bill in the form of social safety‐net spending like Medicaid, State Children’s Health Insurance, food stamps, the Earned Income Tax Credit, and housing and heating assistance. It’s also unfair to competing businesses that operate without a tax subsidy.
3. Create A Taxpayer Money-Back Guarantee: Put clawbacks and rescissions in every tax deal – and enforce them
This is where the rubber really meets the road. If a state or local government is really serious about accountability when it comes to tax deals, Washington needs a law on the books requiring companies that take economic development subsidies to meet certain job creation and job quality standards – otherwise the benefits of that tax deal are subject to clawback and/or rescission.
For example, if a company wishing to tax a particular tax break claims it will create 100 jobs within a specified timeframe, but actually creates only 50, then the subsidy itself should shrink by half to match. (That’s a clawback.) Another example: if a company folds or leaves town after receiving a subsidy, but before meeting the legal requirements for that subsidy, the state should pursue legal remedies to recapture those tax dollars, whether from a parent corporations or other source. (That’s a rescission.)
4. Get The Whole Budget Picture: Create a Unified Economic Development Budget
Without a complete picture of how Washington is spending (or foregoing) its tax dollars, policymakers and agency heads can’t make fully informed and balanced decisions about how best to use scarce resources. A Unified Economic Development Budget (UEDB) helps solve that problem by providing a comprehensive accounting of all economic development spending in one place. It should include budget appropriations as well as tax expenditures related to state economic development.
A UEDB does two important things. First, it allows for direct comparisons between different agencies handling different programs. Without a UEDB, records are not combined and are very likely reported differently by different agencies, making comparisons difficult. Second, it ensures that tax breaks and budget appropriations – both of which cost revenue – get full review and consideration by taxpayers, agency heads and elected leaders.
This isn’t as tall an order as it might first sound – in fact, model legislation to accomplish these four steps already exists.
Good Jobs First, which generously provided much of the source material for this post, has been collecting the best state and local legislation to make economic development subsidies accountable for several decades. Based on their research, they’ve developed model legislation for subsidy disclosure, job creation and job quality standards, clawbacks and rescissions, and a unified economic development budget.
Their subsidy tracker brings together information from far-flung sources – along with unpublished data obtained through open records requests – to create the first national search engine of state economic development subsidies. Good Jobs First has also analyzed almost 250 state subsidy programs for three 50-state “report card” studies that grade each state on about three dozen accountability standards.