Corporate Accountability

States have more than 1,500 economic subsidy programs. They take the form of corporate income tax credits, property tax abatements, low-interest loans, enterprise zones, tax increment financing, training grants, land and site preparation, and infrastructure. In return, companies promise economic development, especially the creation of new jobs.

In 1977, nine states gave tax credits for research and development. By 2001, that number had quadrupled to 36. During the same period, the number of states that made loans for machinery and equipment expanded from 13 to 43; the number that offered tax-free revenue bond loans rose from 20 to 44; and the number that granted corporate income tax exemptions increased from 21 to 37.

Once granted, states rarely audit economic development subsidies to examine their outcomes. This makes it impossible to determine if incentives are cost-effective.

States that require disclosure of tax expenditure costs have discovered dozens of deals in which subsidies exceed $100,000 per job created.2 The ratio of tax subsidy dollars to the number of jobs created or retained is often enormous.

Tax increment financing and enterprise zone programs—originally intended to reverse inner-city decline—have been stretched or deregulated so that even affluent suburbs can use them. Often this is done simply to pirate jobs from other jurisdictions in the same metropolitan area.3 And subsidy programs usually lack job quality standards for wages and health benefits. This allows companies that pay poverty-level wages to receive taxpayer subsidies.

Citizens rely upon elected officials to be fiscally responsible with taxpayer dollars. Tax breaks and subsidies should be at least as well-scrutinized as line items in the state budget—but they are not. While lawmakers use test scores to hold public schools accountable, and judge social services using cost and quality of service indicators, few states apply the same high standards to companies that receive incentives such as sales tax exemptions, tax abatements, tax credits, and industrial revenue bonds.

Washington and North Dakota enacted laws in 2005 that strengthen subsidy accountability. Twelve states now require company-specific data that reveal the value of subsidies and the extent to which companies have complied with program requirements. In addition, 20 states have “clawback” provisions that force companies that fail to meet program requirements to repay all or part of a subsidy. At least 43 states and more than 40 cities and counties have attached some job quality standards—living wages, healthcare benefits, or full-time hours—to incentives.4 Job quality standards promote fiscal responsibility, since they prevent taxpayer subsidization of poverty-level jobs with additional outlays such as food stamps, Medicaid and the earned income tax credit.

In the summer of 2005, Illinois implemented its landmark 2003 law, which serves as a model for reform. The state launched a user-friendly online database that catalogues all state subsidies, mandates extensive disclosure in applications for economic assistance, requires annual progress reports from companies that receive assistance, and provides for the recapture of tax credits from corporations that do not meet their obligations.

Model legislation, based upon corporate accountability laws enacted in Illinois, Maine and Minnesota, provides comprehensive accountability standards. The legislation gives policymakers and the public information about specific deals and programs. This legislation: