Every day it seems, local and state officials hold a press conference to announce that a company is bringing a project to their community. Those ceremonies tout the alleged benefits of the company’s arrival: the number of jobs that will be created and the amount of money a company will invest. But what is too often missing from those announcements are the costs: how much money will the public have to pay the company in return?
Without that vital piece of information, the rest of the discussion is just noise, for there is no way of knowing whether the per-job cost is a good investment for the community—or a lousy one.
States and localities across the country give companies corporate tax breaks, or “incentives” as corporations and some elected officials like to call them. These tax breaks allow companies to pay little to nothing in state income, property, or sales taxes. States also woo companies using non-tax subsidies, like cash grants, workforce training, or free land, roads, and sewer lines.
In short, corporations are exempted from paying for all the things that communities value: clean water, paved roads, well-maintained parks, public safety, help for people in medical distress.
Such subsidies are significant. It is estimated that annually, state and local governments spend more than $95 billion on such deals. Amazon, with profits soaring by 220 percent in the first year of the pandemic, has received at least $4.2 billion in public money from states and localities across the country. The company received $700 million in subsidies in 2021 alone.
Recently, my colleagues and I at Good Jobs First, a nonprofit that monitors corporate subsidy payments, released a study, Financial Exposure: Rating the States on Economic Development Transparency, evaluating the state of the field’s disclosure. The report represents our sixth publication on this topic, but our first since 2014.
Have things gotten better or worse? It depends where you live. Eight years ago, we found that 55 percent of examined subsidy programs provided at least company names; now, this number stands at 62 percent—a modest improvement. But that still means that in one third of state programs, public monies are being given away with no public disclosure at all, not even the name of the company receiving the payments. Lack of transparency is a problem as these tax subsidies often come directly out of city, state, and even school district budgets.
The ubiquity of corporate tax subsidies puts a lie to the notion that a “free market” exists in the United States. In fact, it pays to be connected. It also pays to keep those connections secret—the less the public knows, the easier it is for politicians and government officials to funnel resources to favored corporations, and for corporations to extract cash from communities.
If there is a silver lining to this, it is that communities are increasingly fighting such subsidies, resulting in policies that require online disclosure of payments made to individual companies. Sometimes elected officials seek more information as they too can be left out of knowing which corporations are receiving public money. In Nevada, a combination of those factors pushed the state from having one of the nation’s worst disclosure ratings in 2014 to the best just eight years later.
Tesla Lights Up Nevada
Most people are familiar with Tesla, the company owned by centibillionaire Elon Musk. Fewer are aware how aggressive Tesla has been in seeking out public subsidies. According to Good Jobs First’s Subsidy Tracker database, Tesla ranks number 17 nationally in corporate subsidy recipients, having received an estimated $2.5 billion in tax breaks and other subsidies. Again, this is probably an incomplete figure.
Tesla’s largest known deal, for $1.3 billion, came from the State of Nevada in 2014.
At the time, Nevada had few disclosure rules. A 1999 law required Nevada’s economic development office to submit biannual reports to legislators on subsidized companies, but those reports were not publicly available.
The good news is that now anyone can see Tesla’s and other companies’ job creation records and subsidy payments online.
Here’s what happened. In 2014, while shopping for subsidies to build a massive electric vehicle battery plant—a so-called “giga-factory”—Telsa quietly contacted several Western states. Later, the company publicly announced that it would limit its site search to four states: Nevada, Arizona, New Mexico, and Texas. It reportedly inspired Amazon’s far more notorious auction for “HQ 2” three years later.
Negotiations between Tesla and officials of the four states were done in secret. Residents had no insights into what the negotiations entailed or how much public money was being offered. A coalition of organizations from the competing states voiced their concerns and opposition to the process, calling for cooperation rather than competition. Eventually Nevada “won” the contest, offering $1.3 billion in subsidies. An editorial in the Las Vegas Review Journal remarked that the deal “had all the transparency of a brick wall.” Nevada groups on the Right and Left publicly opposed the deal, calling for greater openness.
In response to public outrage over the price tag, some concessions were made, leading to modest accountability and transparency provisions. New legislation in Nevada insisted that half of the 6,500 jobs Telsa promised go to Nevada residents. The state’s economic development office was charged with auditing job creation outcomes quarterly and publicly reporting the findings. The bill also had “claw back” provisions, requiring Tesla to reimburse the state if it fell short on its promise.
Similar transparency provisions are now standard in many Nevada subsidy programs. In 2015, a change to legislation required the state development agency to produce annual reports on grants and transferable tax credits. Those reports, now easily found on the Governor’s Office of Economic Development (GOED) website, show which companies benefit from subsidies, by how much, how many jobs they create, and how much those jobs pay. Reports on tax abatements (a different kind of subsidy), previously buried on an obscure legislative webpage, are also now easily accessible on the GOED website.
Nevada residents finally have access to information on which companies benefit from public subsidies and what the public is getting in return.
Transparency Loopholes
Too many states, however, still hide or delay information or disclose it incompletely. Even Nevada’s system remains less than ideal. As the Nevada Current recently reported, data on corporate deals in the state “can still be murky.” Reporter April Corbin Girnus noted that state laws allow companies to request that some data, such as job creation benchmarks, be designated “proprietary information” and thus removed from transparency documents.
There was also a catch in Tesla’s transparency requirements. Almost $200 million of the credits the company received were transferable, meaning Tesla could sell those credits to another company for straight-up cash. The deal did not include any requirements to disclose which companies were buying credits, but journalists revealed that casinos such as MGM Grand were the buyers and users of the tax breaks. In practice, a deal that was supposed to create well-paying manufacturing jobs become a way for casinos to avoid paying state gambling taxes.
Other states have transparency loopholes too. For example, in summer 2021, Disney announced that it would relocate office jobs from California to the Orlando area, for which Florida awarded the company $570 million in tax credits. (This, of course, was before Governor Ron DeSantis (R) decided to retaliate against Disney’s criticism of his bill limiting LGBTQ+ rights earlier this year.) The subsidy deal was approved back in February 2020, but thanks to a Florida law that allows companies to request confidentiality on such awards for at least 180 days after a subsidy deal is finalized,
Florida residents first learned of Disney’s subsidies more than a year later.
Other examples include: Illinois makes film production tax credit data available only through freedom of information act (FOIA) requests; Georgia posts limited information on companies approved for two grant programs, but after 30 days, those announcements are removed from public view.
Disclosure Bright Spots
While loopholes abound, there is some good news. For example, the State of Kansas historically has been one of the worst offenders. That changed in 2019 (the same year Kansas and Missouri agreed to end interstate poaching of each other’s companies through bidding wars) when Kansas legislators passed a new subsidy transparency law, which requires the Kansas Department of Commerce to disclose which companies receive state subsidies, the size of the subsidies, the companies’ location, and how many jobs the companies create.
On signing the bill, Governor Laura Kelly (D) said that “Kansans deserve to know what’s happening in our state agencies and how their tax dollars are being spent.” The state’s commerce department proudly highlights a transparency database on its website. The state’s public portal is still new and does not cover deals that were signed before the bill was passed, but going forward, Kansas residents can now see which corporations are getting how much subsidy and where their tax dollars are going.
Transparency As a Step Toward Accountability
Often, promises of jobs are not realized. In Tesla’s case, the promised jobs were created, but the amount of subsidy exceeded $200,000 per job created! Did Elon Musk, currently the richest person in the world, need public money to build his Storey County factory east of Reno?
This raises another key point—transparency is only the first step to accountability. It does not equal accountability by itself. Substance matters too. This means structuring subsidy deals to ensure community benefits outweigh costs.
What would an accountable deal look like?
Fundamentally, if the public is going to subsidize corporations, then the jobs these expenditures subsidize should raise community living standards. This means ensuring that residents end up with a significant share of the jobs generated. State and local officials must have enforceable means to recoup money if companies do not perform as promised. Better yet, the money should only be distributed after a company hits its benchmarks, not before.
Also, core services, especially schools, should be protected. This is one place where Nevada failed: Between 2017 and 2021, the local Nevada school district lost $90 million to Tesla’s tax abatements (the county government lost an additional $77 million). Ironically, Tesla gets props in the press for donating $37.5 million, but of course the $37.5 million donated is less than the $90 million budgetary hole the subsidy created.
We can only know if accountability measures are working when subsidy deals are fully disclosed—when they provide names of recipient companies and their corporate owners, how many jobs are being promised and at what wage level, and how much the company is promising to invest in local communities. If a company fails to meet the stated benchmarks, then the state (or locality) must have recourse to reclaim the subsidy dollars.
Rules for the Corporate Subsidy Road
The Tesla deal, like countless other deals, was done behind closed doors, with no public input. The new transparency law in Kansas did not prevent state lawmakers from recently passing a bill that approves turning over $1 billion of public money to an unnamed company. Corporate subsidies are still given out like cotton candy at a county fair—that needs to change.
How? Here are a few key steps:
- Deals should only be approved during public meetings and interested residents should be notified about those meetings via email or text message.
- All subsidy applications and supporting documents such as cost-benefit and economic impact analysis (which calculate at what price point a deal makes sense, or how many years it will take for a state or locality to recover invested public money), should be available for public inspection at least 60 days before a deal is voted on.
- States should prohibit the use of non-disclosure agreements, or NDAs, which prevent public officials from disclosing information during the subsidy approval period.
A few states practice limited pre-approval transparency: Nevada posts online company subsidy applications for some tax-break programs ahead of approval. Texas does the same for its controversial property tax abatement program, Chapter 313. Those are exceptions, however, rather than the rule, and even they don’t go nearly far enough.
There is no perfect state subsidy disclosure regime yet, but some states are getting much better. Nevada shows that a state can move from disclosing nothing on company subsidies to providing residents with better, even if imperfect, information on which companies are benefiting from public money. Still, a lot of work remains.
One thing is clear: policy change is possible, but only when the public organizes and demands it.
This article originally appeared in the Nonprofit Quarterly. See the original article here.
