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VOL. 45 | NO. 45 | Friday, November 5, 2021

What we don’t know about economic development

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Four years ago, an investigative journalist in Nashville examined the cash grants and tax breaks given to companies as part of the state’s economic development deals to create jobs.

The headline: “Are Tennessee job subsidies a success? Secrecy makes it nearly impossible to know.”

Despite the deep report sounding an alarm, we are not much better off today in getting answers. Why? A web of exceptions to the public records laws makes a great deal of the information about these deals confidential:

• Reporting requirements by companies receiving state money or local government incentives are weak or non-existent.

• Tax credits awarded for job development are not public.

• Too much of the focus of the state is on announcing exciting new deals, not following up on the less-than-exciting situations that turned sour.

Problems with weak accountability for job creation and other performance measures have been documented by the Tennessee Comptroller’s Office in its audits of the state’s Department of Economic and Community Development (ECD) in 2016 and again in 2020.

These were followed by hearings in legislative committees. But while lawmakers and communities have gotten better at asking questions, government officials in charge of the programs have not gotten much better in providing answers.

Part of what fuels the purported need for secrecy is that disclosing too much of the state’s “secret sauce” for luring business to Tennessee would give other states an advantage in competing against us. The businesses also want secrecy – or privacy, as they might describe it.

But secrecy also can hide cronyism. And opaque deals, with little public reporting on outcomes, can obscure what the government is really getting in exchange for taxpayer dollars.

Lawmakers, who approve the budget for economic development funds, have gotten tougher and have gradually required ECD and the Department of Revenue to produce reports that provide better insight.

In 2014, the legislature passed a bill requiring companies that received FastTrack grants to annually report the number of new jobs created. The reports are required to be posted on ECD’s website.

In 2017, lawmakers passed another bill requiring an annual report about the value of franchise tax credits claimed each year as a result of economic development statutes, including how much companies had carried forward to offset future taxes.

And in 2020, trying to get at the state’s success in “clawing back” cash grants given to companies that didn’t live up to promises, lawmakers passed a bill requiring an annual report on clawback rights executed.

These have all been positive moves by your state lawmakers. But they don’t go far enough in providing transparency for the public.

The annual job reports on ECD’s website? Both of the comptroller’s audits found not enough is done to ensure the accuracy of those numbers. They simply are not reliable and some were inaccurate. And even if you find a company’s job number report, you won’t be able to see how it compares with jobs promised or the amount of the grant received.

The report on tax credits? The most recent report shows that companies redeemed $176.5 million in the last fiscal year and have accumulated more than $800 million state tax credits that they’ve not yet cashed in.

Because of state laws requiring taxpayer confidentiality, however, the report doesn’t name companies receiving the tax perks. State leaders have defended this system, noting that tax credits are open equally to any business that meets criteria laid out in state law.

But what about companies that don’t meet the criteria? Those ineligible businesses can get them anyway if two of the governor’s appointees – the ECD and Revenue commissioners – determine it would benefit the state. This has happened 23 times between October 2018 and March 2021. But who got this special treatment and why? That’s secret.

And how about the clawback report? The inaugural report delivered July 15 offers a peek into the state’s efforts in this important area. The report lacks information, however, on how much the state is qualified to redeem compared with what it actually collected or tried to collect. Only one company is listed as paying back money in 2021 – $385,000. That particular company is listed elsewhere in ECD data as having been granted $5.5 million.

The Tennessee Department of Economic and Community Development would likely disagree with my assessment of its transparency. It might point to its website, “OpenECD,” as evidence that it is “open” with the public about its performance.

But the website lacks clear and connected information. In some cases, the information is even deceiving.

For example, the FastTrack Project database lists the companies that got subsidies. But the column titled “New Jobs” is the number of jobs promised by the company not the number actually created – information that ECD possesses but chooses not to include.

The state recently announced what is likely its biggest single deal ever. Ford Motor Co. will receive a $500 million capital grant for an electric car plant in West Tennessee. That’s not all – tax credits, taxpayer-funded infrastructure, money to train company workers, tax-free land and other options are part of the mix. Some have estimated Ford will get nearly a $1 billion when it’s all rolled up. But we don’t really know.

While lawmakers authorized funding in a recent special session, they still haven’t seen the actual agreement with Ford, including details of any accountability provisions. That’s normal in Tennessee. That document is confidential under an exemption to the public records law.

Deborah Fisher is executive director of Tennessee Coalition of Open Government. This column is part of a monthly series that explores transparency in government in Tennessee. More information at www.tcog.info.

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