Conservatives Critique “Tax Cronyism,” and Progressives Critique the ALEC Report
I was pleasantly surprised to learn recently that the American Legislative Exchange Council (ALEC) has issued a report calling on policymakers to end the wasteful subsidies given to corporations by state and local governments. Their report titled The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth criticizes special tax breaks for certain companies, which it points out tend to increase the tax burden on other companies and put them at a competitive disadvantage.
Corporations are very good at extorting costly subsidies from state and local officials, but some of those corporations and a growing number of policymakers are realizing that these incentives aren’t an effective way to promote economic growth. As WCCF intern Jelicia Diggs wrote in a recent WI Budget Project blog post, a number of businesses in the Kansas City area have prevailed on Missouri legislators to call a ceasefire to the use of incentives for pirating corporations across the border with Kansas. Read more
Public-private jobs creation agencies, like the Wisconsin Economic Development Corporation, are inherently susceptible to problems with accountability, conflict of interest, and public disclosure. That’s the message of a new report by Good Jobs First, which shines a spotlight on WEDC as an example of a partly privatized jobs creation agency beset by accountability issues.
The report includes a five-page summary of the problems that have affected WEDC since it was created in 2011, which include:
- Spending federal money without legal authority to do so;
- Failure to track past-due loans awarded to businesses;
- Erroneous or unrecorded financial deals; and
- Inadequate verification of whether companies getting subsidies met performance requirements.
These types of problems aren’t unique to the WEDC. The report details similar issues that have arisen in several other states that have converted their economic development arms to public-private partnerships, including Arizona, Indiana, and Florida.
WEDC officials scoffed at the new report. Read more
It’s clear that the Wisconsin Economic Development Corporation faces challenges in properly administering the state’s economic development programs. What’s less clear is what, if anything, state policymakers are going to do about that.
Numerous problems at WEDC came to light this week, with the publication of a scathing new audit of WEDC. The WEDC is a public-private corporation that replaced the state’s Department of Commerce. The Milwaukee Journal Sentinel’s article summed up the audit’s findings:
The Wisconsin Economic Development Corp. didn’t require financial statements from companies receiving incentives; gave awards to ineligible businesses and ineligible projects; and awarded nearly $1 million in tax credits to companies for actions taken before they had signed their contracts with the state. The agency lacked strong policies and oversight on awarding taxpayer money and then did a poor job following up to see if jobs were truly being created and other goals met, the audit found.
A careful analysis of the four most prominent “business climate” ratings of state tax systems finds them to be “deeply flawed and of no value to informing state policy.” A report published today by Good Jobs First (“Grading Places: What Do the Business Climate Rankings Really Tell Us?”) concludes that business climate studies are actually “politicized grab-bags of data” that contradict each other wildly.
The “Grading Places” report is authored by Dr. Peter Fisher, an economist who has written extensively on economic development. According to Dr. Fisher:
“When we scrutinized the business climate methodologies, we found profound and elementary errors. We found effects presented as causes. We found factors that have no empirically proven relationship to economic growth. And we found scores that ignore major differences among state tax systems.”
You can find the complete report and the executive summary here.
Jon Peacock Read more
Mining Bill Reduces Resources for Local Governments to Address Impact of Mine
Local governments affected by a proposed mine in northern Wisconsin might not have sufficient resources to offset the increased public costs associated with the mine. That’s because the proposed mining bill, which has passed the Joint Finance Committee and heads to the Senate Wednesday, diverts part of the revenue from the mining tax away from a fund set to offset mine-related costs of local governments, and instead sends it to the Wisconsin Economic Development Corporation.
Under current mining tax law, all proceeds from the mining tax are set aside to provide financial assistance to local governments experiencing social, environmental, or economic impacts from the mine.
The mining bill currently under consideration in the Senate changes the law and instead allocates only 60% of the proceeds from the mining tax to the fund to address local impacts. The remaining 40% of proceeds would be sent to the Wisconsin Economic Development Corporation, with no specific requirements as to how the money must be spent. Read more
As Early Investment Capital Falls Nationally, It Jumps 31% in Wisconsin
Bruce Murhpy’s latest commentary at UrbanMilwaukee.com ventures where few people (especially “angel investors”) dare to tread – by challenging the perception that Wisconsin lags in availability of venture capital for entrepreneurs and should allocate state funding to create more incentives for boosting the amount of such capital. His analysis was triggered by a January 17 Milwaukee Journal Sentinel (MJS) article, which reported that Wisconsin enjoyed strong growth in early investment capital in 2012 – with a 31% increase last year, even though the national venture capital pie contracted by 10%.
Murphy’s column critiques the MJS article and contends that it painted a “glass half empty” picture of venture capital in Wisconsin, but I think he concedes that the Milwaukee paper has accurately reported the statistics. He notes that a PolitiFact column in the Journal Sentinel reported that Wisconsin ranked 25th among the states in the amount of venture capital raised in the first three quarters of 2011 – which I think is better than many people seem to believe. Read more
Considering all the talk about jobs in the Governor’s State of the State address on Tuesday, I found it interesting that there was no mention of the Wisconsin Economic Development Corporation (WEDC). But perhaps that shouldn’t come as a big surprise, considering all the negative publicity for this private agency, which was created by Governor Walker and the Legislature in 2011 to replace the state Commerce Department.
The latest round in several months of bad publicity came this week in a Journal Sentinel article by Jason Stein and Cathleen Gallagher about problems with the administration of new tax breaks intended to encourage private investment in qualified Wisconsin businesses. In case you missed that January 14 article, it’s an excellent example of investigative journalism.
I don’t have time now to summarize all the findings, but the major problem cited in the article is that the WEDC, “took a year and a half to begin posting the list of companies that have been approved to receive the tax-advantaged investments.” UW economics professor Andrew Reschovsky succinctly summed up the problem with the lack of information about which companies state residents could invest in and qualify for the tax breaks:
“For an incentive to really change behavior, presumably you have to know about it in advance.”
I raise the issue of these tax breaks not to add to the criticism of the WEDC, but instead to point out that policymakers need to take a very careful look at all the tax breaks and other incentives that are being handed over to certain companies and whether that money is being spent effectively to create good paying jobs. Read more
A new report issued yesterday concludes that Wisconsin taxpayers have access to almost no information about the outcomes from millions of dollars invested in economic development subsidies over the past four years. The new report by the Wisconsin Public Interest Research Group (WISPIRG) Foundation finds that online transparency has gotten worse, and it includes nine recommendations to enable strong public scrutiny and ensure recipient accountability for Wisconsin’s economic development programs.
“Governor Walker and leaders from both parties have promised transparency and accountability in state government, but they have not delivered,” said WISPIRG Director Bruce Speight. “Given our state budget problems, the last thing we should do is spend hundreds of millions of taxpayer dollars with almost no transparency or accountability.”
Some of the findings of the report (Leaving Taxpayers in the Dark: The Urgent Need to Improve Transparency and Accountability in Wisconsin’s Economic Development Subsidy Programs) include the following:
Planned and actual performance results were provided for just 2 recipients, or 0.8%, of 251 completed projects listed on the state’s online database for 2009 and 2010, even though reporting these outcomes is required by law under 2007 Act 125.
The State of Wisconsin spent nearly a quarter of a billion dollars on economic development over the last biennium, according to a new report from the Legislative Audit Bureau. Unfortunately, state agencies administering the economic development programs did not track or report complete information about program results. The result is that it is difficult to track the state’s return on investment for some economic development programs.
Economic development is big money in Wisconsin. In the 2009-11 biennium, Wisconsin spent $227 million on economic development, including $91 million from federal sources. To put this amount in context, it’s about 60 percent of what the state spent on the entire technical college system over those two years. The Milwaukee Journal Sentinel’s article on the report can be read here.
The economic development programs reviewed in the report included grants and loans, bonding authorization, loan guarantees, loan subsidies, tax incentives, and financial assistance – but not tax credits targeting economic development, which can be substantial. Read more
Madison and Milwaukee Areas Have Second and Third Largest Job Losses Nationally
Recently-released figures from the Bureau of Labor Statistics (BLS) contain some additional worrisome news for Wisconsin – and specifically for our state’s two largest metropolitan areas. The Business Journal analyzed the change in jobs from March 2011 to March 2012 for the nation’s 100 largest metro areas and found that both of the Wisconsin areas on that list are near the very top in terms of job losses.
Their analysis found that the Madison area had the second highest job loss over that 12-month period (-4,600 total non-farm jobs) and the Milwaukee-Waukesha-West Allis area was third largest at -4,300 jobs. Measured in percentage terms, Madison was 98th out of 100 on job creation (-1.34%), and the Milwaukee-Waukesha area was 95th (-0.54%).
The metro areas in question account for about 42% of all Wisconsin jobs, and they extend far beyond those cities. Read more