A national survey of small business leaders reveals that they overwhelmingly believe that state economic development incentives favor big businesses, and they say small businesses interests in economic development are not well represented in their state capitols.
The survey of 41 leaders of small business organizations representing 24,000 member businesses in 25 states found they think that states are overspending on large individual deals and that state incentive programs are not effectively meeting the needs of small businesses seeking to grow. Almost three-fourths (72%) do not believe their state’s current incentive policies are effective in promoting economic growth.
New standards will substantially improve public access to important information about budget choices made at the state and local level. Because of the historic changes in accounting standards, state and local governments will soon have to report how much revenue they lose to corporate tax breaks given for economic development.
There’s been a lot of talk in Wisconsin over the last couple of weeks about the need to ensure that tax breaks and loans awarded by Wisconsin’s economic development agency are limited to businesses that are creating jobs and fulfill their job growth commitments. Yet almost no attention has been paid to the fact that the state’s largest tax credit for corporations is ballooning in cost and is distributed to businesses operating in Wisconsin regardless of whether they are expanding or slashing their workforce in our state. Read more
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