Friday, September 14, 2018
Politicians often participate in ribbon-cuttings for companies promising new investment and jobs. Officials regularly welcome these promises by opening state coffers to give a special subsidy from the Quick Action Closing Fund (QACF). But with poor reporting standards, how can Arkansans know whether investment and jobs promises are kept?
The QACF allows Arkansas' governor to provide discretionary cash grants to individual businesses in the hopes of creating economic activity. Despite this hope, a recent empirical study published in the Review of Regional Studies by myself and UCA Associate Professor of Economics Thomas Snyder found that the QACF fails to increase employment and establishments in Arkansas' counties. Given this evidence, legislators should consider ending the QACF. But if not that, Arkansans deserve greater transparency into the outcomes of QACF projects.
The Pew Charitable Trusts recently rated Arkansas as a "trailing" state in their "State Tax Incentive Evaluation Ratings." "Trailing" means Arkansas "lack[s] a well-designed plan to regularly evaluate major tax incentives." Current law requires the Arkansas Economic Development Commission to produce an annual report providing the name and location of the companies receiving QACF subsidies and the date, amount, and purpose of disbursements. Repayments for underperformance, or "clawbacks," are also included.
These reports are woefully inadequate. Consider: Not every company receiving QACF grants signs a job-creation agreement, but the reports make no distinction between those that do and those that do not. If subsidized companies are promising jobs, taxpayers should know how many they can anticipate. But if companies are not proposing jobs, Arkansans should know what they can expect in return for their tax dollars.
Other pertinent information is also missing. For example, state Chamber of Commerce President and CEO Randy Zook recently argued in this paper that the QACF is intended to incentivize investment, but annual reports do not include the projected capital investment of each QACF project. Moreover, projected average wage and median wage data for the full-time jobs companies promise to create are omitted. Yet, average and median wage data are necessary to determine the proposed benefit to Arkansas employees.
The most egregious omission, though, is the lack of data on each subsidized company's progress toward realizing job, investment, and wage targets. While fanfare surrounds the promises made by subsidized companies, we mustn't forget that economic development is ultimately about the jobs, investment, and income actually produced. Our current administration recognizes the importance of this. Speaking on the QACF as a candidate in 2014, Gov. Hutchinson stated that "there should be greater transparency when a company fails to meet its end of the bargain."
Even better, a model for this already exists. In the 2017 regular legislative session, Rep. Warwick Sabin sponsored House Bill 2030, which called for the creation of an online database that would provide greater detail on the use of all economic development incentives, including which companies received special tax breaks and subsidies, what those companies promised in return, and each company's progress toward those goals. The legislation was designed to help taxpayers better understand how their tax dollars are spent and to help public officials make better economic development policy decisions.
In March 2017, Arkansas Business reported that Sabin's legislation was tabled after the Economic Development Commission agreed to implement the database without legislative action. Commission executive director Mike Preston stated at the time that the agency "is committed to fulfilling the objectives of [Sabin's] legislation as soon as possible" and "intends to create a similar online mechanism to further our commitment to efficiency, accountability and transparency." Yet, Arkansas taxpayers remain waiting nearly a year and a half later.
Nevertheless, the commission maintains it is still committed to establishing the database. When asked, a spokesperson responded that "We'd hoped to have it up and running by July 1, but we are still compiling and creating the online database. There is a lot of information that is confidential and proprietary that can't be shared, and it's taking quite a bit longer to comb through that than anticipated. Please be assured, we are working diligently to get it on our website."
Make no mistake, the best policy action is to terminate the QACF and either return the savings to taxpayers as part of comprehensive tax reform, or use it to fund other, more productive activities. Based on the $185.7 million appropriated to the QACF since fiscal year 2008, eliminating the fund would save taxpayers an average of $16.9 million per year. At the very least, Arkansans deserve policy actions that increase transparency into the QACF. How public dollars are spent should not be private information.
Jacob Bundrick is a policy analyst with the Arkansas Center for Research in Economics (ACRE) at the University of Central Arkansas. The views expressed are those of the author and do not necessarily reflect those of UCA.
Editorial on 09/14/2018
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