Everyone knows that when government gets into the economic development business and starts handing out targeted incentives, they will do everything they can to pad their statistics to justify the subsidies. One example of this type of gamesmanship occurred after the passage of the Obama stimulus plan in 2009. Once it became evident that the stimulus was not meeting job growth expectations, it was no longer about jobs created but rather jobs “created or saved.”
Bogus economic development claims popped up again during the debate over the expansion of the light rail system in the City of Phoenix. For years, proponents of light rail boasted that it had generated over $7Billion in economic development, yet we proved in our analysis of the system that these claims were false. It turned out that most of the economic development either never occurred or was ‘planned’ development, not actual growth.
Now it appears that the Arizona Commerce Authority (ACA) is using the same playbook to justify their incentive schemes. In the most recent report released by the Auditor General, the ACA was caught exaggerating their numbers on new high wage job creation by taking credit for “committed” and “planned” investments by companies over the next three years, rather than accounting for actual jobs and investments made.
In fact, the auditor concluded in their findings that the numbers provided by the ACA were so vague that there’s really no way to determine the actual impact of their incentive and subsidy programs. Staffers admitted during interviews that they prefer focusing on commitments rather than actual results because, in their mind, it “more promptly and directly measures the Authority’s work to add jobs and investments to Arizona.” Very few workers or businesses in the private sector would last very long if their accomplishments were based on ‘plans’ instead of results, but that is the current practice at the ACA.
Of course, part of the problem that has been known for years is the lack of basic transparency requirements at the ACA. And rightfully so – a semi-private body with the unilateral control of millions in corporate incentives, sheltered from direct taxpayer accountability, ought to exist under a microscope. And so month after month, critics continue to point out the opacity with little to no improvement.
Other states such as Utah have similar entities and have much more transparent and detailed information available to the public, yet the ACA continues to resist similar standards. For instance, the “deal closing fund,” which grants the ACA’s Executive Director sole discretion on who receives funds, handed out $4.3 million from the deal closing fund to four companies in 2014.
The generosity didn’t end there. The ACA entered into $25 million dollars’ worth of grant agreements over several years to be paid to corporations and governments alike. The ACA is also in the loan business now. Two years ago the legislature approved $2 million in ACA funds to build a railroad spur in Navajo County.
And while transparency would allow for the public to better analyze how the ACA is dispersing our tax dollars to private industry, it wouldn’t fully fix the problem. Policymakers from both parties have bought into the misconception that they can “create” jobs in their community by outbidding their neighbors for them. As a result states spend billions of dollars on “economic development” with little evidence that their efforts directly lead to sustainable job growth. Arizona too has been romanced by the zero-sum incentive game.
Instead of creating an environment that organically spurs innovation and business start-ups, states cannibalize other states and cities cannibalize other cities, falling over themselves for the big whale. It’s a vicious cycle of robbing the wealth of existing businesses to fund the relocation of others, and stealing the resources from services that create long term economic vitality for the quick job today.
When the ACA was formed, Governor Brewer wanted an organization that was flexible, “competitive”, could react quickly without a lot of hoops to jump through and strike creative deals. These kinds of entities already existed however – they are called private businesses and organizations. It is neither the government’s right nor role to act and behave like the businesses that operate within the free market. Because businesses that make poor decisions get direct and immediate feedback through loss of profits, governments just sink more tax dollars.