Those following Presidential politics are familiar with Rick Perry’s apparent pay-to-play subsidy dealings in Texas. Two new investigative pieces demolish his job creation claims.

The New Republic’s Alec MacGillis visited the sites of two subsidized companies and discovered Perry’s job creation figures to be extremely misleading. The state of Texas claimed that the Texas Energy Center created 600 jobs as a result of aid from the Texas Enterprise Fund some years back, but MacGillis discovered the only remnant of the company to be a small vacant office space inside a local economic development agency. Governor Rick Perry claimed that another facility, the Texas A&M Institute for Genomic Medicine, which received $50 million in subsidies from the Emerging Technologies Fund, would produce 5,000 jobs. MacGillis toured the subsidized facility and discovered that it employs just 10 employees total.

The Wall Street Journal’s Mark Maremont took a deeper look into how Texas subsidy contracts allowed for such rampant misrepresentation of job creation numbers. He found that the initial economic impact analysis on the Institute for Genomic Medicine subsidy was conducted by Perryman Group, the former employer of Governor Perry’s wife. She left the job in 2001 after Perry succeeded George W. Bush as Governor of Texas. The Perryman Group’s study estimated that the project would create 31,000 jobs and add $2.7 billion to the Texas economy. Maremont discovered that the 2005 grant agreement allows the company to count in its job creation figures any “positions with employers in the biotechnology and pharmaceutical industries.”

Now that Texas Gov. Rick Perry has entered the 2012 presidential race, several newspapers have compiled compelling evidence suggesting Perry is an aggressive “pay-to-play” politician, doling out government appointments, contracts, and economic development subsidies in exchange for campaign cash.

The New York Times confirmed Texans for Public Justice’s previous findings (See TPJ’s Rick Perry Primer): “A review of Mr. Perry’s years in office reveals that one of his most potent fund-raising tools is the very government he heads. Over three terms in office, Mr. Perry’s administration has doled out grants, tax breaks, contracts and appointments to hundreds of his most generous supporters and their businesses.” The Times highlighted two programs, the Texas Enterprise Fund and the Emerging Technology Fund, which we at Good Jobs First have criticized in three recent reports. This apparent cronyism has not paid off for the state: the Texas Enterprise Fund has been called the “Phantom Jobs Fund” because of its failure to create jobs.

A recent Wall Street Journal op-ed called Perry’s use of Texas economic development funds akin to reverse Robin Hood: “taking from the average taxpayer and giving to someone [with connections].” Tea-party-backed politicians in Texas have called Perry’s use of the funds, “fundamentally immoral and arrogant.” We find it surprising that nobody has yet pointed out that the Emerging Technology Fund can actually take an equity stake in companies it subsidizes. Government ownership of private enterprise would seem counter-intuitive for a self-proclaimed free-marketeer.

We know that Texas is an egregious example of subsidies gone awry, but it isn’t alone. Northrop Grumman executives contributed to Virginia Gov. Bob McDonnell’s inaugural committee, for example, before landing $3 million from Virginia’s Governor’s Opportunity Fund in addition to other subsidies.

With many states still hiding basic information from taxpayers about who gets subsidies, it is time for all states to beef up their transparency systems and come clean. The corrupting potential of campaign cash needs to be incorporated into economic development safeguards just as it has for contracting in a handful of cities and states.

The dust has settled in Michigan’s budget battle, and the outcome is dramatic: a state that has spent billions on economic development subsidies is ending a number of its core programs like MEGA tax credits and reducing spending in others like film tax credits. The new budget put forth by Gov. Rick Snyder (R) consolidates many programs, requires subsidies to undergo the annual appropriations process, and limits new subsidy spending to $125 million for the next fiscal year. At the same time, however, the state is completely revamping its business tax system bringing about significant reductions in corporate tax revenue.

Gov. Snyder’s Republican colleagues initially balked at the idea of ending corporate subsidies , but they liked what went along with it: replacement of the state’s hybrid gross receipts-corporate income tax, the Michigan Business Tax, with a low 6 percent corporate income tax rate. The Michigan League of Human Services estimates that the overall changes to the tax code will result in a $1.8 billion reduction in taxes paid by businesses.

So who makes up the difference? Taxes were increased for individuals, especially low-income families (the state Earned Income Tax Credit was slashed) and retirees (pensions were taxed for the first time). The whole package also includes deep cuts in education spending.

Although subsidy programs were eliminated, corporations that have already been awarded tax credits will be allowed to continue receiving those benefits by filing their taxes under the old Michigan Business Tax system. One result of this is that state revenue losses from the existing credits will actually increase for a number of years. It is estimated that in FY 2012-2013, grandfathered subsidies will cost the state a half-billion dollars.

Among the state’s largest subsidy programs, two were eliminated: MEGA tax credits (which cost $106 million in 2010) and Advanced Battery Credits ($200 million in 2011). Film tax credits survived but will be reduced from $155 million to a maximum of $25 million.

These are all remarkable changes for a state that has used subsidies so profusely for so long. During former Gov. Jennifer Granholm’s (D) eight years in office, 500 companies received $3.5 billion in economic development subsidies. While it is encouraging to see large reductions in corporate subsidy spending in a time of fiscal crisis, it’s dismaying that these reforms are accompanied by an overall shift of the tax burden from business to families, especially those of limited means.

More details have emerged in the ongoing scandal about the Texas Emerging Technology Fund (ETF), providing further evidence of the pitfalls of letting business interests oversee the awarding of subsidies. New revelations indicate that six former members of the fund’s board had close ties to eleven companies that received $27 million in subsidies.

ETF is a multi-million dollar slush fund controlled by a 17-member board appointed by the Governor and consisting mostly of corporate executives. A series of investigative reports by the Dallas Morning News had previously revealed that eight companies received $16 million from ETF after their investors or officers made significant campaign contributions to Governor Rick Perry. Other investigations revealed that at least one member of the ETF board made personal investments in companies it had approved for subsidies. The Dallas Morning News has now established that at least six members of the board had been working for or investing in companies that eventually got subsidies.

Texas’ Emerging Technology Fund stands out as a prime example of what can go wrong when so-called public-private partnerships are used to manage economic development functions.

A new investigative analysis by two Star Tribune reporters, David Shaffer and Glenn Howatt, shows that Minnesota’s economic development subsidies often fail to create jobs, to be disclosed to the public or to undergo clawbacks if they fail to meet contract benchmarks.

Between 2004 and 2009, Minnesota taxpayers were put on the hook for 650 job-creation deals. Of those, 125 companies failed to meet benchmarks.

Despite failing to meet contractual obligations, Shaffer and Howatt found that the state skirted enforcement of clawbacks. Within the JOBZ program alone, a $33 million a year program pushed into existence in 2004 by former Governor Tim Pawlenty, 77 companies that failed to meet hiring goals were only forced to repay about four percent of the state tax breaks awarded. Worse, half the cities that should have reported on JOBZ subsidies failed to do so. A recent academic study published in Economic Development Quarterly found scant evidence of JOBZ’s impact on county-level economic growth.

Not only do these subsidies fail but the reporters discovered irregularities pointing to a lacking economic development strategy. The head of the Department of Employment and Economic Development admits the absence of goals. Subsidies to one company that failed to open a facility, Excelsior Energy, seem to be connected to large campaign donations to both parties. Another company received subsidies after pirating a patented idea from another Minnesota business. After losing a patent lawsuit and declaring bankruptcy, it got the state to give it a bailout. Woolen Mills, a wool blanket manufacturer in Faribault, MN, closed after subsidies inside the state kept it afloat while subsidies from the state of South Carolina encouraged it to take on a risky expansion. It failed, and the city of Faribault now seeks a $305,000 judgment from the former CEO. Arctic Cat, an ATV manufacturer, got subsidies in one Minnesota city after it promised to move its engineering team from another part of the state.

Economists have long known about these problems. Art Rolnick, the former Minneapolis Federal Reserve research director and now senior fellow at the University of Minnesota, has long opposed such subsidies. Many companies, he claims, would have expanded without government subsidies. The real problem, in his view, is that states and cities are playing a very flawed game stealing jobs from each other instead of investing in public goods that promote long-run economic growth like early childhood education.

Last year six economists, three from the University of Minnesota, urged the legislature to expand disclosure to economic development tax credits. No legislation has yet been introduced to correct that gap or the clawback problems or to cancel ineffective subsidy programs.

Our new study, Show Us the Subsidies, evaluates how well states disclose information about job creation and quality resulting from state economic development subsidies. However, we were not in a position to evaluate the accuracy of disclosed data.

Just such a controversy on this issue is emerging in Indiana. Over the last 18 months, the job creation numbers put out by the state’s primary economic development agency, the public-private Indiana Economic Development Corporation, have been challenged by WTHR investigative reporter Bob Segall in Indianapolis. Both the Governor and the IEDC claim to have created 100,000 jobs using subsidies. When Segall sought to confirm IEDC’s job creation claims, the apparent truth fell far short of those lofty promises.

Segall looked up subsidized “job-creating” companies and knocked on their doors only to find a number of abandoned offices and empty cornfields. An audit released this week performed by an independent consultant confirmed Segall’s findings. Of the 57,100 jobs that recipient companies pledged to create in 2009, only 37,600 were actually created. That’s only 66 percent of the jobs the state said it had created, and far short of the 100,000 the IEDC and Governor claim. Worse, many workers in Indiana continue to suffer as the pain of the recession lingers on.

It’s not the first time job creation numbers have been found to be severely flawed. A Milwaukee Journal Sentinel investigation in 2007 found similarly inflated findings in Wisconsin. Later, the Wisconsin legislature passed Public Act 125 requiring better disclosure on outcomes.

What Indiana’s over-reporting of jobs tells us is that simply reporting promised job creation isn’t enough. Transparency must follow-through and report on concrete outcomes.

When a company wants to expand, it should rely on its own resources or borrowing capacity. But the truth is many companies look to federal, state, and local governments for lucrative subsidies:  tax credits, low-interest loans, tax exemptions, property tax abatements, and research aid. Some estimate that state and local economic development subsidies alone total more than $50 billion each year in the U.S.

This week, Boeing was found by the World Trade Organization to have received $23.7 billion in federal, state, and local government support, much of it illegally. The WTO declares a subsidy as illegal when it benefits a specific company or industry to the detriment of a rival company. Ironically, Boeing claimed to be harmed by subsidies Airbus received in Europe.

Boeing played the subsidy game and won big in Washington State, Kansas, South Carolina, and Illinois. In Washington State, the Governor rammed through the legislature a special package for Boeing worth $3.2 billion. In Kansas, Boeing benefitted from enormous incentives before selling the production facility. In South Carolina, the company received an estimated $900 million package. Out-going Mayor Daley of Chicago awarded Boeing $56 million for its headquarters.

Aside from state and local subsidies, the company received lavish NASA and Pentagon research contracts. As this news broke yesterday, members of Congress differed in their opinion depending on whether Boeing or its rival Airbus (or its parent EADS) was located in their home district.

The WTO’s sweeping statement about the illegality of subsidizing international trade raises a great deal of questions about inter- and intrastate trade. Wal-Mart has received over $1.2 billion in state and local subsidies, often to the detriment of other local retailers. Cabela’s and Bass-Pro Shops both utilize this strategy. Gander Mountain cried foul. Semiconductor companies like Intel and AMD continue to try to gain a competitive edge over each other with our tax dollars.  Would the WTO ever declare subsidies used to attract big retailers with political allies, which in turn put smaller companies out of business, as illegal even if it didn’t cross international boundaries? What about if a subsidy benefits a specific-company to the detriment of another city or state vis-à-vis interstate or intraregional relocations?

The problem isn’t just that these companies get an unfair advantage. It’s hugely burdensome on our economy to spend billions each year on companies which successfully lobby for kickbacks.