A stunning survey issued today by the International Economic Development Council (IEDC) proves that state and local economic development officials overwhelmingly agree with most accountability activists.
That is, hundreds of people who deal with site location consultants, tax-dodging lawyers, and footloose companies every day think there need to be some serious rule changes.
This is a very mainstream sample: IEDC is the nation’s largest professional association of economic development officials: it has about 4,500 members (the vast majority in the U.S., despite its name) and the survey was conducted in January, with a reported 350 respondents. (As well, IEDC has corporate members, including site location consultants; no cross-tabs of responses by type of member are provided.)
Look at what they said (words in quotes come from IEDC’s January 18 summary, which does not reproduce the survey instrument and is member-password restricted):
98.6 percent said “incentives should be structured in such a way that the community receives a tangible return on investment (e.g., employment, capital investment).”
(On that issue, see our Money for Something.)
“96 percent believe that part or all of the granted incentives should be returned if a company does not meet agreed-upon projections [i.e., clawbacks].”
(On that, see our Money-Back Guarantees for Taxpayers.)
67 percent “do not think it is ethical for location consultants to be compensated as a percentage of the incentive package they negotiate…”
(On that, see Chapter 2, Chapter 3 and Chapter 9 of my 2005 book.)
61 percent “believe location consultants’ compensation in a deal should be public information…”
In an open-ended comment section, “[p]erhaps the most frequent comment was that incentives practices are ‘out of control’…”
To be sure, despite these frustrations—and even though 57 percent said the frequency of incentive use is “too many,” the development officials responding generally don’t favor getting rid of subsidies. Instead they asked for help not getting snookered:
78 percent “responded that they approve of the practice of using financial incentives to influence business location decisions.”
But more than “80 percent responded that they or their peers or colleagues would benefit from more training in analyzing incentives deals.” Their most commonly requested new skills were how to calculate Return on Investment (ROI), fiscal impact, and the value of non-cash incentives.
“83 percent responded it would be helpful to have a set of guidelines or best practices for negotiating incentives packages.”
(On that point, see this publication of ours and this one, too.)
Without seeing the survey instrument, I am struck at how the responses all seem to overlook site location business basics: labor, occupancy, logistics, proximity to suppliers and customers, etc. That is, they apparently ignore the more than 98 percent of a typical company’s cost structure that is not state or local taxes and therefore cannot be influenced by subsidies. Clearly, some respondents believe that companies bluff and others said things like (quoted comment): “public monies are needed to provide public services and we shouldn’t be coerced into subsidizing large companies that don’t need the assistance.”
The development staffers also made it clear that politicians are no help. Many said there is a “‘general need in our industry for sharper benefit/cost analysis skills.’ Yet ‘a lot of times, elected officials don’t really care about the details of these numbers.’”
The IEDC survey has a second part, on the uses of subsidies, to be released soon. Clearly, this is a raw issue for Council members, especially those in smaller localities: last April IEDC published a guide on how to deal with site location consultants.
As someone who began training public officials on these issues in the late 1980s, I have seen a sea change in attitudes. Most feel trapped in a game whose rules they would never have written, and this IEDC survey attaches numbers to my takeaways.
So when will elected officials finally heed this consensus and start fixing the rules? If two-thirds of development officials agree it is unethical for site location consultants to pull down commissions on subsidies they negotiate, which state will step up and become the first to register and regulate these secretive, powerful players as lobbyists and thereby deny them success fees, a.k.a. commissions?