If you want to attract good jobs or retail rock stars, you have to shell out money, usually in the form of tax breaks and upfront financial perks. At least that’s the calcified conventional wisdom. Most cities and other governments justify such incentives by saying they make a place competitive and create jobs.
Some economic developers dazzle us with “metrics” and “matrices” and “multiplier effects” and other shiny jargon as they attempt to convince communities to sweeten the pot for some business they’re courting.
It all looks good on paper. But who’s checking to ensure the pretty promises materialize as advertised, and do reports exist in the public domain that would allow that checking? In our experience, they don’t. It’s all about the public-private partnership before the deal is done, but everything is private proprietary information afterward.
Rarely have we heard about elected officials demanding performance and accountability measures before the deal is done to prevent all the flash and metrics and matrices from later disappearing behind the corporate veil.
We know from experience that most private businesses, even when accepting public money, often refuse to answer questions about their workforce. We know private businesses lay off employees when the bottom line demands it. We know hiring plans change. So, how do we ever know a private firm is keeping its end of an economic development bargain?
The question everyone should be asking, particularly before doling out public money, is just how effective tax breaks and other incentives are in stimulating economic development. A 2014 report by governing.com revealed that the “extent to which local governments scrutinize economic development programs varies greatly, and many remain without basic accountability measures.”
Of about 1,200 local governments and agencies surveyed, three-quarters reported measuring the effectiveness of business incentives, while 73 percent conducted cost-benefit analyses, according to the report.
A small share (56 percent) reported always requiring performance agreements, while 27 percent had agreements in place for some incentives and 17 percent did not use them at all. Only 36 percent linked economic development priorities to budget processes, according to the report.
It could be that all the economic development agreements across Galveston County over the years are living up to the hype. But how do we know? How do we measure? And who’s really keeping track? We can’t think of an instance when a city has withdrawn development incentives because of underperformance.
We understand commercial developments can ease the ad valorem tax burden on residents. And we often and in general have supported cities who strive to attract and, more importantly, retain good jobs. We’re not opposed to incentives or economic development.
But we think all cities in this county should require performance agreements when handing out public money. That’s why we’re cautiously encouraged by League City’s reworking of its economic development policies.
Earlier this month, League City Economic Development Director Scott Livingston publicly presented some policy changes, including offering tax rebates instead of tax abatements to companies the city wanted to woo. An abatement is a tax reduction granted to encourage economic development and it’s usually an upfront arrangement. Under new policies, the city would instead offer tax rebates after a company has put down roots, hired people and made property improvements. Before giving the tax rebate, the city could measure the company’s performance in terms of hiring and ensure it did what it said it would do.
League City is moving in this direction, and we hope to see other cities follow suit.
We suggest all cities should begin regularly measuring the effectiveness of incentives and make those reports public.
In changing its policies, League City said it would, from now on, use the word “investment” instead of “incentive” when dangling public funds to private enterprises. Whatever you call it, it’s taxpayer money. And taxpayers have a right to know how their investments are performing.
• Laura Elder