Investigation Reveals Need for Business Subsidy Reforms

Georgia spends millions of dollars each year subsidizing companies that don’t always deliver on their promises of new jobs, according to a recent investigation by the Atlanta Journal-Constitution. But Georgia lawmakers could make these programs more effective and hold companies accountable with some common sense, business-friendly reforms found in other Southern states.

The AJC report analyzed more than 150 subsidies provided through Georgia’s two “deal-closing funds,” REBA and OneGeorgia EDGE, which provide up-front money to entice companies to choose Georgia over other states. The newspaper found that since 2002 “nearly half the companies the state wooed with deal-closing cash failed to deliver the full number of jobs they promised” before the agreed-upon deadline. They also found several instances where state officials approved deals despite red flags, such as a $6.25 million subsidy in 2007 to Range Fuels Inc. – a company that federal regulators had labeled “a high risk venture.” That company was foreclosed on four years later after failing to generate any product at all.

There are critics on both sides of the political spectrum who argue that subsidies are always bad deals for the state. But supporters of business incentive programs should be alarmed by these findings too. They suggest that Georgia taxpayers are often not getting a good bang for their buck and that they might get a better deal if these programs are improved.

Lawmakers can make those improvements with three simple reforms designed to strengthen the programs without compromising economic growth.

1)    Improve transparency by requiring a concise annual report showing how much these programs spend and whether they are bringing jobs to Georgia in a cost-effective way. Similar reports are already published in Texas, North Carolina and Florida, giving lawmakers, the media, and concerned citizens a powerful tool to hold these programs accountable. Because Georgia does not produce an annual report, three AJC reporters had to spend three weeks wading through paper files in boxes to find this information.

2)    Enhance effectiveness by commissioning a comprehensive evaluation of all economic development efforts, as Georgia last did more than a decade ago. In 2010, Texas auditors underwent a full review of its incentive programs and recommended several reforms as a result. Following their model might reveal some areas where Georgia can improve.

3)    Hold companies accountable by making sure the safeguards we do have are strictly enforced. The AJC investigation found that less than 4 percent of all state subsidy money has been “clawed back” when companies don’t deliver, despite many opportunities to do so. Lawmakers should explore ways to improve enforcement, such as giving the Department of Community Affairs more resources to ensure proper oversight.

Whatever your opinion about business subsidies, taxpayers always deserve a good return on their investment. That means strong performance requirements, better access to information and strict enforcement of rules. Because when a company is given public money without strings, that is a handout rather than economic development.

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