JOB OPPORTUNITIES TASK FORCE

Advocating better skills, jobs, and incomes

Creating Economic Opportunities for All Marylanders Through

Accountability for Economic Development Funds

The Problem: Maryland spends millions of dollars every year to spur job creation and retention in the state. These economic development funds should be used to create and preserve good economic opportunities for all Marylanders. It is impossible to assess whether the state is meeting its job creation targets without the collection of adequate data from the businesses receiving economic development funds.

Policy Solution: The state should adopt a comprehensive disclosure law requiring state agencies to publish annual reports on the jobs created or retained by each company receiving an economic development subsidy (such as a loan, tax incentive, or grant), including the quality of those jobs.

Background:

Current Reporting and Accountability Requirements in Maryland

In FY2003, Maryland’s Department of Business and Economic Development (DBED) spent $74.5 million on loans, grants, bond guarantees and equity investments to spur job creation in the state (this amount does not include the value of “tax expenditures,” or revenue lost through tax breaks). Reporting requirements on how these funds were spent are inadequate.

As part of the “Managing for Results” initiative instituted under former Governor Glendenning, DBED must report annually on performance measures to the Department of Legislative Services. DBED’s performance measures include the number of new and retained jobs that were projected to be created or retained in Maryland as a result of economic development aid to new or existing businesses. An audit by the Department of Legislative Services found that DBED “did not have comprehensive quality control procedures to ensure the accuracy of reported results.”

Aside from the inaccuracy of DBED’s performance measures, there are two major shortcomings of the available data from DBED. First, DBED only reports projections of jobs, not actual jobs created. Secondly, this information is not company specific. The data is only presented in the aggregate, which means there is no way to compare the dollar amount of each subsidy to the number or quality of jobs created.

Comprehensive Disclosure and Accountability Laws in Other States

Minnesota was the first state to pass a comprehensive disclosure law in 1995, followed by Maine and most recently Illinois (seven other states have less comprehensive disclosure requirements). These laws were passed in response to the secrecy that usually surrounds economic development deals. The disclosure laws in Minnesota, Maine an Illinois have been used as tools of good government that allow for more public participation in debates regarding the targeting of economic development subsidies.

Policy Solutions:

Reliable data collection and reporting are essential to measuring the effectiveness of subsidies and monitoring the performance of individual subsidized companies.  A comprehensive disclosure law will make economic development deals less secretive and will allow the public to participate in informed debates about economic development priorities. As the state continues to tighten its fiscal belt, assuring public funds are creating and retaining quality jobs becomes all the more critical.

A disclosure law currently being discussed requires the following reports, which shall be made public in both printed and electronic forms:

· Unified Economic Development Budget Report. This report should be prepared by DBED and must list all types of state expenditures made for economic development purposes during the priori fiscal year, including the amount of uncollected state tax revenues due to business tax breaks.

· Unified Annual Development Subsidy Report. Each state agency that provides development subsidies must file an annual report with DBED for each subsidy over $25,000. The report must be broken down by each project site for the duration of the subsidy to the company, and include the following information:

o a summary of the jobs created or lost

o the average hourly wage paid and amount of health care coverage provided to all current and new employees at a project site;

o whether these jobs were full-time, part-time or temporary.

· Unified Property Tax Exemption and Credit Report. This report is to be prepared by the State Department of Assessments and Taxation and must list state property tax exemptions or credits for the previous fiscal year that are development subsidies over $5,000. The report must include the name and address of the property owner and the amount of the property tax revenues not collected as a result of the property tax exemption or credit.