Revealing Tax Subsidies

OSPIRG Foundation

Last year, Oregon took an important first step towards showing the public whether the hundreds of millions of tax dollars spent on corporate economic development tax subsidies are worth the money. House Bill 2825 went into effect at the close of 2011, requiring disclosure of twelve corporate tax subsidy programs estimated to cost taxpayers nearly $530 million in the 2011-2013 biennium.

Oregon lawmakers should be commended for their action. With scarce public dollars and a slowly recovering economy, taxpayers and lawmakers alike need access to clear information about these programs and their effectiveness.

However, OSPIRG Foundation’s analysis of the newly-required reporting found that Oregon has significant room to improve to give taxpayers the full picture.

In our analysis, we examined the first batch of reports available under the new law. We evaluated two things:  How well state agencies comply with the law, and the degree to which the new information helps the public see if their tax dollars get real value from these programs.

Key findings

Some state agencies go further than others to meet the intent of the law when it comes to the start date of disclosures.

Of the agencies reporting on tax subsidies as of this writing, all included disclosures on expenditures made before the legally required date of June 30, 2011, some going as far back as July 2010. The Oregon Film and Video Office provided reports though they are not required to do so until fiscal year 2013.

Available information is insufficient to evaluate the value of corporate tax subsidies.

The law requires state agencies responsible for administering subsidy programs to disclose only the information they already track, not to track additional information. There do not appear to be any noncompliance issues. However, gaps in the available data suggest that agencies are collecting information that is insufficient to make informed choices about whether the value created by these tax subsidies are worth the loss to the state budget.

Gaps in available data include:

• Amount of the subsidy:  Only two of the four programs reporting fully disclose the amount of tax subsidies to particular recipients.
• Outcomes:  None of the four programs disclose both a required and actual outcome for each corporation receiving a tax subsidy, making it impossible to determine whether programs are performing at expected levels
• Rationale for granting the subsidy:  None of the four programs provide a complete methodology to justify their subsidy decisions, making it impossible to determine whether failures to produce desired outcomes result from flawed criteria or poor implementation.
• All of the above:  At least one enterprise zone tax subsidy program fails to report because the program lacks any tracking mechanisms.

Recommendations

All tax subsidy programs should put measures in place to eliminate gaps in future reporting. This should include a process for establishing expected deliverables for a recipient and confirming that deliverables were met, all supported by a methodology that reasonably shows that the public dollars were necessary in order to achieve the outcomes.

Subsidy programs that lack such measures should not issue new subsidies until such safeguards are put in place. The information the law requires for disclosure is basic and essential in order to ensure the integrity of our economic development tax subsidy programs.

Subsidy programs should include reliable mechanisms to ensure accountability to taxpayers. Subsidy recipients that fail to deliver on promised results should be required to pay back the value of these tax expenditures, or at a minimum should be disqualified from receiving awards from other subsidy programs in the future. Moreover, failure to report on fulfillment of required results should automatically count as failure to meet program goals so that recipients falling short of expectations do not have an incentive not to report on those results.

State officials should solicit and use feedback from lawmakers, the Oregon Transparency Commission, taxpayer advocates, and members of the media on how best to implement these recommendations. It is likely there are legitimate questions around how best to present complex sets of data in a way that is thorough and well-explained. Similarly, there are important questions over how to best design methodologies, tracking and accountability systems. Oregon taxpayers will be well-served if state officials use a broader range of expertise and perspectives in tackling these problems.