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Shining a Light on the Arizona Commerce Authority:The Need for Stronger Transparency and Accountability Standards at the State's Economic Development Corporation
by Benjamin Davis, Frontier Group; Serena Unrein, Arizona PIRG Education Fund; Phineas Baxandall, U.S. PIRG Education Fund
Arizonans deserve to know how their taxpayer dollars are spent – including when their tax dollars are given as subsidies to corporations. Transparency enables citizens to hold governments and companies accountable, promotes fiscal responsibility, and bolsters public confidence in government. Today, the standard of transparency for state spending is to post checkbook-level information on a central government website – allowing taxpayers and decision-makers to view the awards and payments given to individual companies and vendors. However, more than a year after the creation of the Arizona Commerce Authority – the new state entity responsible for distributing the state’s economic development subsidies – the Commerce Authority discloses information online for only a portion of its economic development funds.
Since the start of 2011, the Arizona Commerce Authority has disclosed checkbook-level detail online for 59 percent of the $41.5 million awarded to companies in grants and tax credits. Checkbook-level detail on the other 41 percent – or $17.0 million – is not readily accessible to the public. While the initial disclosures are a positive first step, the lack of complete transparency prevents Arizonans from ensuring that every subsidy is a worthwhile investment. (See Figure ES-1.)
Figure ES-1: The Arizona Commerce Authority’s Grants and Tax Credits Online Accessibility
In the Arizona Commerce Authority’s second year, it should take concrete steps toward greater transparency and accountability and ensure that all taxpayer dollars are spent wisely.
The Commerce Authority provides checkbook-level subsidy information online for a portion of its programs.
- The Commerce Authority’s website provides the names of subsidy recipients and the subsidy value – known as checkbook-level detail – for four out of the 13 incentive programs that award tax credits and grants: the Arizona Job Training program, the Arizona Competes Fund, the Rural Economic Development Grant program and the Arizona Fast Grant program.
- The grants and tax credits awarded through these programs constitute $24.5 million of the $41.5 million distributed by the Commerce Authority since the beginning of 2011. Checkbook-level detail on the other $17.0 million is not accessible online.
- The $41.5 million awarded by the Commerce Authority represents only a fraction of the funds it is authorized to spend – every year the Commerce Authority can award up to $151.2 million in grants and tax credits.
The Arizona Commerce Authority does not yet require all subsidy recipients to deliver specific results.
- Information is generally lacking about what economic development benefits are expected as a result of subsidies to particular companies, such as jobs, wages, property taxes or other private investment. The Commerce Authority discloses online information about the specific benefits companies are expected to deliver in return for their subsidies for only one of its 15 subsidy programs – the Arizona Competes Fund – which constitutes only 12 percent of the Commerce Authority’s total incentive expenditures since the start of 2011.
- The Commerce Authority conducts after-the-fact assessments on whether companies actually do deliver promised benefits for two programs – the Arizona Competes Fund and the Rural Economic Development Grant – and plans to publicly disclose these assessments for the Arizona Competes Fund.
- When companies that receive subsidies fail to deliver on promised economic development benefits, the Commerce Authority can reclaim taxpayer subsidies for only the Arizona Competes Fund.
While the Commerce Authority has adopted some practices to ensure subsidies are awarded in the public interest, weak safeguards do not completely prevent special interests from unduly influencing award decisions.
- To prevent conflicts of interest, the Commerce Authority requires that board members and staff refrain from voting on or participating in award decisions that could benefit or harm them personally.
- The Commerce Authority has placed stringent limits on the gifts board members and staff can accept from companies, and it has posted its gift policy online. However, details on individual gifts of less than $50 given to board members and staff by companies are not made available online, preventing the public from easily monitoring whether the gift policy is being properly followed or if companies are improperly influencing the Commerce Authority’s decisions.
- Conflicts of interests can arise because the Commerce Authority accepts funds from private companies to pay its CEO, rent and other operating costs. Such gifts to the Commerce Authority can potentially create an improper incentive to award subsidies to benefit these companies directly or indirectly.
The Arizona Commerce Authority should adopt practices to increase transparency and accountability to the public and to maximize the benefits achieved from development incentives.
- The Commerce Authority should post to its website – and/or the state of Arizona’s transparency website – checkbook-level detail on the subsidies not currently disclosed online. The Commerce Authority should post checkbook-level detail for all subsidies awarded in the future.
- The Commerce Authority should clearly specify the expected economic benefits – such as the number of jobs created, number of employees trained, or increased property tax revenue generated – in all subsidy contracts and make all contracts and subsidy agreements available online.
- The Commerce Authority should conduct, and make available online, after-the-fact assessments for all subsidy programs to determine whether recipient companies are delivering expected benefits.
- The Commerce Authority should recoup subsidy funds – either in their entirety or on a pro-rated basis – from all companies that fail to produce the deliverables in the subsidy agreement.
- To eliminate potential conflicts of interest, the Commerce Authority should post details on individual gifts online and stop accepting funds and in-kind donations from private companies.