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Many Local Governments Support More Transparency in Reporting Business Development Incentives

A cornerstone of local government management in America today is enticing businesses to establish their operations within their jurisdiction. This includes offering incentives in the form of tax abatements or other economic incentives. Because of the significant sums of taxpayer money that often accompany economic development efforts, local governments often face pressure to disclose the reporting of the incentives they offer.


However, there have only been modest changes in transparency requirements for economic development reporting in the last few years. Notably, despite some opposition to regulatory changes like GASB Statement no. 77—which mandates local government disclosure of tax abatements offered to private businesses on annual comprehensive financial reports (ACFRs)—local governments continue to have a great deal of discretion in what gets reported (Governing). Our own survey shows that 40% of local governments do not report the incentives they offer. A potential reason why transparency measures haven’t been more aggressive is the fact that increases in transparency may harm a government’s ability to effectively bargain with private enterprises.


To further understand how local governments are balancing pressures toward transparency and the value of private strategic negotiations with businesses, CivicPulse, in collaboration with Professor Nate Jensen at the University of Texas at Austin, surveyed 651 elected policymakers and 322 local finance officers nationwide. We found that a surprising number of local government officials were in favor of further efforts to increase transparency in the reporting of economic incentives, despite the current lack of effort. For example, local policymakers were asked about the idea of creating a publicly available list of companies that had received incentives, and 63% of them expressed support for it.

Finance officers were asked more generally about incorporating this information into their annual financial reports, and 48% of them supported the idea. The next largest group (25%) thought that the current reporting standards (including GASB 77) were already good enough. As described by one officer, “The process is entirely transparent as is considering all information is public record. Creating additional reports and documents to support transparency efforts doesn't make the information any different than what it already is, it just creates an unnecessary additional work load.” However, notably only 8% expressed outright opposition to the idea.

Whether the support for greater transparency will actually translate into great action will remain to be seen. Perhaps greater attention to this issue will help, but local officials will have to continue to navigate competing incentives for transparency and confidentiality. As one official told us, under the condition of anonymity, “I feel that there is a fine line between transparency and being able to properly develop the community.”


Survey Background

The research underlying this blog was built on data from two national random-sample surveys of 651 local policymakers and 322 finance officers, fielded from October 2021 to November 2021. The sample frame draws on Power Almanac’s continuously updated contact list of government officials from counties, municipalities, and townships with populations of 1,000 or more. The results reported in this blog are calculated using the unweighted survey responses. The survey was constructed and managed jointly by CivicPulse and Nathan Jensen. Below are the survey questions referenced in the blog:

Does your local government track company economic development incentive compliance such as jobs created or capital invested? Answer Choices: Yes; No; I don’t know; Other (Please specify)


Another proposal is to increase transparency of economic development by requiring a database that includes the companies receiving incentives. States would collect information on the company name, type of incentive, and total dollar amount of incentives for all state and local programs to be posted on the internet. Would you support a requirement that all communities provide a full list incentives? Answer Choices: Yes; No; No opinion; Don’t know; Other (please specify)


Some transparency advocates have pushed for greater transparency of the use of tax abatements for economic development. How do you feel about greater transparency, such as disclosure of each individual tax abatement offer to companies? (Open ended)


References

https://promarket.org/2021/09/15/firms-economic-development-incentives-transparency-research-texas/

https://www.governing.com/archive/gov-new-rules-disclose-tax-breaks-half-governments.html

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