State officials work to dismantle business incentive transparency, accountability bill
The agency responsible for attracting business to Tennessee has worked behind the scenes to dismantle state legislation that could increase transparency and accountability for business grants and tax breaks.
Officials from the Tennessee Department of Economic and Community Development, with the backing of Gov. Bill Lee, pushed to strip nearly every significant provision from the House version of the FACTS Act, a bill designed to better protect public funds and allow taxpayers to see which companies receive tax breaks.
The administration's opposition comes despite Lee's pledge for more government transparency. It also runs counter to efforts by two influential conservative groups at the statehouse: Americans for Prosperity, which is funded by David H. Koch and Charles G. Koch, and the free-market advocacy group Beacon Center of Tennessee.
"We very seldom, if ever, get what we want the first time around,” said Rep. Andy Holt, R-Dresden, who co-sponsored the bill. “I do think there is more work to be done.”
The Senate Commerce and Labor Committee is scheduled to take up the bill Tuesday, and a House subcommittee will hear it on Wednesday.
A Lee spokesperson declined an interview request but in a statement said the administration is working with lawmakers on "thoughtful reforms" to how the state issues economic development incentives.
Disclosing tax credits, verifying jobs
Under the original bill, the state would have to disclose how much in tax credits are claimed by companies such as Amazon and investment firm Alliance Bernstein. Today, tax credit information is deemed confidential under state law. (Amazon took the unusual step of revealing the tax credits awarded for its planned Nashville office.)
The legislation is one of the first tests of Lee's promises to make state government more transparent. If Lee pushed for the bill, he would have to overcome opposition at his own economic development department, which has had some big wins recently under Commissioner Bob Rolfe.
Also, many prominent companies take advantage of business tax credits. The state has a running tab for unclaimed business credits of nearly $1.3 billion.
“I think there was just not the political will to do that,” said Deborah Fisher, executive director of the Tennessee Coalition for Open Government. “Most states that offer tax credits for economic development make the information open. We thought Tennessee could be part of that group.”
Generally, economic development boosters say too much disclosure could hurt the state's ability to recruit companies. That was one of the points agency officials made during negotiations about the bill, said Ron Shultis, policy coordinator for Beacon Impact, the lobbying arm of the Beacon Center.
While Florida, North Carolina, Kentucky and Mississippi all reveal tax credit details, the state negotiators said they compete with the few other states that do not: Georgia, Texas and South Carolina, Shultis said.
“We were hoping to keep the transparency in the bill," he said, "but the administration was too hesitant to do that at this point ... It really was coming from ECD directly.”
The FACTS Act would have also required the state to verify that companies in the popular FastTrack grant program were creating the jobs they claimed. As it currently stands, the information is self-reported.
A state audit in 2016 found that companies didn't accurately report their jobs figures to the Department of Economic and Community Development, and the agency did not enforce its reporting requirements. The FACTS Act would have allowed the state to recover public funds if a company didn't report its jobs figures or create all of the jobs it promised.
Companies in the FastTrack program are awarded grants for job training, infrastructure and other company expenses, in exchange for creating new jobs.
'Not a pretty process'
Only a couple of reforms remain from the original version of the bill. As written, the House version would still eliminate certain discretionary tax credits.
In some situations, the Economic and Community Development commissioner may lower job creation requirements for companies in economically distressed areas, or for company headquarters. Department officials said they don't need those exceptions because such businesses can get tax credits through other means.
"Watching sausage get made is sometimes not a pretty process," said Tori Venable, a lobbyist for Americans for Prosperity. "I know Gov. Lee said this was a top priority."
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A new provision was added to the bill after negotiations with agency officials: The state would now be required to implement "clawbacks" for major cash awards to large companies such as Amazon, under the capital grant program. That was already the agency's practice, though, since Hemlock Semiconductor announced it was closing its Clarksville plant in 2014, after receiving a non-refundable $95 million state grant. The current version of the bill would now write those clawbacks into law.
“We’re really excited about making sure Tennessee taxpayers aren’t going to be on the hook for any of these mega-deals in the future,” said Shultis from Beacon.
Venable said she thought the House bill was still a "step in the right direction. If you're a business and you're receiving taxpayer dollars, you should be held accountable."
In the statement, the Lee spokeswoman Laine Arnold said the administration is "working with lawmakers to enact thoughtful reforms with respect to economic incentives."
"We are proud of the initial steps that have been taken, including efforts to strengthen and codify clawback measures for economic development deals involving taxpayer money.”
Source: Knoxville News Sentinel, by Mike Reicher, Nashville Tennessean
The East Tennessee Economic Development Agency markets and recruits business for the 15 counties in the greater Knoxville-Oak Ridge region of East Tennessee. Visit www.eteda.org
Published April 4, 2019