By CHRISTOPHER BUTLER

Tennessee officials must start holding businesses that receive economic development subsidies to a higher standard, according to a report that a national policy resource center released this week.

Tennessee has standards that are slightly below average in terms of how it monitors companies that accept state subsidies. Tennessee also does not do enough to penalize companies that do not fulfill their agreements with the state, according to members of the Washington, D.C.-based Good Jobs First, in a report titled “Money Back Guarantees for Taxpayers.”

Those subsidies cost state taxpayers about $36 million per year, according to the center.

“States and localities in the United States spend an estimated $70 billion per year on economic development subsidies, also known as incentives. Yet the companies receiving that assistance do not always deliver as many jobs or other public benefits as promised,” the report said.

“When a company is given subsidies without strings, that is a handout rather than economic development.”

The center examined how all 50 states and the District of Columbia hold companies accountable when they receive economic incentives toward creating jobs.

The center gave Tennessee a grade of a C minus (the state tied with West Virginia for 29^th place). Tennessee, which scored a 47, was not among the 22 states that scored above a 49 or above (on a scale of 100).

Among the highlights of the report, as they pertain to Tennessee:

• Tennessee’s Job Tax Credit was one of 23 programs (out of 238) studied that had no reporting provisions requiring recipients to report to a state agency on their outcomes.

• Three of the state’s incentive programs (FastTrack Job Training Assistance, Headquarters Tax Credit, and the Sales and Use Tax Credit for Qualified Facility to Support an Emerging Industry) lacked any way to independently verify any of a company’s reported claims.

• Tennessee Job Skills program lacks penalties for non-performance.

• Tennessee does not publish names of noncompliant recipients (while 38 programs in 18 other states do) and does not post lists of which recipients were penalized (only 14 programs in eight other states did).

The report looked at the most significant subsidy programs in all 50 states and the District of Columbia — 238 programs in all, which, together, cost taxpayers more than $11 billion a year.

The report suggested that recipients in all programs should have higher benchmarks for reporting results on job creation, wages, and benefits — and that state officials verify such information. States should punish recipients who do not comply, the report said.

“The fact that a state adopts strong enforcement procedures does not guarantee that any given subsidy program or deal is a good use of taxpayer funds. Some programs may simply offer too much assistance to companies, so that benefits will never outweigh costs.

“Yet as long as a program is in operation, taxpayers have a right to demand both strong performance requirements (including job creation and job quality standards) and aggressive enforcement of those requirements,” the report said.  

Of all the states, Vermont, North Carolina, Nevada, and Maryland scored the highest on monitoring and enforcement. The District of Columbia, Alaska, and North Dakota scored the lowest.

Christopher Butler is the editor of Tennessee Watchdog and the Director of Government Accountability for the Beacon Center of Tennessee. Contact him at chris@beacontn.org

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