Reforms Needed to Ensure Accountability in Economic Development Subsidies

Economic development subsidies should create jobs, increase wages, and promote positive economic growth, but these goals do not consistently prevail. 

This post is the fourth in a four-part series on the costs of business subsidy programs by the Illinois Economic Policy Institute (ILEPI). 

Subsidies to private companies in Illinois have heavily favored a handful of companies, largely supported high-income and white communities, and the funding could have been put to better use by investing in infrastructure or education.  Furthermore, as Illinois continues to grapple with financial woes in the form of unfunded pension liabilities, unpaid bills, and increased taxes, it is of the utmost importance that taxpayers know their money is going towards worthwhile programs.  This report evaluates Illinois’ economic development subsidy programs and recommends best practices for corresponding policies.

 Full Report:  Quality Investments: Best Practices for Business Subsidies in Illinois

How coprorate tax subsidies can improve in IL

Fundamentally, measures must be implemented to ensure companies are creating quality, good-paying jobs that will truly help those in need.  Although Illinois took positive steps by passing the Corporate Accountability for Tax Expenditures Act in 2003, which stipulates specific reporting and enforcement requirements for several tax credit and grant programs, an analysis of Illinois’ programs suggests that the state should seek additional improvements.  A closer examination of five of Illinois’ existing economic development programs highlights particular shortfalls in accountability measures.  Exact job requirements are largely absent, often relying on a recipient stipulating their own anticipated numbers, and job quality standards are uncommon.  While Illinois has marginally better enforcement measures, enforcement is only as good as the performance and quality requirements in place.  If these measures are absent, the enforcement measures are monitoring inherently faulty strategies that do not ensure economic prosperity and quality job creation in communities.

More importantly, the state also needs to create and implement an economic development strategy that requires careful consideration before any subsidy deal is made. The state’s overall lack of planning will continue to result in poor deals that do not help either the state on the whole or those communities most in need in the long run.  As discussed in the first two reports of this series, Illinois has entered into multiple multi-million dollar deals to companies that ultimately laid off workers and even closed in some cases; in doing so, public money favored a small portion of the state’s population in more affluent communities.  Furthermore, Illinois continues to consider large subsidy deals despite proof that they have not succeeded in the past; currently it is competing against 11 other states for a Mazda and Toyota manufacturing plant that is projected to bring up to 4,000 jobs.

Even if tougher job quality and enforcement standards were present, these deals still represent a massive waste of taxpayer money for areas that, comparatively, do not need the aid.  However, if an economic development plan was in place, which identified potential target industries or locations that will most benefit the state on the whole and its most disadvantaged residents, this waste may be avoided.  Planning allows the state’s policymakers to carefully consider a variety of options and identify the most beneficial strategies to equitably benefit the entire state; instead of hastily chasing after a potentially expensive deal, the state can thoughtfully pursue those industries that will have a positive long-term economic impact.

Economic development programs should assist state and local economies by promoting long-term growth, quality jobs, and increased worker wages, yet accountability and evaluation are necessities.  Businesses must be held responsible to certify that taxpayer money is aiding in the betterment of citizens and the overall economy.  As the state continues to grapple with financial woes and funding uncertainties, it is in its best interest to continually evaluate its subsidy practices and promote balanced policies that effectively spend taxpayer’s money.

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