As the coronavirus has swept the country, forcing state and local governments to adjust to a new way of doing business, the public’s ability to keep track of government activities has not been easy. Video meetings are often the best governments can offer, and that has put new limits on public participation. But when it comes to government economic development deals and efforts to attract jobs, secrecy is nothing new. Whether or not there is a pandemic, the public’s access to information about these deals is limited.
Hundreds of projects — with tax breaks, offers of public property, property tax abatements and other sweeteners — are proposed each year by state and local governments to attract private companies who promise to bolster the local economy with jobs and the creation of spinoff industries. These efforts do not appear to have slowed during the pandemic, and the costs and benefits to the public remain difficult to calculate.
State laws, including in Florida and neighboring states, are a patchwork of regulations that tend to land on the side of corporate secrecy, more often than not. And an effort in Florida to make economic development deals more accessible to public scrutiny failed this year for the third time in the state legislature.
The competition for Amazon’s second headquarters is a prime example of how states and localities take steps to keep information about tax benefits and other deals with private companies confidential. The Amazon competition in 2017 drew more than 200 applications from the US, Canada and Mexico, including Florida. Most offered extensive tax breaks and other incentives. But the public was often left in the dark about how their tax dollars were being used, even after the finalists and eventual winner were announced.
Even now, more than two years after Arlington, Va., was tapped for the site, many states and localities have refused to make public the size of tax breaks and other fiscal support they were offering to lure Amazon. The company is headed by Jeff Bezos, who is considered to be the world’s richest person.
MuckRock, a nonprofit news site that tracks open records requests, filed 293 public records requests about HQ2. But its ability to get details was limited.
The city of Jacksonville used a common method to avoid disclosure. It turned down MuckRock’s request for information about its HQ2 proposal, even though its proposal would involve publicly funded assets. Jacksonville said it “did not put together the proposal,” which was done in tandem with the local Chamber of Commerce, according to news reports. Orlando, whose proposal was honchoed by the Orlando Economic Partnership, did not release its proposal until after it was knocked out of the competition. It turned out the city had offered Amazon millions of dollars worth of incentives, including a new high school and access to substantial parcels of land. But details remained sketchy, and officials blacked out extensive parts of the proposal — and they remain redacted.
There were similar responses from the Denver Metro Chamber of Commerce and the Los Angeles County Economic Development Corporation.
Others such as New York City, Loudoun County, Va, and Fairfax County, Va, have exceptions in their state laws to protect proprietary information, which they told MuckRock included their HQ2 proposals. Usually, the exception for proprietary information, or what some laws refer to as “trade secrets,” is viewed as referring to information held by a private company, not a government.
As the competition progressed, Amazon requested that the 20 HQ2 finalists sign nondisclosure agreements. All agreed. Still, some cities, including finalists Boston and Toronto, made their proposals public.
Chris Morrill, executive director and CEO of the Government Finance Officers Association, which has members across the U.S. and in Canada, said he understood the need for secrecy.
“There are certain instances where you can’t be transparent on specifics but can be on overall goals…”
“There are certain instances where you can’t be transparent on specifics but can be on overall goals and that there are community benefits,” he said.
Keeping deals under wraps while negotiations are ongoing also allows the government to hide its position from competing jurisdictions and prevents the company seeking the deal from using it as leverage with another state or local jurisdiction to get a better deal elsewhere.
The secrecy can put pressure on the company to negotiate without information about previous offers, which can ultimately lead to a better deal for taxpayers. But it also can, as in the case of Amazon’s own effort requiring non-disclosure agreements, give the company tools to play one jurisdiction off another.
Using a workaround to keep the public out
One common reason that localities are able to reject these requests for information is because economic development authorities, local chambers of commerce and other nonprofits created and submitted bids on behalf of the local government. These nonprofits are often exempt from public records requests because they are considered private entities, even though they are working on behalf of the taxpayers and the government, and in some cases are supported by taxpayer funds. They claim that even though the proposals were relying on public funds and tax incentives, the applicant was not really part of the government.
Many officials overseeing the bids to the behemoth company said they were not gaming the system. Instead, they were fearful that disclosing their proposals could harm their position and tip off opponents. If information got out about what others were offering Amazon, competitors might sweeten their own proposals to lure Amazon to their communities.
It was also in Amazon’s interest to have the applicants keep the details under wraps. It could allow the company to try to play one community off another, without letting any of them know about the other proposals. And Amazon further cemented the secrecy by asking for non-disclosure agreements, which government officials from all 20 finalists signed.
Most competing communities seemed willing to do whatever it might take—including keeping the public in the dark.
Most of the competing communities seemed willing to do whatever it might take—including keeping the public in the dark about how public funds and tax incentives would be used —to land the promised 50,000 jobs.
Three of the 20 finalists, whose bids were rejected, have not released any information about their bid. Austin and Dallas have revealed some but not all the details about their bids. Some locations that were not finalists, and therefore did not sign nondisclosure agreements, such as Tacoma, Wash., also have not released their bids.
Nathan Jensen, a government professor at the University of Texas at Austin who studies economic development strategies, said that despite the secrecy, some aspects of the Amazon competition were more open to public scrutiny than most.
“As opaque as Amazon seems, we have more information on that than the average deal,” he said. “The average program is a lot smaller, but it’s a lot quieter.”
Two Florida bills aimed to clarify and standardize what information is public failed yet again
Florida has some of the strongest sunshine laws in the country, according to the Florida First Amendment Foundation.
A recent study by the U.S. Public Interest Research Group Education Fund and Frontier Group on economic development transparency gave Florida a rating of 76, or a C+, but that still put it in the top 10 of the 50 states.
A study by the Pew Charitable Trust rated Florida as among states “leading” in its 2017 State Tax Incentive Evaluation Ratings, saying the state has a “well-designed plan to regularly evaluate tax incentives.” The study did not examine transparency.
Legislation aimed at helping the public better understand the scope of government giveaways to private businesses in Florida died in the state legislature earlier this year for the third year in a row. The measure, which would have made it more difficult to withhold information about public contracts, failed to even win a hearing in the state Senate after passing the House. A second, related bill also died.
Rep. Tommy Gregory, R-Sarasota, the bill’s chief sponsor, said the goal was to give the public more details about economic development deals with private industry.
“What this bill does is it specifically excludes from the definition of trade secrets certain financial information related to contracts with an agency. If a government entity wants to enter into a contract with a business, that contract’s price and terms could no longer be exempt,” he said.
Gregory said he introduced House Bill 799 to define secrets in the same way as the Uniform Trade Secrets Act, model legislation which defines what is a trade secret and should therefore not be released. Although the bill passed the Florida House, the similar Senate bill did not move through its assigned committees.
Under Gregory’s bill, the company is responsible for determining what is a trade secret and marking it as such at the time it first provides the information to the government. It is the government’s responsibility, however, to check to be sure the information should be considered a trade secret and to ensure it is not duplicated or released in any way.
Gregory also introduced House Bill 801, which removes and revises multiple exemptions to public records law. It removes public records exemptions from county tourism development agencies, local government agencies, telecommunications or franchised cable companies, hospitals and more. The bill also died in the Senate.
Gregory said an open and transparent government is crucial for people to have trust in the government. However, he said trade secrets must be protected because they ensure companies can maintain their competitive edge and remain profitable.
Florida Senator Dennis Baxley, R-Lady Lake, introduced the Senate equivalents to Gregory’s bills. He said he originally thought that the bills made a lot of sense but that after speaking with “a number of people,” he believes the bills need to be changed before they can pass.
Baxley said the issue with the bills, whose opponents he said he could not recall, is that they make trade secret laws the same for all agencies but ignore important nuances.
“I think that we will continue to work on these issues as we find difficult abuses,” he said.
Similar versions of these bills were introduced in the 2018, 2019 and the 2020 Florida legislative sessions.
Gregory said the House has continuously passed the bills, and he does not know why the bills haven’t moved through the Senate.
“Over the years, agencies have hidden behind the various trade secret exemptions,” Gregory said. “What this bill (799) does is it specifically excludes from the definition of trade secrets certain financial information related to contracts with an agency.”
Calculating costs and benefits is difficult
There is substantial debate over the value of the subsidies and incentives and how best to measure their effectiveness. Former Treasury Secretary Paul O’Neill, in his 2001 Senate confirmation hearing, said that smart business people will take a subsidy if it is offered, but that ultimately business decisions are not based on incentives, but on an array of other considerations.
A 2017 study by Timothy Bartik at the Upjohn Institute found that incentives only make a marginal impact on development goals, can be excessively expensive for a locality and may not live up to their promises. And an Urban Institute-Brookings study in 2018 said that “efforts to win over businesses with tax exemptions and subsidies may not be fiscally fruitful for overall job generation for regional economies.” An analysis by Good Jobs First, which tracks corporate accountability, estimated the average cost per job at $658,000.
Jeff Finkle, president and CEO of the International Economic Development Council, whose members include government officials, business development organizations and consultants, said having access to a trained workforce matters the most to a business seeking to locate. However, he believes incentives offered by state and local governments can make a difference.
Transparency advocates say that releasing the details of economic development deals is important to maintain public trust in local governments and provide a check on government actions. They assert that without disclosure about the details of proposed public offers and incentives and tax breaks to lure private companies, there are risks about decisions often made by unelected officials who aren’t accountable to the public. There is also a risk that other public needs may suffer, and members of the public won’t have a chance to say that they prefer aiding schools or public safety over giving a tax break to a Fortune 500 company.
Kasia Tarczynska, a research analyst at Good Jobs First, said transparency in transactions between state and local governments and private businesses can lead to better deals for the taxpayers.
“Economic development can be done much better when information is transparent because then (the public) can make sure that the companies are meeting the (terms of the) deals that they’re supposed to,” she said.
Advocates for confidentiality argue that keeping the deals secret while they are being negotiated can improve a jurisdiction’s bargaining position.
Using a non-governmental organization may lead to conflicts of interest
The use of economic development nonprofits by governments has been a common practice in many communities, according to the Journal of Public and Nonprofit Affairs. While many are funded by public money, they can still avoid disclosing many details of their work, depending on each state’s laws.
The Journal’s 2018 report analyzed why local governments use nonprofits to manage economic development and what their effect is on economic development policy. It found that northeastern and smaller communities are more likely to use a nonprofit.
Ned Hill, a professor of economic development policy at The Ohio State University, said that there are benefits to using a non-profit, outside of the regular government staff, to do the deals. These entities often are able to pay experts more than they would if they were contracting with outsiders on behalf of the government and frequently deliver better quality analysis, he said.
Nonprofits are not at risk of losing funding in the way that a government agency could be, thus providing job security and institutional memory that can be useful in future deals, Hill said. And they may not be very reliant on government funds, if at all.
But there are risks to this system, Jensen said. In addition to being exempt from public disclosure laws, there is a risk that the private group may have a conflict of interest and may have other interests that do not always lead to careful stewardship of public funds or incentives, said Jensen.
“A city cares about the costs and benefits, but many of these private groups largely only care about the benefits,” said Nathan Jensen, a professor who studies economic development.
“A city cares about the costs and benefits, but many of these private groups largely only care about the benefits,” said Nathan Jensen, a professor who studies economic development.
Finkle, of the International Economic Development Council, said that any risks can be overcome because all deals eventually must be approved by the state or local government.
Greg Wathen, of the Economic Development Coalition of Southwest Indiana, said more transparency should be expected as the deal is agreed to but not if it fails. His reasoning is that making public those details can alert future contenders and can be used to set the standard for future negotiations, putting the bargaining power in the hands of the companies. The coalition is a non-profit that serves as the economic development agency for four Indiana counties.
“If the project doesn’t move forward, it shouldn’t be released,” Wathen said.
When transparency gives the public crucial information
In Los Angeles, transparency proved to be important for an economic development deal and contract between the city’s transit authority and a bus manufacturer. But it took a court battle to reveal the details to the public.
The Los Angeles County Metropolitan Transportation Authority in 2013 selected New Flyer, a Canadian company with an American branch, to produce up to 900 compressed natural gas buses. The company agreed to create more than 50 full-time positions that would pay from $11 to nearly $50 an hour.
Jobs to Move America, a nonprofit that promotes the creation of higher wage and local jobs, requested public records from the transit authority to determine if New Flyer was fulfilling its job creation and salary commitments. New Flyer sued the transit authority to prevent the release of the records.
The company claimed that the information sought by Jobs to Move America was proprietary and not subject to public release, even though the company had won a public contract based on commitments to specific numbers of new jobs and wage levels.
The transit authority opted not to get involved in the case, which left it to Jobs to Move America to litigate the case and defend the public’s right to know. The case dragged on for more than 18 months.
In October 2017, Judge Mary Strobel, of the Los Angeles County Superior Court, ruled that New Flyer must release the job creation and salary details. The judge said that the public’s interest in learning whether New Flyer had met the terms of the public contract overrode the company’s privacy concerns. In March 2018, Strobel ordered New Flyer to pay Jobs to Move America $170,000 in legal fees.
State by state, the level of transparency differs
After receiving 238 bids, with Pittsburgh offering nearly $10 billion in incentives, Amazon decided on Crystal City in Arlington, Va., for its second headquarters.
Virginia and Arlington County offered the company $573 million for the creation of 25,000 jobs and offered to make $223 million in transportation improvements. The state also agreed to help provide $1.1 billion over 20 years to strengthen the state’s technology-related higher education, giving Amazon the prospect of a state-funded trained workforce. The county announced the details in March 2019, four months after Amazon had announced that it had picked the Northern Virginia site.
But little was known as the deal was unfolding. That did not surprise Meghan Rhyne, the executive director of the Virginia Coalition for Open Government.
The Virginia Freedom of Information Act has many exemptions that will shield companies. It exempts marketing activities that would reveal to other states Virginia’s plans for economic development projects. It also exempts proprietary information that the company recommends be withheld, as long as Virginia officials agree.
Rhyne said that most of the trade secret and proprietary information exemptions allow the company to designate what it believes should be confidential. It is then up to state officials to make a final determination.
“There are going to be people who use that discretion to always keep things away from the public, and there will be those who will occasionally release it,” she said.
Weighing both sides
The debate over the relative merits of secrecy and transparency in economic development deals is unlikely to abate. But many politicians, academics and advocates on both sides believe it may be possible to find a middle ground that allows for accountability to the public while also shielding negotiations.
Jensen said that even if a state were to be completely transparent, most of the deals are so complicated that the typical taxpayer won’t dedicate time to read and understand them. He said this is where local journalism and government audits should step in to ensure accountability.
The public should know that these deals are partially why schools are underfunded and teachers go on strike, he said.
“What’s much more relevant are the tradeoffs,” Jensen said.
This story was researched and reported in collaboration with Miranda Spivack, a fellow at the University of Florida’s Brechner Center for Freedom of Information.