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Corporate Transparency in State Budgets
PSN on November 30, 2009 - 11:54am
Corporate Transparency in State Budgets
Monday, November 30, 2009
Corporate Transparency in State Budgets
As part of the Progressive States Network’s 2010 Shared Multi-State Agenda, we are advancing a corporate transparency initiative in coordination with key allies and experts. Demand for transparency in government is rising, but most states still do not collect even the most basic, critical data from recipients of state grants, state contracts or tax breaks.
In this Dispatch, we will examine the need for corporate transparency, recent cases relating to the subject, and how the policy will benefit states dealing with massive deficits.
Our policy staff are also available to answer questions and supply information not on the website. Legislators and advocates can contact us about supporting the Corporate Transparency in the State Budget Process campaign through our website or by emailing email@example.com.
Summary of Corporate Transparency in State Budgets Policies and Why They Matter
The lingering effects of the recession have forced state lawmakers to take extraordinary measures to alleviate fiscal crisis. Two reports released this month, the Pew Center for the States' Beyond California: States in Fiscal Peril and the National Governors Association and the National Association of State Budget Officers' joint publication, Fiscal Survey of States, highlight burgeoning budget gaps, precarious economic circumstances, enormous declines in tax revenue, and generally reveal a poor fiscal outlook for states in the upcoming years. Several states have resorted to making huge cuts to vital services, like education and health care, even as they still dole out millions of taxpayer dollars to corporations.
At the same time, voter outrage over corporate abuses in the financial and other sectors is increasing demand for greater transparency to explicitly reveal how public policy directs money to the economically privileged. Several high profile instances of these problems highlight the need for more transparency, including the closure of a Dell plant in North Carolina just a few years after it received a promise of up to $300 million in grants in 2004, an amount more than twice the cost of building the plant, and Indiana's cancellation of a $1.34 billion contract with IBM after chronic errors in implementing a welfare privatization contract were found and thousands qualifying for help were cut off by the system.
States are beginning to take action. In 2008, the Ohio legislature passed legislation that requires the state attorney general to review economic development awards received by entities. Attorney General Richard Codray's office began the process this past October by informing over 3,000 entities that they must provide his office with information, such as actual jobs created, efforts to attract minority or disadvantaged workers, and wage law compliance. Codray remarked, "Our goal...is to ensure that tax dollars are being used as intended in these awards. Promises were made by businesses and organization to create and save jobs in Ohio and those promises must be kept."
Why Corporate Transparency Matters: At the basic level, people deserve to know how businesses that benefit from public contracts, subsidies, or tax expenditures are spending tax dollars. Lawmakers must make sure that these businesses are creating jobs, saving the state money, and best serving the public interest. To foster a more targeted budget process, increase efficiency, and allow for future savings, states must adopt more stringent corporate disclosure and transparency legislation.
Problems due to lack of transparency in subsidy distribution, contract allocation, and hidden tax breaks are well-documented. Almost every week there is a story relating to states distributing subsidies with little to nothing to show for it, failing to save money from utilizing contractor services rather than state employees, and providing huge tax breaks to large corporations that often do not reflect the greater public interest. As well, states have been losing millions of dollars from declining corporate tax revenue. As a percentage of total state tax revenue, the corporate income tax has dropped significantly. The Center on Budget and Policy Priorities (CBPP) finds that in 1979, the corporate income tax accounted for 10.2 percent of total state tax revenue. In 2005, the figure dropped to 6.5 percent.
Dealing with the aftermath of the steepest economic contraction since the Great Depression, declining tax revenues and massive budget gaps, states cannot afford to hand out enormous subsidies or award lavish contracts with nothing to show in return. States must enact transparency to garner a more comprehensive understanding of spending and trends in corporate income taxation.
To that end, PSN has worked with allies to produce the following model corporate transparency bill based on best practices from around the country.
Messaging on Corporate Transparency
The public overwhelmingly favors transparency: Not only is corporate transparency a smart policy, it is also popular politically.
Corporate transparency is needed to address the fiscal crisis and budget gaps: One of the most critical components of messaging around this campaign will involve the national fiscal crisis and state deficits. CBPP estimates that in in 2010 and 2011, states will face a combined budget deficit of $350 billion. State revenue collections have also decreased dramatically.
Corporate transparency can help economic recovery by identifying which programs are delivering good quality jobs and which are not: By requiring subsidy recipients and government contractors to report the number of jobs created, the wages paid, their location and other key economic information, transparency will help policymakers redirect funds to alternative programs delivering high quality, high-wage jobs in their states.
Corporate transparency will address voter anger over corporate abuses: A Pew Research Center survey highlighted the public's anger earlier this year, revealing that 77% of Americans believe "there is too much power concentrated in the hands of a few big companies." The public outcry over Wall Street greed and the financial bailout demonstrates the potency of the issue.
Building a Campaign
Advocates and Resources: Several allies and affiliated organizations have done extensive work on these issues. Of particular note, the following groups have provided the intellectual framework for this initiative and produced extremely insightful and comprehensive resources on the subject.
Polling: The following polls provide insight on voters' opinions of transparency, legislators, political representation, and government in general.
Reports: There are several key studies that examine the need for corporate transparency.
For state comparisons of online disclosure, see CALPIRG's California Budget Transparency 2.0, which gives a good nationwide review of best current practices on online disclosure, while Good Jobs First's The State of State Disclosure provides a comprehensive analysis of state disclosure practices as they relate to economic development subsidies, contracts, and lobbying activities.
Tracking Transparency and Privatization: Allied organizations are consistently analyzing corporate transparency. The following websites provide case studies about subsidies, contracts, and corporate tax breaks.
PSN has also done research around these issues. The following Dispatch pieces highlight complications arising from misuse of state funds in subsidy allocation, contract distribution, and unnecessary tax breaks.
Legislative Momentum Around Corporate Transparency Initiatives
There has been substantial momentum across the country around corporate transparency. Just in the past year, several states have either implemented or proposed legislation with similar objectives. Though the bills cited below do not completely mirror PSN's model bill, they are demonstrative of significant legislative movement and support for transparency, disclosure, and much-needed reform.
PSN Support in Your States
PSN has already begun working with legislators and advocates to provide support for them as they introduce corporate transparency legislation around the country. We'd like to work with many more! Our policy staff are available to answer questions and supply information not on the website. Legislators and advocates can contact us about supporting Corporate Transparency in the State Budget Process campaign through our website or by emailing firstname.lastname@example.org.
As bills are introduced and sessions begin, PSN will provide ongoing resources and updates on contract transparency legislation, as well as help coordinate strategy and information sharing with our partners among sponsors and advocates.
3 Steps Forward
2 Steps Back
The Stateside Dispatch is written and edited by:
Nathan Newman, Executive Director
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