Researching A Proposed or Existing Subsidy Deal
This section addresses how to research the subsidies going to a particular company for its commitment to build or expand in a certain location. We address both how to reconstruct a deal approved in the past and how to obtain details about a deal currently under consideration.
The key information you'll typically be seeking are the amount and type of subsidies the company received. The details of subsidized development projects are rarely spelled out to the public, but that doesn't mean that those details aren't public information. Most of the key documents and data collected about subsidized developments are public records, and amounts that are not in the public record can often be estimated by using a variety of sources that are.
A subsidized development deal, particularly a large one, may involve more than a dozen subsidies from several levels of government – city, county, regional, state, and federal. There may be a mix of discretionary subsidies and entitlements, so you may need to investigate a lot of subsidy “silos” to estimate the total value of a deal.
The checklist below lays out the main categories of subsidies to look for. Subsidies often go by specific program names depending on the state or city granting the subsidy. Basic programs to watch for include:
- Property tax abatements
- Corporate income tax credits for capital investment, research and development, job creation, or other activities
- Sales tax waivers on materials for new construction
- Utility tax breaks
- Enterprise zone-associated tax breaks such as inventory tax exemptions and employment tax credits
- Road and traffic improvements, sewer lines, water-treatment plants, utility hook-ups, and other infrastructure
- Land price subsidies
- Use of eminent domain
- Brownfield remediation assistance or legal liability avoidance
- Tax increment financing for infrastructure or other site assistance
- Agreements to hold a company harmless for damages to public property during construction
- Training grants to pay for instructors, curriculum, or other customized training, either on site or at a community college or other public facility
- Wage subsidies paid to the company for “on the job training” periods
- Federal Work Opportunity Tax Credits
Loans and Loan Guarantees
- Industrial revenue (or development) bonds for low-interest loans
- Other state and/or local loan programs at subsidized rates
- “Gap” financing, sometimes including TIF
- Small Business Administration loan guarantees
Technical Assistance and Fee Waivers
- Expedited handling of permits
- Agreement to lobby other levels of government for additional subsidies
- Fee waivers of many kinds associated with construction and land transactions
- “Economic development” utility rates
- Consulting on modernization, automation, energy efficiency, and other issues
Variations in subsidy transparency
You'll find that you have better luck researching some types of subsidies than others. It is likely that you will not be able to get absolute numbers for every type of subsidy a company received. Documents containing subsidy data are sometimes considered proprietary. In other cases, the granting agency may not collect the information you are seeking. Occasionally, the agency administering the program may be a quasi-public entity that is exempt (or argues it's exempt) from state Freedom of Information Act (FOIA) laws.
Generally, discretionary subsidies (those provided to an individual company) are more transparent than entitlement subsidies (those a company qualifies for by meeting program criteria). Discretionary subsidies usually require a public body to receive an application and to deliberate on that application. For example, property tax abatements tend to be accessible because they are recorded at county tax assessors' offices. Companies have to apply for them, tax boards have to rule on the applications, and the resulting changes remain in the public file.
On the other end of the spectrum are entitlement subsidies such as investment tax credits. Since no company's income tax return is made public, it is often not possible to know how much a particular credit was worth to a company. The good news is that just because you cannot see a company's income tax return doesn't mean you cannot make a good faith estimate about the value of an income tax credit. For example, suppose a company builds a $100 million plant, and the state has an investment tax credit which allows the company to deduct 5 percent of that investment each year for 20 years. It also allows the company to "carry forward" any unused tax credits from one year to the next if the credit exceeds its total income tax bill in any given year. Then, at the very least, you can say with certainty that the company has a tax credit entitlement of $100 million. Whether or not the company will be able to use all of that credit will depend on the plant's future profits and the state's tax rate.
In the middle of the subsidy transparency spectrum are many important kinds of records, such as tax expenditure budgets, job-creation data, and the minutes of agency board meetings. In many cases, such records are incomplete or unreliable, and sometimes they either don't exist or are deemed not "FOIAble" (i.e., available under a state Freedom of Information Act).
The list below breaks subsidies into three categories based on the typical quality of their disclosure.
- Subsidy applications (after approval, and excluding income tax credits)
- Property tax abatements
- Job training agreements
- Revenue bond loan agreements
- Other loan agreements
- Tax increment financing (TIF) development agreements
- Overall tax expenditure budgets for economic development (about 35 states publish one, but only about a dozen are reliable)
- Job creation or job retention data (monitoring tends to be poor or use unreliable methods such as corporate self-reporting)
- Agency outcome-monitoring reports (quality varies a great deal)
- Community Development Block Grant expenditures for things such as infrastructure (report formats often make it hard to tell how much got spent where)
- Recruitment records (especially if private-sector entities, such as chamber of commerce are involved)
- Minutes of development agency board meetings (are often perfunctory and fail to record meaningful details)
- Corporate income tax credits, such as those for capital investment, research & development, job creation, or meeting enterprise zone criteria
- Other corporate tax exemptions, such as those on raw materials and inventory, sales tax exemptions on new equipment, or utility tax cuts
- Corporate income tax-formula savings (the most controversial one is the "single-sales factor formula," which is very lucrative for manufacturers)
Timing of disclosure in a subsidy deal
Another factor that will impact your research is whether you are researching a deal that has already been signed, or a deal that is still being negotiated.
The first phase of a deal is the pre-application negotiation -- the period in which a company is considering a major new project, perhaps pitting several locations against each other. Companies usually demand secrecy during the negotiation process. Although there may be general public awareness that talks are occurring (such as the unusually public bidding process between Chicago, Dallas, and Denver that was set up by Boeing when it was relocating its headquarters), there is rarely any kind of disclosure about the subsidies being sought. Localities, however, may publicize the deals they are offering.
The next phase of a deal is the period after the application is filed but before it is approved. Because most discretionary subsidies have mandatory procedures such as public notice and public hearings, there is usually a brief window period during which information is available before the deal is signed. If the purpose of your campaign is to either block a deal or win improvements to it, this is a critical research moment. Although most states will not release records of the negotiation process until after a deal is approved, you should be able to access the company's application and any supporting documents it submitted.
After a deal is approved, the records relating to it should be public under the state's open records laws. Again, proprietary financial information about the company is typically exempt from such rules.
As the deal is implemented, you will also be able to collect records pertaining to the actual value of subsidies, the company's compliance with the terms of the subsidy agreement, and whether project outcomes match the expectations set forth in the development agreement. Unfortunately, the collection of outcome data -- such as the actual number of jobs created, wages paid, etc. -- tends to be poor. It is also rarely collected in one place in an accessible format. The exceptions to this rule, and tips on finding data regardless, are discussed below in the section on key documents.
Tips for tracking deals in progress
Much research on subsidy deals occurs after a deal has already been signed, often in response to problems that have arisen. A number of campaigners have begun taking a more proactive approach to subsidy research, looking to intervene to block bad deals and shape projects to be more accountable and more beneficial to local residents.
For this type of work, it is important to monitor news and government sources carefully for word of upcoming deals. Reading local papers (particularly the business paper) is a good place to start -- paying extra attention to the real estate and business sections. In addition to getting a heads up on subsidy deals in the works, you'll identify the active players and power brokers in real estate development and business associations.
You should also regularly check government websites of agencies involved in development decisions, including development agencies, redevelopment authorities, the legislature, and the office of the executive. Call the state or city to find out where announcements of requests for proposals (RFPs), public hearings, and votes on projects are posted. Subscribe to any print or electronic news bulletins the departments offer.
Attending and participating in hearings on subsidy issues held by development boards, city council committees, and other bodies will increase your understanding of the mechanisms by which development decisions are made. In addition to picking up the handouts they distribute with information on the deal, you'll be able to observe the informal power structures, dynamics among committee members, and other features that reveal who really makes decisions and where pressure can most effectively be applied. An active and continuous presence by your organization will give you more recognition and may result in your future interventions being taken more seriously.
Steps to researching a deal
These steps don't necessarily have to be taken in order -- in fact, there will likely be a lot of jumping back and forth.
Search the news
Development deals don't always make it into the local news, but when they do, news articles can provide valuable research leads. Depending on the deal's size and location, you might check local, national, business, and community newspapers, and/or economic development trade publications. See the section on determining whether a company has received subsidies for tips on searching for articles.
Read the articles from oldest to newest, pulling out key facts and creating a chronology of events. Look for information regarding:
- Key moments in the deal, including the announcement of subsidies, council votes, signing of the agreement, groundbreaking, opening day, expansions, layoffs, lawsuits, etc.
- Key players in the deal, including state and local agencies, elected bodies, developers, companies, and citizen groups. Also note the spokespeople quoted for each of the above, as they may be your contacts
- The type and estimated value of subsidies involved
- The benefits the project is anticipated to produce (job creation, investment, ripple effects, etc.)
- What attracted the company to an area, and if other regions were also in the running
- Any debate as to whether the subsidies were necessary or wise
- Any changes that were proposed or made to the deal prior to signing or after signing
- Discrepancies between the benefits promised and those delivered
- Projected subsidies vs. subsidies actually collected by the company
Use this information to create a chronology of the deal. A chronology allows you to reconstruct events as they unfolded and to imagine them from the perspective of the government agency or company. You may also be able to find relationships between events that may not have been obvious originally.
Take note also of the journalists who covered the issue, as they may be good contacts for your organization when you want to get press.
Gather information from government websites
Your goal here is to collect any online information about the deal, and also to acquaint yourself with the agencies involved. To find likely agencies, browse the agency directory or try thinking like an incentive-seeking company. Most government websites have at least one "for businesses" link that takes you to the websites of agencies that offer business assistance, including subsidies.
Look in particular for:
- Press releases - Use this information, typically put out by the lead agency or executive's office, to add to your chronology.
- Descriptions of the deal - Governments may post information online about mega-deals they are very proud to have landed.
- Deal documents (rare) - A few jurisdictions, particularly city development agencies, occasionally provide online access to key documents such as development agreements. Some city councils keep online archives of their meeting minutes.
- Agency contacts - Jot down contact information for likely sources -- people quoted in the newspaper; officials in charge of administering a subsidy; heads of the division of business recruitment (for states) or the development department (for cities). In general, avoid public relations offices -- you'll have better luck directly contacting development officials familiar with the details of the deal. At the local level, that person may end up being the city manager, clerk, or mayor.
- Descriptions of subsidy programs - Familiarize yourself with the subsidy programs you know are involved in the deal and with any other major subsidy programs the state or city offers. You don't need to get bogged down in the details of the programs, but it helps to have program names -- and the basic qualifying criteria or incentive structure -- in mind when you call development officials.
Interview development officials
You'll have to make a judgment call as to your next steps: do you want to begin interviewing development officials or obtain key documents first? If you already know what documents exist and how to locate them, you may want to get the documents first and go into the interview with as much information as possible. This approach is also advisable if you do not want development officials to know you're researching a deal.
However, in most cases, a preliminary interview with development officials is helpful to determine what information exists and how to obtain it. If possible, interview development officials twice: once to get a sense of what documents and information to look for, and again after you've seen the documents.
Here are some tips for a successful interview:
1. Prepare a list of questions
This may seem obvious, but you want to have a specific list of questions for your interview, rather than saying, “Tell me about development X.” To prepare for your interview, look over your chronology. Develop a list of questions to corroborate the information you've already obtained, fill in gaps in your understanding of the deal, and find out whether the deal has progressed as planned. You'll get better answers if your questions are as specific and concise as possible. Always assume there are subsidies you don't know about, and make sure you get the details about the subsidies you have identified -- the types and amount of infrastructure improvements, the source of grant money, etc.
2. Assume all your questions will be answered until proven otherwise
Many subsidy researchers mistakenly expect development officials to be reluctant to discuss the details of deals. Never go into an interview assuming officials will be antagonistic to your research. Officials are often more than happy to talk about their work, particularly if they are proud to have brought a company to the area. Others may even have identified the same flaws with a subsidized deal that you have. Even if the purpose of your campaign is to criticize or stop a subsidy, your role as a researcher in the interview is simply to gather information.
If you do run into a road block, be polite but persistent. It is not uncommon to get shuffled among a number of people in a number of departments, often calling each multiple times, before you find answers to certain questions. In some cases, delays are caused by the fact that no one has ever asked these questions before, and officials don't know how to respond. Remember: as public officials, their job is to assist you. The information is public, and you have a right to know.
3. Keep scrupulous records
Document everything. Take notes during your interview, and make more thorough notes directly after. Make sure you have the correct spelling of people and programs' names. Write down the names and departments of the people who transfer you on the phone. Request copies of documents rather than relying on your notes or summaries from officials.
4. Learn the lingo
Although in some cases it may be in your best interest to openly acknowledge you are new to a subject (or even to “play dumb”), typically, you want to go into the interviews as fully informed as possible. That way you waste less time nailing down the basics and can ask questions getting at what you most want to know and can learn only from them, including outcomes, compliance, disclosure data, and estimations of the value of tax credits. It helps to learn the lingo so that you can speak the development official's language. Consider the following:
A staffer at the county tax assessor's office gets two phone calls. The first says:
“Hello, I wanted to find out about tax abatements and how the
records are kept so I can find out if Acme Widget got any. Can
you tell me about that?”
The second says:
“Hello, I need to know where to get the Property Identification
Number for Acme Widget's plant at 683 South Sycamore Street, so I can look at the PILOT agreement. Do you have that PIN?”
Who is the tax-office staffer most likely to take seriously? The second caller is much more likely to get the information she needs, get it more quickly, and get it on the phone, because she has sent signals to the staffer taking her call. Those signals say: “I know the specific information I need,” and “I know something about the terms and systems there.”
Reading through the development documents, agency websites, and subsidy statutes are good ways to learn the development lingo for your jurisdiction. Preliminary interviews are another. Imagine that in the example above, the same researcher made both calls: the first as a preliminary interview through which she learned how tax abatement records are kept, and the second using that information to obtain the records of the deal. Never hesitate to ask your interviewee to define a term or concept you don't understand.
5. Think ahead to next steps
Sound out the development official about further sources of information -- other people you should speak with and documents you should obtain. Don't be shy about asking the official to send these documents to you themselves. If they can, it will save you time; if they are unable or unwilling, they can at least direct you to the proper source for obtaining them.
End the conversation by reiterating any commitments they made (finding a figure, providing a document, clarifying a point), asking if you can contact them again with follow-up questions, and offering to send them a copy of the published report, if there will be one. Check that you have their full name, title, phone number, and email address. And, of course, thank them for their help.
Obtain copies of key documents
Key documents include official records of a deal, including the application and development agreement, and unpublished paperwork including memos written by lead agency staff or correspondence between the government and the company.
Typically, you want to direct your document request to the agency that took the lead in negotiating the deal. The easiest way is to contact a staff member involved in the project and request the documents directly. These officials are familiar with the project and the paperwork associated with it and may be able to send the documents right away. In other cases, they may require you to submit a written FOIA request. The agency may also direct you to the state public information office. At the local level, you may be referred to the city clerk.
The documents to seek include:
1. Pre-application records - Documents may include staff memos, meeting notes, or correspondence between the development agency and company. They may also include research evaluating the project's projected impact. Records from this period can normally be obtained only after the application is filed, and they are often quite revealing. It is based on pre-application records, for example, that the San Jose Mercury News reported that Intel had a 104-point wish list of subsidies and assistance when it asked several states to bid on a Pentium chip plant. The Baltimore Sun looked at Virginia state records after Marriott announced a headquarters "retention" deal with Maryland after the company had said it might relocate from that state to Virginia. The Sun headline: "Marriott used Va. as ruse to raise Md. bid."
2. Application records - The application materials are generally public record, although you may encounter claims that some parts of the application are not subject to FOIA. Normally, that only applies to detailed financial data that would be filed with a loan application or other proprietary information about a company that would cause it harm if disclosed to a competitor.
The usefulness of application records depends on how much information they collect. Applications may require companies to state how many jobs will be created (and/or retained), how many of those jobs will be full-time, whether they will include health care, and what wage levels they will pay. Companies may also be asked if they are relocating from another site within the state, and whether the relocation will cause job loss.
3. Development agreements - Typically, the development agreement will outline the major subsidies negotiated by the local government. While an agreement may not provide details about all subsidies, it will often refer to them (such as in a clause in which a city promises to help the company apply for a state job training grant), thus providing a road-map for you. The development agreement may also contain information about the expected public benefits of the project; the company's commitments for job creation, investment, wages, or other measurable outcomes; means for monitoring compliance; and whether clawbacks or other penalties apply if the company fails to meet its goals. See excerpts from a sample development agreement between Wal-Mart and the city of Harrisonville, Missouri.
Research the subsidy programs
At some point, you'll want to look at the statutes and rules governing the subsidies involved in the deal. These may reveal that the company has legal requirements that are not obvious in the development agreement. For example, some so-called "high impact" subsidy programs require companies to create or retain large numbers of jobs. Job training programs may have wage standards.
Statutes and regulations often contain information on reporting requirements, including what information a company must submit, how often, and to what agency. They may also spell out penalties for noncompliance. The cited agencies will point you in the right direction when it comes to finding compliance information. See researching subsidy laws and programs for a guide to researching statutes, bills, and administrative rules.
Look for subsidy disclosure data and project outcomes
Overall, state and cities have notoriously bad track records when it comes to tracking and disclosing the outcomes of subsidized development projects, including the actual cost of subsidies, compliance with the terms of subsidy agreements, and evaluation of a project's impact in terms of employment, wages, and promoting further development.
There are some exceptions, however. About three dozen states require company-specific disclosure of at least some subsidy data. A few states, such as Illinois, are leading the way in making comprehensive subsidy data available in an easy-to-use online database. For more on state subsidy practices and a link to disclosure sites, see the material from the 2014 Good Jobs First report Show Us the Subsidized Jobs.
Just because your state or subsidy program is not among those with disclosure systems does not mean that no data exist. Many states regularly publish aggregate information on subsidy programs, which provide a picture of the overall subsidy program use, often by industry or region, but do not provide information on particular deals or companies. Documents that include this information include annual program reports published by development agencies or the Department of Revenue, legislative oversight reports, and performance audits. Depending on the jurisdiction, such documents vary greatly in their comprehensiveness and regularity of publication.
If you find an aggregate report, there must be company-specific data somewhere, although it may not be considered part of the public record. Check the subsidy's enabling statute to see what agency is responsible for collecting the information. You may be able to obtain the data about a project simply by asking the lead agency or state Department of Revenue, or by filing a FOIA request.
If government sources fail, you can also check for outcome data from non-governmental sources such as news reports, company financial filings, business directories, corporate databases, and labor unions.
Evaluate the quality of information
When you do find information about subsidies, be skeptical. Those few agencies that claim to track results often use methods that create highly unreliable data. For example, agencies may allow companies to self-report employment data or call the companies to check employment levels, instead of using unemployment insurance records, a far more reliable source. Good Jobs First's survey of state audits revealed that many agencies never check whether company-reported information is accurate. When auditors themselves verified the data, they found numerous discrepancies.
When you get information, make sure you ask how it was collected, who compiled it, and what the penalties are for reporting incomplete or inaccurate information. No source is completely reliable or complete; if the information is important, try to find a second source.
Research the company
After you have obtained basic information about the deal, including any promises the company made, you may want to get more information about the company's history in other communities and about its history and officers. This information will help you evaluate the company's claims and trustworthiness. See researching the record of a company receiving subsidies for tips.