Researching Subsidy Programs and Laws

Researching subsidy laws and programs

Subsidy laws are valuable sources of information both for evaluating subsidy use in particular deals and for assessing a state or city's approach to subsidized development in general. Researching subsidy laws is the first step toward evaluating whether the use of subsidies by public officials and companies lives up to a program's legislative intent and requirements. It's also the first step toward reforming subsidy policies to include higher levels of accountability and stronger guarantees that subsidized projects will create tangible benefits.

Most subsidy programs are crafted through both legislative and administrative processes. The lawmaking body of the state or local government creates a subsidy program by voting a bill into law. While a law requires that certain requirements be met, it usually doesn’t contain specifics about how they must be met. Instead, laws typically charge an agency with drawing up the details of implementation.

Agencies add policies to laws through administrative regulations, also called administrative rules or operating procedures. These rules set out in more detail how the law will be implemented and what requirements will apply. Administrative rules may set guidelines for the application process, add specific criteria such as wage standards subsidy-seekers must meet, or lay out a process for monitoring compliance.

Below we discuss how to research subsidy laws, bills proposed before the legislature, and administrative requirements.

Researching subsidy laws

The first place to look when investigating an existing subsidy programs is at the state or local law that created it.

Locating a law
Subsidy laws are usually contained in a state's statutes – the collection of all the laws governing a state, organized by category (at the local level, laws are often called ordinances).

Nearly every state posts its statutes on the internet. On most states' homepages there is a link for “government.” Often you can link directly to the statutes from the next menu you see; otherwise, follow a link to the legislature's homepage, and you'll find the statutes there.

You can also find a list of links to state statutes at www.law.cornell.edu/statutes.html. If you have access to subscription databases such as Lexis-Nexis or Westlaw, they offer the convenience of all states' laws compiled in one place.

Every state’s website is organized differently, but most will let you search either by the law number, bill number, or words and phrases that appear in the text of the law. The best way to look for and cite a law is by its statute number(s), but you can also do keyword searches or find the section you need by browsing the chapters. Be aware that the title by which the program is known may not appear verbatim in the legislation. If that's the case, try searching with shorter keyword phrases.

Most city and county laws are not available on the web, but larger cities increasingly do put their statutes online. For those that don't, you can see them by going to the city or county clerk's office, or by calling to request copies of the laws if you already know the particular law you are looking for.

In some cases, subsidies are authorized by one level of government but dispersed at another. This is the case with several federal programs, including Empowerment Zones and Community Development Block Grants (CDBG). State programs such as tax-increment financing and enterprise zones also fall under this category.

In such cases, you must go to the higher level of government to find the enabling legislation. Keep in mind, however, that the programs may be modified by laws and/or administrative rules at the local level. For example, CDBG funding has no requirements as to the wages paid to employees on projects it supports, but some city governments have passed living wage laws that apply to any company receiving economic development assistance above a certain amount. Depending on the scope of the local law, such a requirement may apply to CDBG recipients.

Research questions to ask
Laws are often written in dense, confusing language. The trick is to focus on what you hope to learn. When you read a subsidy law, you’ll want to:

  • Obtain the intent language: Taxpayer spending for economic development is money explicitly intended to develop the economy. The policy intent language will allow you to figure out things like what type of companies the subsidy is supposed to aid (e.g., manufacturers, particular industries, companies of a certain size) and what benefits the projects must offer (e.g., jobs, poverty reduction, blight reduction, enhancing the tax base).
  • Examine eligibility and default provisions: These are sections that tell what a company must do to qualify for and what it could do to lose a subsidy. For example, a subsidy program may require a minimum investment, impose job quality standards such as wage requirements, or apply only to companies within a particular industry. A program may have anti-piracy rules that restrict companies from receiving subsidies if they move jobs from elsewhere in the state. It may end subsidies to companies if their employment drops below a certain level.
  • See how the subsidy is calculated: Depending on the program, the subsidy may be structured as a fixed dollar amount per job, as a percent of taxes owed, or through some other formula. The calculation may differ depending on the amount of investment, number of jobs created, region in which a company locates, or other criteria.
  • Investigate how long the subsidy can be used: Many programs allow companies to collect the subsidy for a specific number of years. Tax credit programs sometimes generate credits larger than a company's annual tax bill, and some states allow the unused portion of tax credits to be carried over and claimed at a later date. A few states send companies a check for the amount companies were unable to claim.
  • Look for dollar caps: Some subsidy programs limit the amount of money that can be spent or the tax revenues that can be forgone, either per company or for the program as a whole.
  • Identify the responsible agency: The law will likely delegate responsibility for implementing the program to a certain department. That department may also be charged with creating administrative rules for the program (see below). Sometimes a second agency (often the Department of Revenue) is charged with enforcement.
  • Note reporting requirements: If a law requires companies to submit annual reports showing compliance with the eligibility criteria, you will know that compliance records exist (or are supposed to exist) and which agency is responsible for collecting them.
  • Find enforcement or recapture provisions: Some laws include “clawback” language that permits or requires the state to stop or recapture all or part of the subsidy in the case of noncompliance (learn more about clawbacks). Also check whether the law states which agency is responsible for monitoring compliance, and whether a mechanism for doing so is stipulated.
  • Check the expiration date: Subsidy programs may "sunset" and require reauthorization every few years. Such dates are excellent times to bring up questions about the use and effectiveness of programs, and suggest improvements. Alternatively, if you find a program has been on the books since the 1970s with no expiration date, it may be time to propose amendments that will make it more effective in the present economic situation.

In most cases, you won't be able to find all the above information in the law. Many laws are weak in accountability provisions such as eligibility standards, monitoring provisions, or clawbacks. In some cases, it has been intentionally left up to the administering agency to fill in the details.

Researching a subsidy bill

If the subsidy program you are researching is a proposal before the legislature (not yet passed into law), it will be contained in a bill. This is the case if you are researching newly proposed subsidy programs, or subsidy programs up for renewal (although in that case, you will also need to research the existing law).

How a bill becomes law
When a legislator proposes a law, she writes and introduces a bill, which is a document that proposes a new law or amendments to an existing law. That bill is given a number corresponding to when it was introduced and whether it was introduced in the house or senate chambersfor example, House Bill 150. Most states renumber their bills starting from 1 every year, so looking for House Bill 150 without knowing what year it was introduced can be time-consuming.

Bills are introduced and then referred to a committee. The committee will then consider the bill, possibly hold hearings where people can testify about why the bill should pass or fail, and may request documentation of costs or effects of the proposed law. Committee hearings are an opportunity to get your voice heard in the process, and a good way to identify key players in your power analysis.

The committee can vote to endorse the bill and send it for a vote by the full house or senate, can vote not to endorse the bill (thereby killing it unless someone can push it for a floor vote, which is sometimes possible), or can simply table the bill and not hold a vote, thereby usually quashing it.

If the bill passes both houses, it goes to the governor, who may sign it or veto it. If the governor vetoes it, the legislature may attempt to override the veto. Usually, the state constitution requires a super-majority (e.g., two thirds) vote to override.

After a bill is passed and signed by the governor, it becomes a law and is added to the state's existing body of laws, called statutes. Those statutes have their own numbering system, and each bill will either create a new statute section or change some existing sections. You can tell by reading a bill what part(s) of the statutes it is modifying. And if you are looking at the state code you can find out when amendments were made to it, and look back at those bills to find out what the changes were.

The process of enacting county and city laws parallels state legislative processes.

Locating the text of a bill
For states and a few cities, the text of bills can be found online on the legislature or city council’s website. You can typically search by bill number or by keyword. Often you must first select the year or session in which the bill was considered. Keep in mind that bill numbering tends to begin again at the start of each term.

Similar versions of the same bill may be considered in the House and the Senate (each bill has its own number). Some states differentiate between House and Senate bills with the letters SB or HB before the bill number (Senate Bill or House Bill); others use a special numbering system or some other designation.

In addition to the bill text, most legislatures’ websites provide a chronology of the bill’s history. Information may include when (and by whom) the bill was introduced, which committee it is currently in, the history of any votes or other actions taken on the measure, and if amendments have been approved. There may also be links to proposed amendments, bill analyses, or fiscal impact reports.

Bill texts and chronologies for all states can be found on commercial databases such as Lexis-Nexis.

Research questions to ask
Reading a bill is much like reading a statute, with a few exceptions. First, you’ll want to take note of which legislators are sponsoring the bill (usually listed at the top of the first page); these are people you’ll most likely be contacting when it's time to turn your research into action.

Second, keep an eye out for amendments, both proposed and approved. If the bill has been amended, you’ll see crossed out sections marking deletions and (usually) underlined sections denoting insertions. You'll want to compare the original and amended versions to understand what the impacts of an amendment will be.

As with schemes for bill numbering, each state has its own system for denoting textual changes. Some legislature’s websites offer introductory guides to familiarize researchers with these and other methodological quirks such as abbreviations and legislative lingo.

Aside from these differences, the key items to research in a bill are the same as those discussed for a statute. If you are proposing amendments to the legislation, you may also want to consider the following questions, and push to get as many as possible answered in the legislation itself:

  • Is the program targeted for use only in blighted geographic areas and for projects that would not occur without the subsidy?
  • Does the subsidy restrict subsidies to companies that produce high-quality jobs with family-supporting wages, full-time hours, and health benefits?
  • Is there a limit as to how long the program lasts and how much can be spent?
  • Is there a plan for monitoring company compliance with program guidelines?
  • Are there clear, enforceable penalties for non-compliance?
  • Will there be adequate funding devoted to ensure that monitoring of compliance is meaningful?
  • Will there be an annual report produced to evaluate the program's performance, including company progress towards wage and hiring goals, action taken against non-compliant companies, and cumulative figures on job creation and program spending?

Researching administrative regulations

The laws that create economic development agencies and programs can only tell you part of the story. Much of the administrative behavior in this field is based more on norms and protocols rather than on legal requirements or even agency policies. Decisions about who gets subsidies are largely based on things that won't appear in any statutes.

Locating regulations
State and local administrative regulations are less likely to be obtainable online than statutes and bills, but it is worth checking the state or city's website. Commercial databases such as Lexis-Nexis may provide access to additional state administrative codes. The Code of Federal Regulations is available online at http://www.gpoaccess.gov/cfr/index.html.

Another place to check is the website of the agency responsible for administering the subsidy program; it may provide a link to rules. If not, you can still glean important information from the description of the subsidy or from other documents available on the site, including the application, program guidelines, or reporting forms made available to businesses applying for or currently receiving the subsidy.

Research questions to ask
When reading subsidy program regulations, look for information that fills in the gaps left by the legislation, or that adds to the provisions in the law. Of particular interest are regulations that determine eligibility for the subsidy, systems for monitoring compliance, and penalties for failing to meet project goals.

Try to connect the dots between the requirements spelled out in the law and those governing the program. For example, the existence of a clawback provision in the law implies that there should be a system to monitor compliance; the administrative rules should contain more details.

Subsidy regulations often include “boilerplate” language to the effect that the subsidized company must remain in compliance with all federal, state, and local laws, and that failure to do so constitutes an event of default. These regulations may prove to be very important if a subsidized company violates a fair employment law, a labor law, an environmental law, or a consumer law.

The regulations may also contain rules that prohibit undesirable corporate behavior. For example, federal job training regulations say that a company cannot use such funds to subsidize the movement of jobs from one place to another.

Finding further information and outcome data

It’s likely that even the administrative regulations will leave some of your questions unanswered. Some agencies never codify their policies, leaving them in the realm of common practice (though you should always be suspicious of how common a practice is if there are no regulations prohibiting exceptions). Finding information of this type will require interviews with development officials.

You may also want to interview agency staff to build upon what you’ve learned in your legislative research, since there are some things a law can't tell you. For instance, a law may have a clawback provision and monitoring system in place, but usually you'll need to talk to a real, live development official to find out if data is being collected or whether a company has ever been penalized for non-compliance.

You'll also want to track down any disclosure data, performance reports, or other information available about the use and outcomes of the subsidy program. Sometimes this information is available on the website of the administering agency; other times you can find it on the website of the Department of Revenue or Comptroller. In many cases, however, you will have to ask development officials to send you data or hard copies of reports. From your research, you will know roughly what information should exist and who should be in possession of it.

Having a strong understanding of the legal and administrative guidelines will help you tremendously in your discussions with development officials.