A “Smart Subsidies Audit” is a tool that enables state (or local) policymakers to hold their business incentive programs to a higher level of accountability, in regards to their transparency, fiscal integrity, cost-effectiveness and impact.
The audit is used to create a picture of how your incentive initiatives are measuring up in addressing the following important challenges:
- Does the state have a data collection and analysis process that allows it to know how much it is spending on incentives, both on- and off-budget? And how many of these programs and dollars are under “sunset review” requirements?
- What is the level of commitment to business attraction and other incentive-based approaches relative to other types of economic development, such as entrepreneurship support, incumbent worker training, manufacturing modernization, technology transfer, and so forth?
- Does the incentive strategy successfully encourage private investment in areas that are either chronically disadvantaged or being hit hard by economic restructuring, layoffs and dislocation? If these subsidy programs are not working well in these struggling communities, what is an approach that will?
- Does the business incentive strategy really improve the reemployment prospects of displaced workers or the upward mobility of the jobless and working poor?
- Does its incentive toolkit help the state’s businesses and sectors compete successfully on the basis of innovation, productivity, timeliness, flexibility, and quality in the new economy?
- Do development incentive strategies help to ensure an adequate revenue base for financing essential public services?
Answering these questions definitively is not possible, but with the right set of tools, policymakers can generate a higher rate of return on its incentive portfolio and lower its risks. A minimal “Smart Subsidy Audit” consists of
- Creating a Unified Development Budget (or Report) for documenting the costs of all economic development efforts, whether they are a tax incentive or direct expenditure, an attraction subsidy or entrepreneurial education, and whether the Department of Commerce or some other entity delivers or oversees the program.
- Making the case for using comprehensive, credible fiscal, income, and employment impact models for pricing its offers to major relocation prospects and outlining the essential best practices in designing and applying the model.
- Examining the geographic impacts of a state’s business incentive programs.
- Conducting a “quick and dirty “qualitative and quantitative inquiry into incentive program successes and failures.
- Recommending relevant reforms of existing subsidy tools for greater impact and accountability.
If conventional business subsidies are not working for troubled local and regional economies, what should be done instead? For instance, what would be a “new deal” for rural counties that are never going to land a major trophy project? Perhaps another step could be added to identify and assess a county’s or region’s support system for entrepreneurs and existing business, as well as get a feel for quality and numbers of new ventures and established firms. We could call this our “Homegrown Economy Capacity Building Audit and Toolkit” and base recommendations for any needed changes on our findings.