State Secrets

Let's ban non-disclosure agreements from economic development deals.

Photo credit: RestrictedData

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The Fort Wayne, Indiana, city council is going to vote on a 10-year property tax break for a new warehouse, which will be worth $16 million to the beneficiary. There’s an issue, though, beyond the potential loss of public money.

The city council doesn’t know who that beneficiary is.

It sounds ridiculous, but it’s true. "I'm sure it's probably something that's going to be very exciting. They say up to a thousand jobs, you know, all these things coming. The taxpayers and the citizens, though, will be on us to make sure we specifically know what we're voting for," said one council member.

The city council doesn’t know which corporation it might be subsidizing because the few officials who have been let in on the secret — including the mayor — have signed non-disclosure agreements preventing them from divulging the corporation’s identity. Rumor has it that the warehouse will belong to Amazon, but no one will confirm it.

This is a great example of the pernicious use of non-disclosure agreements in economic development deals and how it corrupts local democracy.

There’s no national data on how prevalent these agreements are, but once you start looking, examples pop up everywhere. I’ve covered one here: The city council of Gallatin, Tennessee, approved nearly $20 million in tax breaks for “Project Woolhawk,” which turned out to be Facebook. Council members claimed they didn’t know Facebook was the beneficiary until after they voted. These agreements have been employed in New York, Minnesota, Ohio, and Maryland, too. Amazon, in particular, seems to make them a part of its standard operating procedure everywhere it goes.

And they cover more than just local economic development office officials or city council members and mayors. Amazon forced non-disclosure agreement for its HQ2 search onto university researchers, urban planners, the waitstaff at a restaurant where the local chamber of commerce met to discuss their city’s bid, and a hotel concierge.

These agreements generally prevent officials from discussing anything about the state of negotiations between the government and the corporation, other than vague details about the type of project and maybe the overall cost, and most of the time they only allow officials to publicly release information once the deal is done and confirmed.

Why do corporations insist on all this secrecy? To prevent pushback from the public.

In correspondence with a local official in San Jose, Google confirmed that the goal of the agreements was to prevent public relations problems in the community that might arise once word got out that Google would benefit from subsidies. A random tech project with a silly name isn’t as outrage inducing as Facebook, specifically, so corporations would prefer the former be the subject of debate.

Corporations push these agreements so often, in fact, that local officials just accept them as a matter of course. “It’s customary now, when mega-Fortune 500 companies come, that they prefer that you not divulge what they’re doing,” said the manager of the Village of University Park, an Illinois community that gave subsidies to Amazon. “It happens all the time.”

Even the Fort Wayne council members aren’t questioning the existence of the non-disclosure agreements, just that they weren’t also pulled into the loop and asked to sign one in exchange for receiving information before any vote occurs. “I'm happy to sign a non-disclosure, but either way, I don't want to be put in a position where I'm asked to make a decision without knowing what I'm deciding," said one council member.

But these agreements are an outrageous assault on the public’s right to know what’s being done in their name. Nobody is asking for these corporations or officials to divulge trade secrets or sensitive personal info on their employees; this is literally about whether and how public resources will be distributed, and what sort of negotiating stance public officials take when faced with a powerful corporation asking for money and other favors.

The use of these agreements is ultimately about power: Corporations want the power to extract concessions from elected officials without the countervailing power of public scrutiny being applied.

Fortunately, there is a very simple solution to this problem: States and cities can just ban non-disclosure agreements in economic development deals (and more widely, too, of course). Illinois Rep. Michael Halpin has a bill to do so in his state, and New York Sen. Michael Gianaris had one to do the same after the Amazon HQ2 debacle. Several New York City council members have proposed one there too.

Elected leaders can simply cut this strategy off at the knees with legislation that is just a couple of pages long. If any enterprising Indiana lawmakers who happen to read this newsletter want to introduce a bill, that’d be great. I’ll even email you the language if you want.

It’s impossible for citizens to effectively engage with their government if that government won’t even disclose the names of the entities with which it is doing business. Concerned voters are left fighting ghosts and vagueries instead of real institutions and specific policy choices.

Corporate leaders, of course, like it that way, but there’s no reason the rest of us have to put up with it. Call or email your state and local officials and tell them to ban these things today.

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ONE MORE THING: Dr. Emily Erickson at Alabama A&M University put together a really fantastic report on how corporate tax giveaways have failed one Alabama community. She surveyed workers in Anniston, Alabama, and found them toiling away in dangerous jobs for bad pay, while “Anniston’s public services — parks, playgrounds, libraries, public safety, schools, and others — are underfunded in part because of the public subsidies (some call it “corporate welfare” or “corporate giveaways”) given to these large multinational corporations to entice them to locate in Anniston.”

Seriously, give it a read. It’s a great distillation of why the sort of stuff covered in this newsletter matters to real communities.

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— Pat Garofalo