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When a corporation and local officials publicly announce an economic development deal, they both reap a bunch of benefits, most importantly positive press. Both the firm and the elected leaders get their names in the paper or on the local TV news, next to statements about new jobs and dollars that will be invested in the community. Local news outlets tend to present these agreements as all upside. Done right, it’s a public relations win all around.
As I cover here a lot, what happens before that is often nowhere near as public: Deals are negotiated in secret, with officials bound by agreements not to discuss anything, up to and including the literal beneficiaries of public dollars. And that’s the point: Everything is supposed to be presented as a fait accompli, not a public policy decision that can be debated.
But what happens after a deal is announced? That, too, is often shrouded in secrecy, because if a deal isn’t paying off, it’s not in the interest of the corporation or the pols involved to draw too much attention to their failure. And that secrecy is aided by policy choices as well, that corporations shape and abuse.
In a new paper, Nathan Jensen and Calvin Thrall from the University of Texas at Austin, show how this works. (And many thanks to Nate for sharing a copy with me.)
Jensen and Thrall submitted public records requests to the state of Texas for all corporate applications and contracts under the Texas Enterprise Fund, a so-called “deal closing fund” that allows Texas leaders to chuck money at specific corporations on a discretionary basis if they can make the case that they’re competing with some other jurisdiction for that corporation’s presence. Under Texas law, corporations can submit challenges to those records requests. Which ones did so showed something revealing.
The researchers found that corporations were more likely to challenge a records request — i.e., attempt to hide the details of their deal with the state — if they had renegotiated their performance targets, usually downward. Crucially, those renegotiations are private; as far as the public knows, the big targets announced in the original deal still held, when they actually no longer did.
Hence the public records request challenges, some of which were successful — firms that had changed the terms of their deal didn’t want the public to know.
As Jensen and Thrall put it, “amending firms are pulling a bait-and-switch by publicly committing to create a number of jobs, and then privately walking back their commitments afterwards by amending their contracts. Amending firms would then have an incentive to keep their amendments private via challenging our records request, as a public release could hurt the firms’ reputations.” They found that an amended contract made the corporation in question 15-24 percent more likely to challenge their public records request.
For example, the bank Comerica received $3.5 million from the state for 200 new jobs at a new headquarters, but renegotiated the deal to allow jobs at its subsidiaries to count, as well as those filled by executives, including the CEO, who moved to the area. That doesn't look great. Comerica challenged Jensen and Thrall’s public records ask.
Local officials likely go along with this charade either because they’re so steeped in the big myth about economic development that they don’t see why secret renegotiations are problematic, or because they feel that they, too, would be embarrassed by the disclosure that a corporation can’t live up to its end of a bargain made with the state.
Or they’re simply cowed by corporate leaders, which makes me think of this.
The authors note there are two problematic policies intersecting here. First, “allowing companies to renegotiate contracts outside of the public eye violates the very sprit of adding performance requirements and performance provisions.” Indeed, the whole point of having metrics is to hold corporations accessing taxpayer dollars accountable. Moving the goalposts behind closed doors eliminates a key way for the public to know how their tax dollars are being spent.
Second, it shows how exceptions written into public records law can be weaponized. Corporations are often given specific protections that are ostensibly about protecting proprietary information during economic development deals, but are used to hide all sorts of stuff the public has a right to know.
And they are often tailored to a specific corporation: Amazon’s HQ2 agreement with Virginia, for example, gives it several days to respond to and challenge any public records request made about the development, something leaders there had not written into agreements previously.
While Jensen and Thrall’s study pertains just to Texas, other states engage in the same stuff. This is just the tip of the proverbial iceberg. But it’s a great view into how state economic development is corrupted and what it will take to begin to fix it.
SHAMELESS SELF-PROMOTION: I put out a new American Economic Liberties Project paper called “None of Our Business?” which looks at several ways corporations and local officials collude to hide economic development information from the public, and what concerned elected leaders can do about it. You can read the paper here. It has a bunch of specific policy recommendations that you can forward on to leaders in your community.
You can also read an op-ed I wrote for the New York Times about one particularly pernicious tool the paper covers — which newsletter readers should be familiar with — here.
I also talked to MarketPlace about Nevada’s plan to reinvent the company town. You can listen to the segment or read a longer report here.
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— Pat Garofalo