Who's Afraid of Sunlight? Explaining Opposition to Transparency in Economic Development

Firms and governments often negotiate economic development deals, such as tax abatements, with limited transparency, using exceptions to public records laws or other strategies for nondisclosure. In this article we explore the motivations of firms for keeping economic development deals out of the public eye. We explore legal challenges to public records requests for deal-specific, company-specific participation in a state economic development incentive program. By examining applications for participation in a major state economic program, the Texas Enterprise Fund, we find that a company is more likely to challenge a formal public records request if it has renegotiated the terms of the award to reduce its job-creation obligations. We interpret this as companies challenging transparency when they have avoided being penalized for noncompliance by engaging in nonpublic renegotiations. These results provide evidence regarding those conditions that prompt firms to challenge transparency and illustrate some of the limitations of safeguards such as clawbacks (or incentive-recapture provisions) when such reforms aren't coupled with robust transparency mechanisms. We speculate that the main motivation for these challenges is to limit scrutiny of these deals that could lead to backlashes against future economic development agreements.

Is Tax Competition Strategic? Spatial Distributions of Business Property Tax Abatements in the Chicago Suburbs

The authors analyze the locations of property tax abatements awarded to businesses in Cook County, Illinois from 2012 to 2014 to explore their spatial distribution and to examine local government motivations for awarding incentives. The authors’ analysis, which controls for the spatial distribution of businesses, reveals a clustering of abatements at intramunicipal geographic scales. They also find amplified probabilities that abatements are awarded to businesses located near tax increment financing districts or enterprise zones. These patterns suggest that local governments use abatements in a strategic fashion to advance policy goals. The authors use the same data to develop three indices of the degree of abatement clustering at the municipal scale for each of the 64 municipalities in Cook County that awarded five or more abatements. Most of the Chicago suburbs exhibit a pattern consistent with the strategic award of business tax incentives.

United States – Measures Affecting Trade in Large Civil Aircraft – Second Complaint – Recourse to Article 21.5 of the DSU by the European Union (US – Large Civil Aircraft (2nd Complaint) (Article 21.5 – EU)), DS353

This compliance proceeding under Article 21.5 of the Dispute Settlement Understanding (DSU) concerned measures adopted by the United States to comply with the Dispute Settlement Body (DSB) recommendations and rulings in US–Large Civil Aircraft (2nd Complaint). The types of measures at issue that were found to have caused adverse effects to the European Union (EU, formerly European Communities) in the original Panel and Appellate Body proceedings were NASA aeronautics R&D instruments; United States Department of Defence (DOD) military research instruments (‘assistance instruments’); the business and occupancy (B&O) tax rate reduction in the State of Washington in relation to Boeing's production of the 787; property and sales tax abatements related to Industrial Revenue Bonds issued by the City of Wichita, Kansas; and the FSC/ETI subsidies.

Variation in the Heartland: Explaining the Use of Economic Development Incentives in Three Great Lakes States

We identify the factors correlated with the use of economic development incentives after the Great Recession of 2007–2009 to determine the presence of entrepreneurial development regimes. We utilize a unique dataset that combines information on incentives (tax increment financing districts and selected tax abatements and business assistance) with economic, fiscal, and political characteristics for all municipalities in the largest Metropolitan Statistical Areas of Illinois, Wisconsin, and Michigan. These three states bordering Lake Michigan share similar histories and settings, thus targeting the research focus on the key attributes of interest. Our empirical results demonstrate substantial dissimilarity between incentive types and across states, most likely due to policy structures and reforms at the state level that encourage different municipal development regimes. Whereas municipalities, particularly larger ones, continue to use tax abatements, exemptions, and credits to pursue employment growth, the municipalities gravitating toward tax increment financing tend to be suburbs with low unemployment rates and relatively highly educated residents, and not places with greater employment density or manufacturing employment.

Tax Increment Financing: A Propensity Score Approach

This study examines the effect of tax increment financing (TIF) on economic growth in Indiana. TIF areas are designated with the intent of spurring economic development characterized primarily by growth in assessed value and in employment within the TIF area. We examined property-level data from 2004 to 2013 and found that the average property in a TIF area may display higher assessed values than the average property in a similarly situated non-TIF area. While both TIF and non-TIF properties tended to grow over time, the average property in a TIF area may grow by slightly more than its non-TIF counterpart. We also found that TIF does not statistically significantly affect employment or employment growth over time. While there does not appear to be a multiplicative effect of the presence of enterprise zones and TIF on employment, TIF works with property tax abatements in incentivizing job creation. Our analysis of the effect of TIF on economic development outcomes informs policy makers of the likelihood that a given area will adopt TIF in the context of the “but-for” question.

Accounting for State Authorization in Local Economic Development Policy Usage

This article empirically tests the impact of failing to account for state-level authorization when explaining the factors that lead municipalities to use tax abatements, tax increment financing, and enterprise zones. Although existing research implicitly assumes that state-level authorization exists, this article demonstrates that this unfounded assumption leads to biased estimates using the 1999, 2004, and 2009 International City/County Management Association (ICMA) Economic Development Survey data on a nationwide set of municipalities. This article refines what is known about the factors, leading to the usage of these three policies before offering implications for practitioners and researchers of local economic development.

Towards enhancing tax abatement transparency: Reviewing the promises and limitations of GASB 77

In August 2015, the Government Accounting Standards Board (GASB) adopted Statement 77, requiring government disclosure in audited financial reports of a particular type of tax expenditure, tax abatements. GASB's reporting standards move tax abatements from a budgetary environment to an accounting environment. This paper evaluates GASB 77's provisions to encourage an early and on-going dialogue about the Statement's prospects for achieving greater transparency compared to existing tax expenditure reporting efforts. We conclude that GASB 77 will be most beneficial to consumers of financial information in medium and large jurisdictions where there is no alternative tax abatement disclosure platform, or where the alternative offers less transparency than what can be achieved through financial reporting.