Tag Archives: Governing Magazine

Corporate welfare spending is not transparent

Over a century ago, the Italian political economist Amilcare Puviani suggested that policy makers have a strong incentive to obscure the cost of government. Known as “fiscal illusion,” the idea is that voters will be willing to spend more money on government if they think its costs is lower than it actually is. Fiscal illusion explains a great deal of public choices, including the popularity of deficit spending.

It also explains why the public knows the least about some of the most controversial items in the public budget such as corporate welfare. But some would like to change this. Here are Jess Fields and Tom “Smitty” Smith, writing in the (subscription required) Austin-American Statesman:

Texans believe in government transparency and accountability. For this reason, we have some of the most advanced open-government initiatives in the nation. Yet one policy area remains outside the view of the general public: economic development.

When local governments cut deals that result in millions in incentives, they can do it behind closed doors in “executive session” — legally — thanks to exceptions to the Open Meetings and Public Information Acts for “economic development negotiations.”

Fields is a senior policy analyst at the free enterprise Texas Public Policy Foundation, while Smith is the director of the Texas office of Public Citizen, a progressive consumer advocacy group started by Ralph Nader in the ‘70s.

Texans aren’t the only ones interested in making corporate welfare more transparent. The Government Accounting Standards Board (GASB) is considering rules that would require governments to report the tax privileges that they hand out to businesses. Here is Liz Farmer, writing in Governing Magazine:

Specifically, GASB is proposing that state and local governments disclose information about property and other tax abatement agreements in their annual financial statements. If approved, the new disclosures could shed light on an area of government finance and provide hard data on information that is assembled sporadically, if at all. Scores of public and private groups support the proposal and it has proven to be one of GASB’s most debated topic yet, as nearly 300 groups or individuals submitted comment letters to the board. But many still say the requirements don’t go far enough.

She notes that the proposal misses a number of tax privileges including:

  • Tax increment financing (TIF),
  • Agreements to discount personal income taxes,
  • “[P]rograms that reduce the tax liabilities of businesses or similar classes of taxpayers.”

Because of these omissions the new GASB rules may only capture about one-third of all tax expenditures.

Puviani would have predicted that.

To merge or not to merge?

Princeton Image

Consolidating municipalities is a common policy prescription from across the political spectrum. In New Jersey in particular, many democratic and republican elected officials have thrown their support behind merging municipalities. In part, this support is based on the experience of Princeton. In 2011, Princeton Borough and Princeton Township moved, the first New Jersey municipalities to do so:

New Jersey GOP Gov. Chris Christie as well as governors in Ohio and Pennsylvania have been urging local governments to seek savings by eliminating unneeded costs. Christie endorsed the Princeton plan and offered to pay 20% of the $1.7-million unification cost, Bloomberg News reported.

The forecast is that Princeton taxpayers will save $3.1 million annually by consolidating services, including those for police and fire protection.

“We have redundancy in government,” borough resident Cole Crittenden told NJ.com in explaining why she supported the merger.

Framing municipal mergers as a way to get more bang for the taxpayer buck makes the proposal difficult for anyone to oppose except for those municipal employees who are redundant after a merger. However, the cost savings of consolidation are not well-understood. In an article in Governing Magazine earlier this week, Justin Marlowe writes:

It turns out that consolidations rarely save money. In fact, for the majority of citizens directly affected in these cases, consolidation has meant higher taxes and spending. Some cities consolidated because a larger government could improve local infrastructure. This has usually meant new debt and new taxes to repay that debt. Others offered generous pensions and health-care benefits to employees pushed out in the consolidation, thus saddling the new government with expensive legacy costs. In the consolidated town of Oak Island, N.C., per capita spending is two or three times higher than before consolidation, and that’s by design. Consolidation allowed this coastal community to offer new services needed to build a vibrant tourist economy.

Superficially, municipal consolidation looks like an opportunity to reduce taxes or to provide increased services for a given level of revenue. However, as Marlowe indicates, larger jurisdictions do not always result in anticipated efficiencies. As policymakers’ gain control of larger jurisdictions and in turn the ability to access more funds from revenue from the state and federal level, they may spend more, rather than less, per capita.