Arizona's Corporate-Run Agency Now Gives Taxpayer Subsidies to Other Corporations

Arizona's corporate takeover is part of a troubling trend among states that are privatizing their economic development process.
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Economic development in Arizona is now by corporations for corporations and the public is left to in the dark as to how its tax dollars are spent. Last year the state's Department of Commerce was replaced by the public-private Arizona Commerce Authority (ACA), steered by a board of mostly corporate representatives. The ACA's website picture shows the board of directors as Governor Jan Brewer with 18 corporate titans. The bottom of the page mentions a smaller number of "ex-officio" public officials associated with the board who aren't named or pictured.

Though not listed on the website, the ACA also depends on corporate donations for its office space, its corporate-sized CEO salary, and much of its operating budget. The arrangement would pose unsettling conflict-of-interest problems for any authority that performs a public function.

But this isn't just any agency. Its task is to try boosting the state economy by handing out taxpayer-financed subsidies to individual companies of its choosing. A new report by Arizona Public Interest Research Group Education Fund tallies up over $41 million in subsidies so far dispensed by 13 subsidy programs at the ACA. The annual amount could reach over $150 million next year, plus other publicly-financed loans and technical assistance. Arizona residents foot the bill for these goodies through their taxes and through cutbacks to other programs.

Arizona's subsidy programs have multiplied in recent years despite serious budget shortfalls. Two years ago, lawmakers were so desperate that they sold off legislative and administrative buildings for short-term cash and rented them back. More recently, Arizona has closed parks and imposed billions in other cutbacks, including ceasing reimbursements to Medicaid patients for organ transplants.

The downside of diverting such limited state resources to individual businesses' balance sheets makes it all the more important that any subsidy expenditures be clearly justified by broader benefits they can be shown to generate for Arizona. Other businesses that didn't receive subsidies also need to know why they must compete on an uneven playing field against state-subsidized rivals.

Complete transparency and public accountability are crucial, moreover, because the ACA's corporate leaders have their own agendas about how to spend taxpayer subsidies. They have their own narrow interests for which industries, subsidiaries and land parcels should be chosen as winners or losers.

The authority's website proclaims that "The ACA takes seriously its commitment to remain accountable and transparent to the state, its citizens and to those looking at doing business in Arizona." In recent years, the state has greatly improved online transparency and become a leader in making information publicly accessible about other forms of state spending.

How much has the ACA done for public disclosure and other safeguards to protect against favoritism, to demonstrate measurable benefits for each subsidy, and to reclaim funds when subsidy recipients fail to deliver?

Not much. According to Arizona PIRG's report, only two of the 13 incentive programs even track how many jobs or other benefits they generate -- and none disclose that information publicly. For all its business-savvy rhetoric, the ACA can't demonstrate performance if it doesn't track results. Only one program publicly discloses what companies promise to deliver for their subsidies. Worse still, only 4 of the 13 programs even disclose which companies received subsidies or how much. And when companies that receive subsidies fail to deliver on promised economic development benefits, the ACA can reclaim taxpayer subsidies for only one program, and there is no way for the public to see if this ever happens.

Arizona's corporate takeover is part of a troubling trend among states that are privatizing their economic development process. But no amount of smiling CEOs can take the place of strong transparency and public accountability mechanisms. If a public-private authority can't meet those high standards, it shouldn't be spending public dollars.

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