New rule will help us judge economic incentives

Did state officials pay too much to lure Volvo to South Carolina? What about smaller companies, the ones whose recruitment doesn’t make front-page news across the state? Are the jobs that those companies bring worth the tax breaks we provide and the property we purchase and the roads we build to the companies’ specifications?

Those are subjective questions, of course, whose answers depend on each person’s perception of value, and we tend to believe that at least when it comes to the big fish, the cost is worth the return. But you can’t come to an informed decision without objective data. And even though the Legislature has required the state Commerce Department to report the incentives it provides to recruit industry, that reporting doesn’t always give us a clear picture: It’s one thing to know that a business won’t have to pay wage withholding taxes for several years; it’s quite another to put a dollar figure on that.

Foraging through additional incentives offered by local governments can be a challenge — one that’s rarely even engaged for the less spectacular economic recruitment projects.

That’s why we’re glad to see new reporting requirements from the Governmental Accounting Standards Board, a private entity that has what amounts to governmental power because it establishes the “generally accepted accounting principles” that state and local governments must use.

Beginning in December, the board is requiring governments to publicly report the type and value of tax incentives they give to businessess, the criteria the recipients must meet to receive the incentives, how governments will get the money back if the goals aren’t met and any other commitments made by government, such as building roads.

Economic recruiters have always objected that additional state disclosure requirements would put them at a competitive disadvantage with states that don’t require so much public information, but this rule sweeps away that objection by requiring all states to tell us what they’re paying for jobs.

As Governing magazine noted, the new disclosure requirements “could shed light on a previously murky area of government finance and provide hard data on information that has often been assembled piecemeal, if at all.”

Some economic recruiters complain that the reporting requirements are misleading, because they won’t show how much the state gains in return for the tax breaks and other incentives. They particularly object to characterizing tax breaks as “lost revenue,” because, they say, there wouldn’t have been any revenue if the businesses didn’t come here, and they wouldn’t come here without incentives.

There is no question that public officials have a harder job when the public knows precisely what they’re doing. But that openness is a hallmark of a free society. It’s better to give the public too much information and force officials into a position of explaining themselves than to give us too little information so we don’t even realize that something needs explaining.

If economic recruiters put together good deals, then they’ll be able to convince the public that the investments were worth the incentives and gifts. If they are unable to convince us on enough occasions, or on big enough deals, then we’ll demand change, as we should.

This story was originally published September 25, 2015 at 12:38 AM with the headline "New rule will help us judge economic incentives."