Despite the fact that many economic development deals fall short on job creation or other benefits, New Jersey is inconsistent in how it monitors, verifies and enforces its subsidy programs that cost taxpayers millions of dollars per year.

This is the key finding of Money-Back Guarantees for Taxpayers: Clawbacks and Other Enforcement Safeguards in State Economic Development Subsidy Programs, a study published today by Good Jobs First, a non-profit, non-partisan research center based in Washington, DC. The report is a companion to Money for Something, a Good Jobs First study issued last month on the performance standards built into subsidy programs. Money-Back Guarantees rates states on how well they enforce those standards.

Though New Jersey received a grade of “C,” it ranks among the top half of the states. On a scale of 0 to 100, its major subsidy programs receive an average score of 53, putting the state in 17th place. But the program scores cover a wide range, from 42 for the Economic Redevelopment Growth (ERG) Grant Program to 69 for the Business Employment Incentive Program (BEIP). If all of New Jersey’s programs had the same standards as the BEIP, the state would be ranked in the top 5 in the country.

“While New Jersey is doing better than most states when it comes to enforcing subsidy performance standards, it should work to ensure those standards are consistently enforced across the board,” said New Jersey Policy Perspective president Deborah Howlett. “The investment of public funds in private enterprise demands full accountability and transparency.”

“Strong standards and strong enforcement are inseparable in making sure subsidy programs are not mere corporate giveaways,” added Philip Mattera, research director of Good Jobs First and principal author of the report.

“New Jersey has a long way to go in making its corporate subsidy programs transparent and accountable,” said Bill Holland, executive director of the New Jersey Working Families Alliance. “When the state gives up much-needed revenue, its imperative that corporations are held accountable to deliver on the job-creation promises they make.”

“As we struggle to balance our state budget, it is critical that New Jersey taxpayers know whether their tax dollars are being spent appropriately,” added Gideon Weissman, Program Associate for New Jersey PIRG. “Some of our subsidy programs have improved in recent years, but New Jersey’s ‘C’ grade demonstrates that there is still room for improvement. We can do more to ensure that precious public resources are used to bolster public priorities, and not given away as corporate handouts.”

Using a scoring system that combines performance standards and enforcements policies, Money-Back Guarantees rates 238 subsidy programs in the 50 states and the District of Columbia (the same sample used in Money for Something). The scores of the programs in each state are averaged to provide a state score.

The report’s key findings:

• Ninety percent (215 of 238) of the programs require companies receiving subsidies to report to state government agencies on job creation or other outcomes. Yet in 67 (or 31 percent) of those 215 programs, including New Jersey’s ERG program, an agency does not independently verify the reported data.
• About three-quarters (178) of the programs, including all of New Jersey’s major initiatives, contain a penalty provision of some kind, including recapture of benefits already provided and the recalibration or termination of future subsidies.
• Disclosure of enforcement data is a prime indicator of whether an agency is serious about dealing with non-compliance. But only 21 programs publish aggregate enforcement data; only 38 programs disclose the names of companies deemed to be out of compliance; and only 14 disclose the names of companies which have been penalized (and the dollar amounts). None of New Jersey’s programs do any of the above.
• While every state engages in at least minimal enforcement, practices vary greatly even within many states. Clearly, states know very well how to apply rigorous enforcement techniques but they often fail to do so consistently across their entire portfolio of subsidy programs.

To best protect taxpayers, the study recommends:

• All recipients in all programs should be required to report to agencies on job creation, wages, benefits and other performance benchmarks—and those reports should be verified by agencies using techniques including cross-checking of company claims against separate reliable data sources such as unemployment insurance records.
• Agencies should penalize recipients found to be out of compliance, employing techniques such as recapture (clawbacks), recalibration of future benefits and rescission/termination of subsidy agreements. Programs that are performance-based should operate without penalties only if recipients are required to fulfill all programs requirements before receiving any subsidies.
• Penalty systems should be straightforward and consistent and not weakened by subjective exceptions or official discretion on whether to implement them. Agencies should publish detailed online data on their enforcement activities.