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Building Accountability Into Economic Development Programs

This article explores the importance of building accountability into economic development programs and highlights the key players and challenges in assessing results. It also provides recommendations for making economic development investments more accountable.

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Building Accountability Into Economic Development Programs

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  1. Building Accountability Into Economic Development Programs Barb Hinton Legislative Auditor, Kansas January 14, 2009

  2. Key Players • Department of Commerce: recruit established businesses to Kansas, retain existing business and industry • KTEC: provide research support and business assistance, invest in technology-based start-up companies • Kansas Bioscience Authority: expand/ attract bioscience industry, build research capacity, invest in bioscience start-up companies (newest, $581M initiative)

  3. Sample audit questions: • 1994: Are we achieving our economic development goals? • 1996: Are we safeguarding against conflicts of interest? What relationships exist? • 1998: How much has been invested? On what basis? What’s our return on investment? How much are investment managers being paid? • 2001: What benefits has the State received? Is there sufficient accountability?

  4. Sample audit questions: • 2004: Do agencies get & analyze the right information to assess results? Do they validate the info companies report? Who are the results reported to? • 2004: How do results for different programs compare? • 2008: How much has been spent? What results can be seen from State spending for economic development?

  5. Recurring challenges in assessing results: To varying degrees, our audits have found that economic development agencies: • didn’t have measurable criteria/requirements • didn’t gather needed data • didn’t require companies to report • relied on self-reported data, and didn’t verify it • didn’t track results over the long term (lag time, 5-year limit; pulling results together)

  6. Recurring challenges in assessing results (continued): • couldn’t establish cause and effect of programs • claimed credit for all results, regardless • claimed jobs, payroll, capital investments, etc. that duplicated others • competed for funding • had developed a complex network of affiliates: difficult to follow, took funding away, had conflict-of-interest issues • provided inadequate feedback to policymakers (non-existent, inaccurate, selective, anecdotal)

  7. Results for high-tech companies very mixed: Some real success stories (anecdotal) Results not tracked (next new thing) Promised jobs not created; not seen as primary purpose; scattergun approach versus “mass” Return on investment often low 4 common trends: • companies never get off the ground • companies start, sputter for years, then go slowly bankrupt • companies start, take off fast, then go abruptly bankrupt • companies start, take off fast, keep growing, then move away

  8. Highlights of findings based on reviews of loans/investments:

  9. Making economic development investments more accountable… Establish clear intent: • What are you trying to accomplish? • Create or retain jobs? • Create lasting jobs? • Increase knowledge in a field? • Develop new products? New entrepreneurs?

  10. Making economic development investments more accountable… Require agencies to collect, maintain, and track data on the companies/individuals they help. Types of examples: • Date(s) and amounts of investment • Total funds committed, paid to date • Capital investments made by company • Private money invested in company (angel, venture cap, joint venture) • Other public moneys • Jobs created (to-date, and by any milestones), and payroll generated • Jobs “saved” • Employee withholding taxes • Capital expenditures made by company • Reported sales (within, outside state; “increase”) • Research dollars to be spent by company • average wage of jobs created by locating firms

  11. Making economic development investments more accountable Establish criteria for measuring success. Examples: • #/% firms that got assistance and located elsewhere • #/% firms that got assistance, located here, and felt program contributed to decision • #/% of jobs created over time period compared with projected • $/% increase in tax revenues • Etc. • estimated number of workers displaced by assisted firms

  12. Making economic development investments more accountable… Require companies to report data to agencies as a prerequisite to receiving public funding Require agencies to report to legislators and boards on the data they collect and the results they achieve Decide how to fund companies Up-front? Reimburse/pay when meet milestones? Consider cost of revenues foregone

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