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Building Accountability Into Economic Development Programs

Building Accountability Into Economic Development Programs. Barb Hinton Legislative Auditor, Kansas January 14, 2009. Key Players. Department of Commerce : recruit established businesses to Kansas, retain existing business and industry

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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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