State governments, including Ohio’s, give huge sums of public money each year to businesses — in grants, low-interest loans, tax breaks, and other favors — to persuade them to stay, move, and expand. State officials say these incentives, paid for by taxpayers, are vital to economic development and job creation. If a state doesn’t offer them, the officials add, competing states surely will.
But what happens when companies that get such goodies don’t create the jobs they pledge, or keep other commitments? What if government regulators fail to pay close attention to such things, or even appear to suppress bad news when deals fall apart? And what if many incentives seem to be more the products of political connections than economic merit?
Welcome to Ohio.
A special report last week in The Blade, “Deals Gone Bad,” chronicles the failures of economic-incentive deals that have cost Ohio taxpayers tens of millions of dollars without generating the jobs on which the incentives were conditioned. Worse, staff writer Kris Turner reports, state officials often don’t know whether companies that get incentives keep their promises.
The newspaper’s investigation makes clear that the problems it identifies precede the administration of Republican Gov. John Kasich, at least back to the term of Mr. Kasich’s predecessor, Democrat Ted Strickland.
But since Mr. Kasich replaced the former Ohio Department of Development with the private corporation JobsOhio as the state’s chief economic-growth agency, it’s gotten much harder for taxpayers and other public officials — including the state auditor — to find out how the state is spending public development dollars, and what that money is buying. This secrecy hardly inspires confidence.
The Blade’s report concludes that state officials have overstated by more than 11,000 the number of jobs that tax-subsidized development deals have yielded in recent years. About half the companies that got state grants didn’t create the jobs they said they would.
State officials gave big grants and loans to troubled companies about which they knew, or discovered, little. Executives of many of these companies were major contributors to top Ohio politicians and their parties. All that can be said for certain about too many of these deals is that the money is gone.
The state Development Services Agency, which awards and monitors loans, grants, and tax credits to businesses, says it has tightened its procedures. But the agency often still can’t tell whether recipients of incentives are actually creating jobs, the newspaper found.
Among local examples of failed deals, Buckeye Silicon got nearly $3 million in loans from the state in 2010 to make materials for solar panels. Today, the firm has defaulted on those loans, it is the subject of a lawsuit alleging fraud, its South Toledo headquarters is mostly vacant, and its parent company’s official address is a Las Vegas mailbox.
Willard & Kelsey Solar Group, a solar-panel maker in Perrysburg, got $10 million in state loans. The company laid off its work force early last year. This year, the state sued after an audit determined that the company could not account for its use of loan proceeds. Willard and Kelsey executives gave nearly $25,000 to Mr. Strickland’s failed 2010 re-election campaign.
Ohio needs tougher “clawback” procedures — including greater authority for the state attorney general to intervene — to recover incentive spending when companies don’t keep their promises. But there is little the state can do once a company becomes insolvent.
So even more important, state officials must do a much better job of vetting in advance, for legal and financial problems, the companies considered for incentives. Officials need to be more skeptical of companies that seek to defer repayment or otherwise modify their loans. Officials need to visit personally the companies being subsidized.
That is, officials should treat the tax money they are lending or giving away as if it were their own. Relying on companies to report — often inaccurately — on their own activities, as the state generally does now, isn’t adequate.
Job creation and strategies for economic growth are sure to be major issues in next year’s campaign for Ohio governor. Mr. Kasich and his likely Democratic challenger, Ed FitzGerald, can start that debate by talking now about how they will eliminate the money-wasting abuses in state incentive programs that The Blade has reported.