Alabama’s new transparency law is a step in the right direction, but more needs to be done
Gov. Kay Ivey presents her office’s legislative agenda focused on economic development at the Montgomery’s Riverwalk Stadium on Apr. 3, 2023. (Brian Lyman/Alabama Reflector)
Following years of pressure by good government advocates, the Alabama Legislature just passed a bill to create better transparency around the state’s use of economic development incentives.
This a major victory for those concerned about government transparency and accountability.
The recently enacted Transparency in Incentives Act requires the state Department of Commerce to disclose online names of companies that receive economic development incentives. Up to this point, none of Alabama’s state subsidy programs were transparent, despite costing taxpayers billions of dollars.
“Job creation” is the main justification for giving companies packages worth upwards of hundreds of millions of dollars, but the public has had no way of knowing how many jobs were ultimately created, much less what they pay workers. In fact, the public can’t even access basic information, like which companies have received subsidies or how much was received. In 2022, Alabama’s disclosure was so poor, the state tied with Georgia for last place in a national transparency survey (co-authored by Tarczynska) of state-level economic development programs. Its score: 0/100.
The new legislation requires the Commerce Department to disclose annually:
– the names of subsidized companies;
– the estimated value of tax credits per company;
– the county location of the project;
– the estimated number of jobs that will be created, what workers will be paid, and the company investment;
– estimated return on investment of each subsidized project.
The Alabama transparency law applies to programs included in the so-called Game Plan, four new bills passed to allegedly spur economic development. Among them is a renewed and expanded Alabama Jobs Act, which provides tax credits and rebates (both are essentially cash refunds) that are based on company payroll and investment. By 2027, the program will cost state residents $475 million annually.
These are not the only ways companies benefit from subsidies. They also get sales and use tax exemptions, property tax exemptions, free (to them) infrastructure, workforce development training and more. Most of the incentives impact the education budget and reduce the funds available to improve public education in Alabama.
This is critical because according to 2022 rankings from the National Assessment of Educational Progress (NEAP), also known as The Nation’s Report Card, Alabama ranks 39 in reading and 40 in math among fourth-grade students in the nation. Overall, Alabama is 44th in the country in education, according to U.S. News and World Report rankings.
We applaud this new transparency, but more needs to be done.
The requirements, for example, include only job projections, not actual jobs created or actual wages paid, and there is no mention of how subsidized companies will be held accountable for the promises they make. The law only applies to completed deals, and doesn’t clarify how companies were chosen to receive subsidies. It is still too early to say how good the disclosure will be, and if it will be easy to find and understand for the average Alabamian.
In upcoming sessions, we encourage the legislature to:
- Create a separate budget for incentives so legislators and the public can evaluate the return on investment;
- Require companies that are found guilty of violations of labor or environmental laws to refund some or all of the subsidy money it received, also known as a “clawback;”
- Require companies that receive incentives to create quality jobs with living wages;
- Require companies receiving incentives to negotiate a Community Benefits Agreement with local coalitions;
- Ban the use of non-disclosure agreements between companies and public officials that keep the terms of incentives packages hidden from the public.
Nevertheless, the new law is a step in a good direction.
Alabama has for years been home to large manufacturing projects which have benefitted from massive subsidies. Among them are $1.4 billion for ThyssenKrupp, $900 million for Toyota-Mazda, and $440 million for Mercedes-Benz (values are adjusted for inflation as of 2021). The only reason the public has even these basic details – including company name and size of the investment – is because of journalistic investigations.
Many of these subsidized companies fail to pay a living wage (and the state’s minimum wage remains since 2009 at $7.25 per hour); a Reuters investigation found that an auto parts manufacturer, with majority-ownership by Hyundai, a heavily subsidized company, was employing immigrant children as young as 12.
Other states in the South have been disclosing subsidy data for some time now, among them North Carolina, South Carolina, Louisiana, and Tennessee.
Tax incentives are used to recruit a business to set up shop in the state as a way to boost the economy. But we need more information on wages and benefits offered to make sure we are not giving taxpayers’ money to bad actors—companies that have a history of environmental, labor, or safety violations.
Transparency is the first in ensuring good, equitable economic development. Armed with such information, Alabamians can push to ensure every tax dollar given to a company returns high-paying, safe jobs with benefits in exchange.
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