Wednesday, May 23, 2012

Arizona Privatized Agency Subsidizes Private Corporations with Tax Dollars

New from the website In the Public Interest: Arizona’s Corporate-Run Agency Gives Taxpayer Subsidies to Other Corporations but Little Information to the Public. Arizona replaced its Department of Commerce last year with a public-private partnership called the Arizona Commerce Authority (ACA). The ACA's board includes mostly private businessmen, not government employees. Its funding comes partly from taxpayer dollars, and partly from private donations given by local corporations.  Here's an excerpt:
But this isn't just any agency. Its task is to try boosting the state economy by handing out taxpayer-financed subsidies to individual companies of its choosing. A new report by Arizona Public Interest Research Group Education Fund tallies up over $41 million in subsidies so far dispensed by 13 subsidy programs at the ACA. The annual amount could reach over $150 million next year, plus other publicly-financed loans and technical assistance. Arizona residents foot the bill for these goodies through their taxes and through cutbacks to other programs. Arizona's subsidy programs have multiplied in recent years despite serious budget shortfalls. Two years ago, lawmakers were so desperate that they sold off legislative and administrative buildings for short-term cash and rented them back...
....According to Arizona PIRG's report, only two of the 13 incentive programs even track how many jobs or other benefits they generate -- and none disclose that information publicly. For all its business-savvy rhetoric, the ACA can't demonstrate performance if it doesn't track results. Only one program publicly discloses what companies promise to deliver for their subsidies. Worse still, only 4 of the 13 programs even disclose which companies received subsidies or how much. And when companies that receive subsidies fail to deliver on promised economic development benefits, the ACA can reclaim taxpayer subsidies for only one program, and there is no way for the public to see if this ever happens.  

The article expresses concern mostly over the potential here for graft (or at least conflicts of interest) and the diversion of public funds from other state programs.  These are valid concerns, but are likely to resonate as basically political/partisan complaints - i.e., "Hey, public funding is flowing to those special interests over there (corporate, conservative), instead of my favorite special interest groups (the poor, minorities, unions, schools, etc)."  I understand that liberals take it as a tenet of faith or a universal truth that public funding should go toward helping the unfortunate rather than profitable businesses.  But conservatives will answer that the businesses do a better job of improving the local economic climate by creating jobs and spending money on local suppliers and distributors.  And never shall the two hear each other.

I have additional concerns beyond those mentioned in the article.  Even from a conservative, free-market perspective, government subsidies for businesses distort markets, foster monopolies, undermine competition, and reduce efficiency.  The same complaints that business advocates make about the welfare system apply to government programs to help businesses - the vicious cycle of dependence, the lack of incentive to work hard or face difficult choices, the inevitable favoritism (some businesses get taxpayer subsidies, others miss out, and those that do have an unfair advantage over competitors who might otherwise win in a free marketplace).  It has a chilling effect on market-driven innovation, improvements in efficiency, or "creative destruction." The subsidies can cause inflation as the local market prices correct for the infusion of unearned money. The inherent risks in entrepreneurship get externalized onto taxpayers rather than internalized by those who hope to reap the profits if they get lucky.  The conflict-of-interest problem is not just that the businessmen will engage in whitewashed embezzlement, diverting funds to their own businesses or friend's businesses (or to their suppliers, in hopes of getting discounted inputs).

The problem is also that other firms - firms that might be more efficient, providing better goods and services at lower cost - face higher entry barriers when the existing holders of market share are bolstered by government handouts.  In other words, I see little difference in the morality of handouts for poor individuals/families and handouts for businesses.  There is a spiritual virtue in helping the poor, of course, but also a virtue in helping those who are hard-working and who have made sacrifices to become successful.  The problem for me is the unintended consequences of government subsidies for entities that are supposed to compete and succeed in a free market.

-Dru Stevenson

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