FACTS Act: Fair Accountability & Clarity in Tax Subsidies Act

The Problem

In order to recruit businesses and attract economic growth, states and local governments are engaged in a constant dash to give away more and more taxpayer money in order to lure companies to their areas. The Amazon HQ2 location search is the perfect example. Dozens of cities and states made their pitch to Amazon executives, offering increasingly higher incentives as if it was a high stakes poker game. Oftentimes, these deals lack any semblance of transparency or accountability. Frequently, lawmakers do not know which companies are receiving the money, their location or the return on investment when they are asked to allocate funds. Meanwhile, taxpayers are frustrated that public funds are given away instead of funding core government services, often without adequate accountability measures and protections to ensure taxpayers funds are not wasted.

The Solution

The FACTS Act creates more accountability measures to ensure companies are held accountable for the promises they make in exchange for taxpayer dollars while still preserving the Department of Economic & Community Development’s (ECD) ability to recruit businesses.

What the Bill Does

While still providing ECD the necessary secrecy on the front end to close deals and recruit businesses, the FACTS Act mandates that all “mega deal” grant recipients are subject to some form of accountability agreement. These measures allow taxpayers and elected officials to ensure that companies meet their promises in exchange for taxpayer funds.

Who This Impacts

After being laid off during the Great Recession, Louis Caddell was reading an article in the Memphis Business Journal about a young man who went into the mattress business after buying a new mattress and selling his old one on Craigslist. Being an entrepreneurial guy, Louis knew if that kid could do it, he could too. After doing some research and finding some local manufacturers, Louis went into the mattress business, selling mattresses out of a storage unit. Like many entrepreneurs, Louis put everything on the line when he invested his profits back into his business that was taking off. Soon afterwards, Louis was able to open his first “King’s Furniture,” a discount furniture store, in Horn Lake, Mississippi and later a second location in Memphis, Tennessee.

Another competitor, however, was about to enter the market with a huge advantage. Despite there already being more than 20 furniture stores in the Memphis area, IKEA opened its doors in Memphis in late 2016, not far from Louis’ store. IKEA would have one advantage that no other furniture company had: taxpayer money—and lots of it. In fact, the city of Memphis gave IKEA $10.7 million in tax breaks over the course of 12 years.

Starting a business is a difficult and risky endeavor to begin with, yet Louis was able to live the American Dream of starting a successful business from scratch. While on a level-playing field, Louis was able to survive, thrive, and employ multiple people, a prime example of how small businesses are the main driver of jobs and economic growth. Fighting an uphill battle, however, Louis eventually went out of business and laid off all his employees. Louis’ experience shows the unintended consequences of the government picking winners and losers in business. What’s worse is that many small businesses may be going through a similar situation to Louis and not realize it, as state-level tax incentive program recipients are not disclosed. If the government is going to get into the business of favoring some companies over others, their competitors and the public deserve to know what we’re giving, to whom, and what is expected in return. And we should recognize the impact these decisions have on real-life Tennesseans like Louis.

More Resources

“Tennessee: Open For Business, But Open to the Public?” Beacon Center of Tennessee. http://www.beacontn.org/beacon-releases-new-study-showing-lack-of-transparency-accountability-instate-incentive-programs.

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