A new report, was released the first week of February 2013 by Integrity Florida and the Florida American for Prosperity, titled: Enterprise Florida: Economic Development or Corporate Welfare? It’s an analysis of the current state of Floridian governmental institutions that are, in theory, promoting economic development in Florida. The report suggests that many of these programs are in reality just supporting forms of cronyism and corporate welfare.
The study aims to capture the public’s attention as to how misguided policies have led Florida down the road to a system of nepotism, corruption and cronyism. In particular the study analyzes and questions the policies of Enterprise Florida; these seemingly inconsistent policies have led to the deterioration of the impartial business environment that Florida has experienced over the last 20 years. Enterprise Florida, Inc. is a public-private partnership established in 1992 by Florida Legislature with the purpose of being the state’s chief body dedicated towards “economic development.”
Recently Floridians have been increasingly relying on the state-private relationship in order to spur economic growth in their home-state. The principal idea is to direct the government’s focus on economic development, with significant public resources, in order to deliver results of high quality job creation. Unfortunately, public organizations have failed to accomplish the goals they themselves sought to achieve; therefore this study seeks to understand the fundamental operations of this government-business relationship by specifically analyzing the incentive agreements structure executed by Enterprise Florida in the 2012 fiscal year.
Enterprise Florida aims to achieve economic development by providing tax and cash incentives to selected businesses and corporations which the bureaucratic entity considers probable to create jobs in Florida. Finally Enterprise Florida is mainly a government-run, non-profit corporation that works under a contract with the Florida Department of Economic Opportunity- a state controlled organization.
The report mentions that this state-private partnership is essentially a mirage; in fact “more than 85% of Enterprise Florida’s funding comes from government and less than 15% comes from the private sector.” Enterprise Florida also reported receiving $14,088,711 in government grants out of a total of $16,486,199 in revenue. The efforts of the state of Florida to increase its stake in the private economy are even increasing; according to a recent article, Governor Scott’s proposed budget for 2013-2014 includes at least $297 million to “help” companies, thus the threats of increasing economic interventionism in the Sunshine State are imminent in the short-run.
The report’s results are conclusive: the programs have clearly shown severe failures in meeting legislative expectations. But perhaps even more importantly are the fundamental problems with the organization’s management, mainly Enterprise Florida’s apparent conflicts of interest. It also shows, “the appearance of a pay-to-play scheme for winning favorable treatment” and also the current biased system of simply picking winners and losers overstepping the mechanisms of competition within the marketplace through favoritism and discriminatory incentive deals. This current policy environment of interventionism and favoritism that benefits some industries at the expenses of others is evidence of how years of distortionary policies and government concentrated economic decisions have resulted in “failed objectives, waste, and at least the appearance of conflicted interests.” The report finally seeks to help Floridians ask themselves: “What are Florida’s taxpayers getting in return for Enterprise Florida’s investments and do these deals amount to anything more than corporate welfare?”
The report examines the following specific cases illustrating how Enterprise Florida might be more about corporate welfare than economic development:
1. Pay-to-play on the Enterprise Florida Board: All of the 62-member board are previous corporate donors to Enterprise Florida. According to the report, there is evidence showing how member companies have received vendor contracts. It reports: “Enterprise Florida Board of Directors approved three vendor contracts with Board member companies: Wells Fargo, TD Bank and Blue Cross Blue Shield (Florida Blue). […]The value of these contracts and terms were not publicly disclosed at the board meeting.” According to this report the potential list of vendors with possible ties to Enterprise Florida board member companies appears to be extensive.
2. Conflict of interest between Enterprise Florida Board and staff: According to the report, an environment for severe potential conflicts of interest exists. There is a clear distortion in the incentives given to the working staff to provide economic support regardless of the soundness of the investment. The incentive deal negotiations and the vendor contract approvals by the staff members are to some extension distorted and influenced by the bonuses they received by the group’s Board of Directors. In other words, the board members who had previously “contributed” to Enterprise Florida as donors were thereafter “selected” as board members; afterwards they could give staff monetary incentives to give more loans to companies which were very likely to be linked to their own board members in the first place.
3. What are Florida’s taxpayers getting for their money? The 2012 Enterprise Florida fiscal year report shows that they executed “122 projects for 13,558 contracted new jobs at an average wage of $49,397 in return for $71,946,285 in state incentives and $8,953,140 in local financial support commitments.” According to Enterprise Florida there were 329 applications for this “economic stimulus” but the selection process is at best obscure. There is no form of accountability that helps Floridians understand the process by which this state institution selects winners and losers. In fact several incentive agreements are executed with board members’ companies. (Some examples of these incentives and board relationships are shown in the report’s Appendix).
In addition, the Integrity Florida study shows that the job creation numbers that Enterprise Florida included appears to be severely distorted “by counting 1,866 new jobs in its 2012 Annual Incentives Report based on deals signed outside of the 2012 fiscal year and 505 new jobs based on deals that have already failed.”
4. Enterprise Florida’s 2012 incentive deal failures: Several of the deals selected to incentivize Florida’s economy appear to be “no longer active”. Four of the incentives deals are currently in a frozen state; this includes 505 new jobs that are no longer operational, accounting for an overall inconceivable “investment waste” of $2,894,000 in “money incentives”. The unprofitable privileged businesses that receive the “economic spur” were: American High Tech Homes, Inc., Nautical Structures Industries Inc., Redpine Healthcare Technologies, Inc. and TraPac, Inc.
5. Favored status- Enterprise Florida picking winners and losers: Since Enterprise Florida operates under the strategy of promoting targeted industries; it implies the arbitrary selection of businesses, making it possible to select the incentive recipients at will. This tactic clearly violates and surpasses any form of market selection based on meritocracy and performance. Therefore they operate on the mechanisms of capriciously picking winners and losers by promoting certain businesses dearer to their ideas and tastes, at the expenses of others. The report translates this as the following:
“The costs to the taxpayers of Florida for government favoritism of one company over its competitors are largely ignored. Additionally, Floridians may never know whether companies receiving incentives to retain jobs or expand existing facilities would have done so anyway without incentives. Should the state government be picking winners in the marketplace using government subsidies?”
The list of selected winners includes big corporations like Walmart, Miller Beer Company, Coca-Cola, HBO, Planet Hollywood and Colt, among others.
6. Not all Florida communities benefit from Enterprise Florida incentive deals: The notion that these programs and incentives are good for Floridians and therefore good for the state in general is at best deceitful. First of all only half of Florida’s counties have received cash from these programs. Secondly, providing preferences to some industries creates a zero-sum game within the counties since some industries will be drawn by the incentives to start or move their business from one county to the other. This creates a zero net job creation and only a job reallocation at the expense of the counties that did not receive the benefits.
Enterprise Florida lacks transparency and accountability; these combined with failed policies have created a situation that deserves intense examination and scrutiny by Florida’s elected officials. Seats on the Enterprise Florida Board of Directors and the possibilities of receiving vendor contracts appear to only be “exchanged for $50,000 worth of donations.” The Enterprise Florida Board establishes their incentives for staff bonuses based on signed agreements for “promises of new jobs in the future rather than independently verified new jobs created.” In addition, they have systematically failed to promptly disclose their approved incentive deals and vendor contracts to the public.
This Florida study illustrates in a clear and practical manner how monetary incentives might appear to be an appealing way to promote state economic growth and spur industries in specific counties; however below the surface the reality is far from that dream. Most of the time economic benefits and loans aim to spur local growth through forms of governmental entities, which usually create the perfect conditions for cronyism and corporate welfare. Lack of accountability, supervision and concentration of power in the decision making process creates ideal incentives for businessman to seize these opportunities to collude with government officials or boards of directors to obtain these monetary benefits, regardless of their economic credentials. This only damages the state’s economic efficiency and performance.
Enterprise Florida therefore has an aim of ‘doing good’ but in the end creates malinvestment, misuse of taxpayers’ funds and huge economic distortions, decreasing the state’s overall economic competitiveness and creating an unnecessary privilege that benefits some industries at the expense of the rest. Floridian policymakers must finally realize that this approach of promoting the state’s economic proficiency through violating the laws of competitiveness and the rigor of the market is a zero-sum game which damages other industries and creates the perfect environment for increased nepotism and cronyism. The legislature has the obligation to finally ask– is Enterprise Florida providing what was expected of it? Are these programs economic development or just taxpayer-funded corporate welfare?