Tuesday, April 20, 2010

Comparing Maryland’s Efforts On Transparency

Promoting transparency in government and by government officials is a recurring theme here at the Free State Foundation (see here, here, and here for some recent examples). The idea that government should “operate in the sunshine” for all to see is overwhelmingly supported by voters. More than 80 percent of Maryland voters, Democrat, Republican, and Independent alike, said that a searchable website for all state spending is a good idea. Most states have embraced the idea of an online transparent government. Today, 36 states have a transparency portal of one kind or another. And with a critical mass of these websites online, the U.S. Public Interest Research Group (U.S. PIRG) sought to compare and rank these websites.

On April 13th, U.S. PIRG released Following The Money: How The 50 States Rate In Providing Online Access To Government Spending Data, where Maryland fared as a solid mid-pack performer, ranking 23rd overall. On a positive note, Maryland could have ranked as high as 14th, if information was organized more efficiently. The state only received one point for “economic development incentives,” instead of the maximum of ten, since this information must be accessed on a different webpage. (For a detailed explanation of each state’s ranking, see Appendix B, starting on page 32 of the report). But note that many states had missteps such as this. In other words, Maryland is likely to be a mid-pack state again, even if this minor issue is solved, since many states are likely to fix these types of problems.

And Maryland is one of 29 that has “checkbook level” transparency – allowing citizens to view individual government contracts. So while Maryland isn’t the worst or best, what are the best doing, and what would it take to get there?

First off, what is the literal cost of transparency? According to the report, Maryland’s website cost less than $100,000. The most expensive website was Louisiana at $1 million, while several front runners in the transparency rankings have spent approximately $300-500,000 on their sites; some of the best spent less than that. The ones that spent the least typically repurposed existing resources (and existing expenditures) towards their transparency portal. The irony is that Louisiana isn’t ranked particularly high (21st), leaving the reader to wonder if Louisiana shouldn’t have been more transparent in their pursuit of transparency. (Yes, that was a bad joke, but there is an important lesson here - a blank check in the name of transparency isn’t necessary or advisable either.)

But the best sites “make” the state money, even taking into account the cost of the site. Utah reported that just one division, the Tax Commission, saves around $15,000 a year from reduced information requests. Government wide, the total savings for Utah are probably in the hundreds of thousands of dollars. And with the best states, since all bid information is posted online, some states, like Texas, have reported lower bids for contracts. Just another way that transparency can save taxpayers money.

And the best sites lay it all on the table. Every agency and expenditure is shown. There are no minimum expenditure limits for inclusion on the website. And the best show all of the bids on a project, and even track subcontractors. Three of the seven leaders include the contract in its entirety online. And most of all, this information is updated in a timely manner.

And after the fact, this information is used to ensure that state goals are met. No use funding a project if it doesn’t achieve its perceived goals. And past information can be examined, and trends of each contractor tracked. Now, more than ever, it’s easy to tell the best contractors and vendors from the worst. And even if the worst are part of the “old boys club,” their lackluster performance will now be noticed by citizens.

And don’t forget about subsidies and tax cuts, which don’t take money directly out of the coffers, but keep their costs outside the state’s bank account, at least directly, on the promise that some good will become of these indirect expenditures. Usually, the new company is promising to bring jobs to the area. And economists know of the “multiplier effect” for jobs. The simple explanation of the multiplier effect is that one person’s consumption is another person’s wage. When Factory X pays $1 in wages to an employee, and that employee takes his $1 to the butcher, part of that $1 is absorbed as the butcher’s wage. The butcher may then turn around and spend his wage at another local business. Each time, part of the $1 is siphoned off through cost of materials (and other costs), but a portion is passed on. Eventually, if we tracked every part of this dollar, we would see that it is worth much more than $1 to the community, hence politicians’ inclination to cut those creating jobs a break.

But many of these cuts go unchecked and unverified. Worse yet, some are completed entirely in secret. For example, the PIRG report discusses the context surrounding a Google decision to build a facility in North Carolina. Over 70 local officials were required to sign non-disclosure agreements, despite the fact that $260 million of taxpayer funded subsidies was on the table.

And politically it is a whole lot easier to forebear from collecting taxes, essentially, than to cut a company a check. But as William Shakespeare said “a rose by any other name would smell as sweet,” or in our case, smell as foul. Make no mistake, subsidies and tax cuts are expenditures just the same.

So what are the best states doing to combat this? Oregon said that all tax credits must vanish sometime before 2015, which would then force the new cuts on the books and onto the web. Minnesota has gone one step further, listing every job and wage created. This way, economists can actually evaluate the impact of past cuts. And knowing what types of jobs were actually created, and how many, is crucial. If a computer company promises high paying tech-related jobs, and delivers assembly line work, or if only a fraction of the jobs appear, then the amount of the subsidy needs to be examined. For a brief overview of how a deal looks in hindsight, look here for an examination of the impact a Dell Computers plant had in Tennessee. (In the interest of transparency, I will note that Ruben Kyle and Albert DePrince were professors of mine).

So where does Maryland go from here? Hopefully, to the top. But that will require a large, sustained effort to make it happen. The first thing to go should be the $800 fee to get up to date information on the General Assembly. Yes, as this article points out, it raised $105,600 for the state’s general fund, but at what cost to taxpayers? The fees collected are a small price to pay to keep the doors closed, if you have something to gain by working in the shadows.

Maryland also failed to pass any of the “open government bills” this session, even though they seemed sure-fire when introduced. They were later relegated to “summer study.” These bills are now scheduled to be revisited later this year. But kicking the can down the road won’t make Maryland a leader in transparency. Let’s hope that legislators will make keeping taxpayers "in the loop" a priority.