Just in Time for Halloween, Privatized Economic Development Leads to Phantom Jobs

When John Kasich was elected governor of Ohio in 2010, one of the centerpieces of his economic plans was to privatize the state’s economic development agency.

The reasoning went something like this: the public sector is too bureaucratized to be as responsive to changing economic conditions as the private sector demands, and so a privatized economic development agency would bring more jobs to Ohio by being much more immediately responsive to opportunities for the expansion of existing operations and the creation of new enterprises.

Good Jobs First has released another annual report on the activities of privatized development agencies in about a dozen states, including Ohio. Titled Creating Scandals instead of Jobs: The Failures of Privatized State Economic Development Agencies, the full report is available online at: http://www.goodjobsfirst.org/sites/default/files/docs/pdf/scandalsnotjobs.pdf

It summarizes the problems with JobsOhio very succinctly: “JobsOhio assembled a board of directors whose members included some of (Kasich’s) major campaign contributors and executives from companies that were recipients of large state development subsidies. It received a large transfer of state monies about which the legislature was not informed, intermingled public and private monies, refused to name its private donors, and then won legal exemption (advocated by Gov. Kasich) from review of its finances by the state auditor.”

Specifically, after failing to gain support for selling off the state’s very profitable liquor stores to fund this “privatized” development agency, Governor Kasich won approval for “‘leasing’ the state liquor profits ($228 million the year prior) for up to 25 years to JobsOhio, which would eventually issue $1.4 billion in bonds to pay for the use of the funds. .  .  . Critics have charged, [however], that this was not a fair market price for profits that could potentially amount to $6 billion over the term of the agreement.”

Beyond the issues surrounding the agency’s funding, there were questions from the start about the efficacy of the grants that JobsOhio has made and the monitoring of grants that had previously been made.

The Toledo Blade has published a three-part series on Ohio’s economic development efforts: “The Blade found numerous instances in which state development officials were lax about asking the attorney general to collect taxpayer funding from companies that didn’t create the jobs that they promised or failed to repay loans. The state’s development office has not referred any loans for criminal prosecution since Governor Kasich took office, although several firms that received loans have gone out of business and failed to return taxpayer money.”

Moreover, “Reports from businesses that have open grants—meaning they still are using state grant money—inflated job figures by 59 percent. The 294 reports that were reviewed stated firms created 27,815 jobs, but state officials said they created 16,458 jobs—a difference of 11,357 fewer jobs. Reports from businesses that finished spending state grant money show they failed to create 83 percent of the jobs they promised to the state. The 240 reports reviewed stated those firms promised to create 10,173 jobs, but said they created only 1,775 positions. Officials at Ohio Development Services Agency, however, claim those companies created 15,006 jobs.”

Clearly these problems precede the creation of JobsOhio, but the lack of transparency surrounding the dealings of the new agency would seem almost certain to exacerbate, rather than to mitigate, the obvious difference between what is being promised and what is being delivered.

In the 2014 gubernatorial election, Governor Kasich will undoubtedly frame JobsOhio as one of the major successes of his term. Just as predictably, his opponent will almost certainly characterize JobsOhio as a boondoggle that has produced far fewer jobs than promised while considerably enriching the corporations that failed to deliver on their promises. The only way to determine which argument is more valid is to have an independent accounting of the total number of jobs created and the cost in tax dollars per job. But since the state legislature has exempted JobsOhio, as a “privatized” agency, from the annual audits performed by the State Auditor’s office on all other state agencies, voters are unlikely to have the benefit of any sort of impartial tally.

My gut feeling is that most public agencies are, indeed, inherently inefficient but that most privatized public services are provided even less efficiently and, as soon as the public’s attention has shifted elsewhere, are provided at much the same or even higher cost. Moreover, if a poll of most voters were conducted on the matter, I suspect that most of those who are in favor of privatizing public services are assuming that taxpayers are no longer paying for those services—that they would be surprised at the extent to which public dollars are enhancing the net profits of many private corporations.

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