Disclosure

Getting Corporations to Own Up to Their Climate Impact

The Securities and Exchange Commission, according to various media reports, is getting ready to issue a rule requiring publicly traded companies to disclose their greenhouse gas emissions in a standardized way for the first time. The rule, which the Commission has been working on since last year, would also oblige firms to detail the financial risks associated with those emissions.

Some business advocacy groups are already raising concerns about the policy, arguing it would be better to let companies decide on their own whether and how to divulge the information. An official at the U.S. Chamber of Commerce told the Washington Post that putting the data in an SEC filing would open corporations to lawsuits.

This ignores the fact that climate litigation is already happening—and the cases are often based on the failure of companies to inform investors about climate risks. Including the risk disclosures in SEC filings might actually reduce potential liability.

It is true that many firms are voluntarily making data on their greenhouse gas emissions public. The problem is with the voluntary nature of that process. In fact, this is the case for all the disclosures firms produce as part of their ESG initiatives.

Leaving it up to individual firms to make transparency decisions creates a host of problems. First is the issue of consistency. If each company can choose to release the information in whatever format it chooses, it may be difficult or impossible to make comparisons across corporations.

Whether as part of a deliberate attempt to conceal bad performance or just laziness, companies may publish information with gaps in terms of time periods, types of emissions, locations of emissions, etc.

It is unclear what recourse stakeholders have if they believe a corporation’s voluntary disclosures are incomplete or inaccurate. Such lapses in an SEC filing are a much more serious matter. In that regard, the Chamber official is correct about liability—but only in cases in which the corporation seeks to deceive.

What makes the arguments against the SEC rule even less legitimate is that the federal government is already collecting data on CO2 emissions from companies through the EPA’s Greenhouse Gas Reporting Program. The difference is that the EPA is obtaining the data on individual facilities—some 8,000 of them—rather than for each company as a whole. For the largest emitters, this limitation is rectified by the Greenhouse 100 Polluters Index, produced by the Political Economy Research Institute at the University of Massachusetts, which aggregates the data by parent company.

These resources are valuable, but there is still a need for mandatory corporate-wide reporting by all publicly traded companies—ideally including the amounts contributed by each firm’s different facilities as well as by its supply chain.

There is also a need for such reporting by larger privately held companies, such as Koch Industries, which is number 23 on the Greenhouse 100 list.

Standardized and comprehensive greenhouse gas disclosure is all the more important at a time when fossil fuel advocates are using the war in Ukraine as a pretext for rolling back initiatives to address the climate crisis.

Culpable 26

COP26, the United Nations Climate Change Conference now taking place in Glasgow, is primarily a gathering of governments. The idea is that political leaders from around the world can come together to make commitments that will address one of the most pressing problems confronting the human race.

The ability of nations to make substantial progress is, however, increasingly in question. European countries are reported to be worried that measures resulting in higher energy prices could prompt a populist backlash like the Yellow Vest movement in France. The ability of the U.S. Congress to enact significant climate legislation remains uncertain.

Moreover, the parties which are most responsible for the climate crisis are not governments or the people they represent, but rather the giant corporations whose operations and products account for a large portion of greenhouse gas emissions. Perhaps we should spend more time talking about the Culpable 26, or whatever number of major polluters we deem to be most worthy of castigation.

Identifying the worst climate culprits is complicated by the fact that many of them are claiming to be part of the solution rather than the problem. They tout their efforts to reduce emissions and many even claim to be moving toward net-zero.

There are several problems with these claims. The first is the “net” part. Many companies will end up focusing more on carbon offsets than reducing their emissions substantially.

The second is that the target dates they are setting are well into the future. The Net Zero Tracker lists about 575 large publicly traded corporations as having commitments to net zero or related goals. Of those, more than half set their target date at 2050 or later. They are giving themselves three decades to respond substantively to what amounts to a global emergency.

The third problem is that progress toward these goals will likely be measured by the corporations themselves. Self-reporting is pervasive in the world of corporate social responsibility and ESG, putting into question the entire enterprise.

After all, many of the companies vowing to meet climate goals have abysmal track records when it comes to regulatory compliance. Take the example of Royal Dutch Shell, the largest industrial company with a net zero commitment (by 2050).

As shown in Violation Tracker, Shell has racked up more than $875 million in environmental penalties from federal, state and local regulators in the United States alone. That shows the extent to which the company and its subsidiaries have run roughshod over pollution regulations.

Shell’s Violation Tracker page also shows hundreds of millions of dollars in penalties for other offenses such as accounting fraud (overstating its petroleum reserves) and false claims (underpaying royalties on oil produced under federal leases). In other words, Shell has a history not only of environmental misconduct but also of deceiving shareholders and the federal government.

Shell is far from unique in this regard. Many companies have a track record of deception. Self-reporting is not a reliable basis to determine whether big business is really reducing its damage to the climate.

Inconsistencies in State Environmental Disclosure

We all know that state governments vary greatly in their policies on a variety of issues. I just discovered the degree to which they also diverge in their willingness to disclose data on their implementation of those policies.

I learned this lesson in the course of gathering data from state environmental regulators across the country for a major expansion of the Violation Tracker database. Next week, my colleagues and I will post 50,000 new entries from those agencies along with a report analyzing the data.

This is the culmination of months of effort to collect data on state environmental enforcement actions over the past two decades. A few state agencies made the process easy by putting the case data on their websites in a form that could be downloaded or scraped.

Others post large archives of individual case documents, sometimes numbering in the thousands. Many agencies put no enforcement information at all on their sites.

This meant we needed to file open records requests—lots of them—for lists of cases with information such as company name, penalty amount, date, category and facility location. Given that some states have more than one environmental agency and some required that separate requests be sent to different divisions (air, water, hazardous waste, etc.), we ended up filing about 90 requests.

The good news is that nearly all states ultimately came through with some information. This was not always in our requested format (a spreadsheet) or time period (back to 2000), but we made the best of what was sent.

There were half a dozen denials, which fell into two main categories. Agencies such as CalRecycle and the New York Department of Environmental Conservation declined to provide lists of case details contained in documents posted on the site. In other words, they felt no obligation to make our data collection more convenient. We thus had to sift through hundreds of documents and create our own lists.

More troubling was the situation with agencies such as the Kansas Department of Health and Environment and the Oklahoma Department of Environmental Quality, which turned down our requests even though they provide no significant enforcement information on their websites. For these agencies, we checked non-official sources such as the Lexis-Nexis news archive and found references to a small number of cases.

Nearly all of the agencies that denied our open records requests based their rejection on the claim that providing the lists we were seeking would, in effect, require the creation of a new record, whereas their state transparency laws only obligated them to supply existing records.

This position is antithetical to the spirit of open records laws. It is especially troubling when it comes to information on environment enforcement, an area in which states are carrying out a function delegated to them by the federal government under laws such as the Clean Air Act.

Just as the U.S. Environmental Protection Agency posts data (through ECHO) on the enforcement actions it carries out on its own, so should the state agencies partnering with EPA be fully transparent about their activities. That would mean not just responding favorably to open records requests for comprehensive data but also posting their enforcement data on the web, ideally in a standardized format.

Accessibility is an essential part of meaningful transparency. It should not be necessary to file 90 open records requests to discover how a key government function is being carried out.

Happy Sunshine Week.

Defending Disclosure

In 2012 proponents of financial deregulation managed to generate bipartisan support for a dubious piece of legislation that became the Jumpstart Our Business Startups (JOBS) Act. Among the provisions of the law was the requirement that the Securities and Exchange Commission review the provisions of Regulation S-K, which determines what publicly traded companies need to disclose about their finances and their operations.

Presumably, this process was meant to get the SEC to weaken its transparency rules, but the Commission seems to be approaching the issue in an even-handed manner. In April it issued a document called a Concept Release that reviewed the various issues and asked for comments from the public.

Quite a few progressive policy groups have responded with comments urging the SEC to tighten rules regarding the disclosure of foreign subsidiaries. In recent years, many corporations have been using a loophole in Regulation S-K to avoid listing entities that are likely to be vehicles for engaging in large-scale tax dodging.

On the last day of the comment period, my colleagues and I at Good Jobs First and the Corporate Research Project submitted our own comments that support that position on foreign subsidiaries but also address several other disclosure issues. What follows are excerpts from those comments.

Subsidy Reporting. A key piece of information about a registrant’s finances has been missing from SEC filings, thus giving investors an incomplete picture of a company’s condition: the extent to which the firm is dependent on economic development incentives provided by state and local governments and other forms of financial assistance from the federal government.

It is estimated that companies receive a total of about $70 billion a year in state and local aid, while federal assistance is thought to total about $100 billion. Our Subsidy Tracker database contains information on more than half a million such awards with a total value of more than $250 billion.

For some companies (including their subsidiaries) the cumulative amount of such assistance is substantial. In Subsidy Tracker there are more than 60 firms that have each been awarded $500 million in assistance, and for more than half of those the amount exceeds $1 billion. The most heavily subsidized company, Boeing, has been awarded more than $14 billion. Other companies, including start-ups, may receive sums that are smaller but which account for a larger portion of their cash flow or assets. There are many cases in which a company’s total awards reach a level of materiality.

Investors should know to what extent a company is depending on subsidies — whether in the form of tax credits, tax abatements, cash grants, or low-cost loans. This is vital information for several reasons. First, many of the awards are contingent on performance requirements such as job creation and can be reduced or rescinded if the firm fails to meet its obligations. Second, investors currently face undisclosed political risk, since some state and local subsidy programs cause a significant fiscal burden and may be curtailed at times of budget stress.

We urge the SEC to use this review of Regulation S-K to correct the long-standing gap in financial disclosure relating to government assistance. Companies should be required to disclose both aggregate subsidy awards and breakdowns by type and jurisdiction.

Legal Proceedings. Like subsidies, corporate regulatory violations and related litigation have grown in size and significance. Violation Tracker, a database created by the Corporate Research Project of Good Jobs First, has collected data on more than 100,000 such cases since the beginning of 2010 with total penalties of about $270 billion. The database currently contains information on cases from 27 federal regulatory agencies and the Department of Justice.

Also as with subsidies, some corporations are significantly impacted by these penalties. In Violation Tracker there are 52 parent companies with aggregate penalties in excess of $500 million, including 26 with more than $1 billion. The most heavily penalized companies are Bank of America ($56 billion), BP ($36 billion) and JPMorgan Chase ($28 billion).

The Item 103 requirement that registrants report on material legal proceedings results in disclosure of the largest cases, but some companies fail to provide adequate details on other penalties that may not be in the billions but are still substantial. Since regulatory agencies and the Justice Department base their penalty determinations in part on a company’s past actions, companies omitting adequate data about their regulatory track record are denying investors information that may indicate a heightened risk for much larger penalties in the future.

At the very least, the Commission should do nothing to weaken the provisions of Item 103 and related provisions requiring reporting about regulatory matters and legal proceedings. It is also worth considering whether changes are needed in the Instruction 2 language allowing companies to omit cases with potential penalties that do not exceed ten percent of the firm’s current assets. Losses at or close to the ten percent level could have severe consequences for many companies and pose the kind of risk investors deserve to know about.

Current disclosures based on materiality should be expanded to also require registrants to indicate which of their cases involve repeat violations of specific regulations. Such recidivist behavior will be a matter of concern for many investors.

Subsidiaries. Good Jobs First joins with the numerous other organizations that are urging the Commission to strengthen rules regarding the disclosure of offshore subsidiaries that may be involved in risky international tax strategies.

We believe that better disclosure is necessary with regard to domestic subsidiaries as well. In the course of our work on the Subsidy Tracker and Violation Tracker databases, we have looked at hundreds of the Exhibit 21 subsidiary lists included in 10-K filings. We make extensive use of these lists in the parent-subsidiary matching system we developed to link the companies named in individual subsidy awards and violations to a universe of some 3,000 parent corporations. This enables us to display subsidy and penalty totals for the parent companies and thus provide our users, including investors, with what we think is valuable information about the finances and compliance records of these companies.

When looking at these Exhibit 21 lists we have seen a great deal of inconsistency. Using the Item 601(b)(21)(ii) exception, some companies are listing few if any subsidiaries, whether domestic or foreign. We find it hard to believe that any large corporation has no subsidiary of significance. The omission of subsidiary names makes it more likely that we will miss an important linkage in our databases relating to a significant subsidy award or violation. It also means that investors doing their own analyses may be working with incomplete information.

In addition to making sure that all registrants provide complete subsidiary reporting, the Commission should mandate that the information is the Exhibit 21 lists be presented in a standardized format. Currently, some companies list all subsidiaries in alphabetical order, while others group them by country. Some companies list second-tier and other levels of subsidiaries under their immediate parents, while others place the various tiers in one alphabetical list or exclude the lower levels entirely. Whichever standardized format is mandated should also have to be made available in machine-readable form.

Employees. Another area of widespread inconsistency is in the reporting on employees. Numerous companies seem to be omitting this piece of information, and a larger number have abandoned the traditional practice of indicating how many of the employees are based in the United States and how many are at foreign operations. An even smaller number of firms maintain the once widespread practice of providing information on collective bargaining.

The size of a company’s workforce is information that investors deserve to know. Given the widespread discussion in the political arena about offshore outsourcing and the talk of compelling firms to bring jobs back to the United States, the foreign-domestic breakdown is of great importance to investors. They should also be told about the extent to which both types of employees are covered by collective bargaining agreements.

And given the growing controversy over employment practices and the potential for stricter regulations, companies should also be required to provide details on the composition of their labor force, including the number of workers who are part-timers, temps or independent contractors.

Business Fights FASB on Corporate Welfare Disclosure

Large corporations spend a lot of time complaining about their obligations to government, such as paying taxes and complying with regulations, while saying very little about what they get from taxpayers in the form of financial assistance. The organization that sets corporate accounting standards now wants to see the magnitude of that assistance disclosed in financial statements, and the business world is howling in protest.

In November, the Financial Accounting Standards Board (FASB) issued a proposal that would require publicly traded corporations to disclose details on a wide range of government assistance — such as tax incentives, cash grants, and low-interest loans — when that help is the result of an agreement between a public agency and a specific firm, as opposed to provisions in tax codes that any business can claim. The proposal mirrors the one adopted by the Governmental Accounting Standards Board (GASB) that will require state and local government agencies to disclose the amount of revenue they are losing as a result of tax incentive deals.

The FASB proposal has some flaws, such as the decision not to require companies to provide estimates of the value of multi-year subsidy deals and a lack of clarity on the degree to which the information would have to be disaggregated. Still, it would be a major advance in financial transparency, giving investors and others important information on the extent to which companies are dependent on the public sector.

The business world sees it differently. During a recently completed three-month comment period, about two dozen trade associations and large corporations submitted statements on the proposal that were overwhelmingly negative.

At the center of the backlash are the U.S. Chamber of Commerce and the National Association of Manufacturers, which submitted joint comments arguing that the scope of the accounting standard is “overly broad,” that compliance costs would be “significant,” and that companies could place themselves in “legal jeopardy” by disclosing the information proposed by FASB.

The big-business-sponsored Council on State Taxation also invoked the privacy rights of corporate taxpayers and warned that the disclosures would “assist those who wish to harass a company regarding credits or incentives received pursuant to an economic development agreement.” Similar objections were presented by the American Banking Association, which represents entities that received trillions of dollars in assistance from the Federal Reserve and the U.S. Treasury in the wake of the financial meltdown that some of those same entities brought about.

Perhaps most infuriating are the negative comments submitted by large companies that are among the biggest recipients of public assistance. We know who they are because numerous government agencies already reveal a substantial amount of company-specific subsidy data, which my colleagues and I at Good Jobs First have collected for our Subsidy Tracker search engine. Although we’ve gotten a lot from the agency disclosure, having more information in the financial reports of all public companies would allow us to make Subsidy Tracker even more complete.

Several of the corporations commenting against the FASB rule have received more than $1 billion each in federal, state and local subsidies, including two whose totals put them among the top ten recipients: General Motors ($5.7 billion) and Ford Motor ($4 billion). These totals do not include the tens of billions they received in loans and loan guarantees, whose value after repayments is difficult to calculate.

GM, which survived only after being taken over by the federal government, whines that the FASB disclosure proposal “would be costly and difficult to prepare given the complexity of global entities and the wide variations of such arrangements” and claims that the information could be “misleading” or could benefit “special interest groups questioning tax incentives offered by governments as perceived abuses of the current taxation system.”

In what might be a dig at its competitor, Ford Motor, which did not require a federal takeover, suggests that FASB limit its disclosure requirement to bailouts and exclude “incentives” that are offered in exchange for a commitment to invest or create jobs.

IBM, which has been awarded some $1.4 billion in subsidies, asserts that the costs of the disclosure would outweigh the benefits and says that if FASB moves ahead with the new standard it should “not require disclosure of specific terms and conditions, which may include confidential or proprietary information for both governments and entities.” In other words, make it as vague as possible.

In case there was any doubt, these comments confirm that big business is in favor of transparency only when what is to be disclosed puts a company in a favorable light. Let’s hope FASB stands fast and joins with GASB in bringing corporate welfare out of the shadows.

Uncle Sam’s Favorite Corporations

UncleSam_WebTeaser It’s said that the partisan divide is wider than ever, but there is one subject that unites the Left and the Right: opposition to the federal business giveaway programs popularly known as corporate welfare.

These programs include cash grants that underwrite corporate R&D, special tax credits allocated to specific firms, loan guarantees that help companies such as Boeing sell their big-ticket items to foreign customers, and of course the huge amounts of bailout assistance provided by the Treasury Department and the Federal Reserve to major banks during the financial meltdown. The costs to taxpayers is tens of billions of dollars a year.

Back in 1994 then-Labor Secretary Robert Reich gave a speech arguing that it was unfair to cut financial assistance to the poor while ignoring special tax breaks and other benefits enjoyed by business. Reich inspired a strange bedfellows coalition led by public interest advocate Ralph Nader and then-House Budget chair John Kasich (now governor of Ohio). Ultimately, the effort was stymied, as every business subsidy’s entrenched interests lobbied back. The subsidy-industrial complex emerged largely unscathed.

Nonetheless, the anti-corporate welfare movement has continued up to the present, with the latest battled being waged mainly by some Tea Party types against the Export-Import Bank.

Throughout these two decades of subsidy analysis and debate, the focus has been on aggregate costs, either by program, by industry or by type of company. Except for bailouts, very little analysis has been done of which specific corporations benefit the most from federal largesse.

My colleagues and I at Good Jobs First have just completed a project which will allow those on all sides of the debate to identify the companies enjoying corporate welfare. Today we are releasing Subsidy Tracker 3.0, a expansion to the federal level of our database which since 2010 has provided information on the recipients of state and local economic development subsidy awards.

We have collected data on 164,000 awards from 137 federal programs run by 11 cabinet departments and six independent agencies. Much of the data, covering the period from FY 2000 to the present, is extracted from the wider range of content on USA Spending, which also covers non-corporate-welfare money flows such as federal grants to state and local governments and federal contracts. We also tracked down about 40 other sources from a variety of lesser known reports and webpages. Farm subsidies are excluded as they are already ably covered by the Environmental Working Group’s agriculture database.

Our data does not cover the full range of federal business assistance, given that most tax breaks are offered as provisions of the Internal Revenue Code that any qualifying firm can claim. We include only the small number of tax credits (mostly in the energy areas) that are allocated to specific firms. But we’ve got plenty of company-specific grants, loans, loan guarantees and bailouts.

Today we are also releasing a report, Uncle Sam’s Favorite Corporations, that analyzes the federal data. While we don’t endorse or critique any of the wide-ranging programs themselves, we do find some remarkable patterns among the recipients.

The degree of big business dominance of grants and allocated tax credits is comparable to what we previously found for state and local subsidies. A group of 582 large companies account for 67 percent of the $68 billion total, with six companies receiving $1 billion or more.

At the top of the list with $2.2 billion in grants and allocated tax credits is the Spanish energy company Iberdrola, whose U.S. wind farms have made extensive use of a Recovery Act program designed to subsidize renewable energy.

Mainly as a result of the massive rescue programs launched by the Federal Reserve in 2008 to buy up toxic securities and provide liquidity in the wake of the financial meltdown, the totals for loans, loan guarantees and bailout assistance run into the trillions of dollars. These include numerous short-term rollover loans, so the actual amounts outstanding at any given time, which are not readily available, were substantially lower but likely amounted to hundreds of billions of dollars. Since most of these loans were repaid, and in some cases the government made a profit on the lending, we tally the loan and bailout amounts separately from grants and allocated tax credits.

The biggest aggregate bailout recipient is Bank of America, whose gross borrowing (excluding repayments) is just under $3.5 trillion (including the amounts for its Merrill Lynch and Countrywide Financial acquisitions). Three other banks are in the trillion-dollar club: Citigroup ($2.6 trillion), Morgan Stanley ($2.1 trillion) and JPMorgan Chase ($1.3 trillion, including Bear Stearns and Washington Mutual). A dozen U.S. and foreign banks account for 78 percent of total face value of loans, loan guarantees and bailout assistance.

Other key findings:

Foreign direct investment accounts for a substantial portion of subsidies. Ten of the 50 parent companies receiving the most in federal grants and allocated tax credits are foreign-based; most of their subsidies were linked to their energy facilities in the United States. Twenty-seven of the 50 biggest recipients of federal loans, loan guarantees and bailout assistance were foreign banks and other financial companies, including Barclays with $943 billion, Royal Bank of Scotland with $652 billion and Credit Suisse with $532 billion. In all cases these amounts involve rollover loans and exclude repayments.
A significant share of companies that sell goods and services to the U.S. government also get subsidized by it. Of the 100 largest for-profit federal contractors in FY2014 (excluding joint ventures), 49 have received federal grants or allocated tax credits and 30 have received loans, loan guarantees or bailout assistance. Two dozen have received both forms of assistance. The federal contractor with the most grants and allocated tax credits is General Electric, with $836 million, mostly from the Energy and Defense Departments; the one with the most loans and loan guarantees is Boeing, with $64 billion in assistance from the Export-Import Bank.
Federal subsidies have gone to several companies that have reincorporated abroad to avoid U.S. taxes. For example, power equipment producer Eaton (reincorporated in Ireland but actually based in Ohio) has received $32 million in grants and allocated tax credits as well as $7 million in loans and loan guarantees from the Export-Import Bank and other agencies. Oilfield services company Ensco (reincorporated in Britain but really based in Texas) has received $1 billion in support from the Export-Import Bank.
Finally, some highly subsidized banks have been involved in cases of misconduct. In the years since receiving their bailouts, several at the top of the recipient list for loans, loan guarantees and bailout assistance have paid hundreds of millions, or billions of dollars to U.S. and European regulators to settle allegations such as investor deception, interest rate manipulation, foreign exchange market manipulation, facilitation of tax evasion by clients, and sanctions violations.

Corporate Virtue and Corporate Subsidies

corporate_flag2-1 For a speech that was supposed to focus on the plight of low-wage workers, President Obama’s State of the Union contained a surprising number of favorable references to specific large corporations. I counted seven plugs — for Apple, Costco, Ford, Google, Microsoft, Sprint and Verizon. The Ford mention, which alluded to “the best-selling truck in America,” sounded like a high-level product placement.

Most of these companies were cited for their supposed acts of corporate virtue, such as the role of the telecoms in helping to bring high-speed broadband to schools. There’s something else these firms have in common: they’ve all been recipients of substantial economic development subsidies from state and local governments.

My colleagues and I at Good Jobs First issued two reports this week that take a critical stance toward these types of financial aid to business. In one of the reports, Putting State Pension Costs in Context, we look at how the revenue loss from subsidies and corporate tax breaks and loopholes compare to the cost of public employee pensions in ten states where those retirement benefits have been under attack.

We find that in every one of the states the corporate giveaways far outweigh the current costs of providing pensions to state workers. In the case of Louisiana, for example, the giveaways are more than five times the retirement costs.

State legislators and governors have a tendency these days to get frantic about pension costs. Our research suggest that they should be more concerned about the larger revenue losses stemming from what are often ineffective “incentives” given to business.

The other report, Show Us the Subsidized Jobs, is the latest in our series of surveys on the performance of state governments in disclosing online which companies are getting financial assistance and what they are doing with it, especially in relation to job creation. There are two main messages that emerge from the study.

First is the fact that there is now at least some online recipient disclosure in all but a handful of states. The number has doubled since we did the first of these surveys in 2007. That’s the good news.

The other message is not so encouraging: There are vast discrepancies in the depth and the quality of the disclosure. Some states such as Michigan and North Carolina provide reasonably good disclosure for all their major programs, while others such as Nevada and South Carolina provide bare-bones disclosure — meaning company names only — for only one key program. In many cases no information is reported on the number of jobs subsidized companies are creating or the wages being paid.

To enable detailed comparisons of programs, we rate them on a scale of 0 to 100. Points are given for providing details on subsidy amounts, on job and wage outcomes, and on the inclusion of key information about subsidized projects and companies. We also rate programs on how easy it is to find and use the data.

Based on this system, the states with the best average scores for their key programs are Illinois, Michigan and North Carolina. Being best in relative terms does not mean that the absolute scores are very impressive. Top-ranking Illinois has an average of only 65 and Michigan comes in at 58. Every other state has an average below 50 percent. The average program score is only 21 (or 39 if you leave out those with no disclosure at all). Only seven programs score 75 or above.

These scores are so low mainly because so many programs fail to provide good reporting on outcomes, which account for a large portion of the points in our scoring system. Fewer than half of the 246 programs we examine include any reporting on jobs or wages in subsidized companies. And many of those that do provide only projections rather than the actual amounts. Less than one-tenth of the programs provide actual amounts for both jobs and wages.

In the report we emphasize that transparency does not equal effectiveness or complete accountability. A program can disclose all the essential details but still be a waste of taxpayer money. Transparency is what allows the public to determine when that is the case.

Our interest in disclosure is not only for abstract reasons of accountability. If states put more information online, there were will more for us to capture for our Subsidy Tracker database, a national search engine covering more than 500 programs.

Next month we will introduce Subsidy Tracker 2.0. Along with the raw data, we will add information on the parent company of the recipient firms. This will make it possible to see at a glance how much large companies such as the seven cited above have received across the country. The Dirt Diggers Digest will provide wall-to-wall coverage.

Contractor Entitlement Reform

nn_thomp_refineryfire_050324.300w The fiscal austerity crowd is preoccupied with the size of government, but what they rarely acknowledge is that more than $500 billion in annual federal outlays take the form of purchases of goods and services from the private sector. Uncle Sam’s role as the country’s biggest consumer means that federal agencies are in a good position to expect the highest standards of conduct from contractors.

A new report by the majority staff of the Senate Health, Education, Labor and Pensions Committee shows that the federal government is not doing a good job of enforcing such standards when it comes to working conditions at contractor companies. In fact, the report shows that violations of occupational safety and health regulations as well as wage and hour laws are rampant among the contractors.

Some key findings of the report:

Eighteen federal contractors were among those companies receiving the 100 largest penalties issued by the Occupational Safety and Health Administration between 2007 and 2012. Contractors accounted for 48 percent of the dollar value of those penalties.
Thirty-two federal contractors were among the companies receiving the large back-wage assessments ordered by the Wage and Hour Division (WHD) of the Department of Labor between 2007 and 2012.
The 49 federal contractors in these categories were found to have been cited for 1,776 separate violations and paid $196 million in penalties and assessments. In fiscal year 2012, these same companies were awarded $81 billion in federal contracts.

Misconduct by contractors is an old story, but legislation passed in 2008 was supposed to make it easier for federal agencies to identify bad actors and disqualify them from contract awards. The law provided for the development of an official database along the lines of the Federal Contractor Misconduct Database created by the Project On Government Oversight.

That database did come into being and is known as the Federal Awardee Performance and Integrity Information System, or FAPIIS. In its current state, FAPIIS is a big disappointment. The Senate report points out that of the 49 contractors on the lists of largest labor violations only one has such instances of misconduct included in its FAPIIS entry. As the report states with understandable outrage:

In perhaps the most astonishing example of the failures of FAPIIS, BP, despite the deaths, injuries, and massive environmental damage, as well as the billion dollar settlements resulting from the Deep Water Horizon incident, and despite the deaths, injuries and fines resulting from the Texas City refinery explosion [photo], and despite holding $2 billion in contracts in 2012, has no misconduct entries in FAPIIS.

The Senate report does not just point out the limitations of FAPIIS but also demonstrates how more aggressive information-gathering on companies can be done. Its authors delved into the enforcement databases of both OSHA and the WHD to identify which contractors were serial violators. The results are presented both in summary tables in the report and in a 448-page appendix with key data on several dozen of the worst offenders.

In the occupational safety and health category, it is no surprise that the company at the top of the list of violators is BP, which is a rare example of a large company that was actually debarred (albeit temporarily) from doing business with the federal government because of its misconduct.

On the wage and hour side, it is also not surprising that the company appearing most often in the list of the biggest back pay assessments is Wal-Mart, though the company does a miniscule amount of business with the federal government. Also on high up on the list are companies focused on government contracting, such as private prison operator Management & Training Corporation and Pentagon outsourcer IAP Worldwide Services (owned by the private equity company Cerberus Capital Management).

While the Senate report calls on the General Services Administration, which oversees FAPIIS, to clean up the database, it also urges the Department of Labor to do more to publicize the names of contractors that were found to be violators of federal labor laws.

But why stop with DOL? Shouldn’t every regulatory agency take pains to highlight bad actors and make sure federal procurement officials know who they are?

There is much talk of entitlement reform with regard to safety net programs. What we need instead is more attention on corporations that think they are entitled to receive contracts from the federal government even when they show little regard for federal regulations.

Subsidy Megadeals for Megacorporations

The Miami Herald recently published a story with the headline “Amazon Doesn’t Need Tax Incentives, But Localities Offer Millions in Tax Breaks.” Throwing large sums of money at large corporations in a desperate attempt to create jobs is an affliction not limited to public officials in Florida. It is a wasteful and self-defeating public policy that can be found throughout the United States.

An indication of just how pervasive the practice has become can be found in a new report my colleagues and I at Good Jobs First have just issued. The title is Megadeals, and it is a look back at the largest state and local subsidy packages of the past three decades.

In the course of five months of painstaking research, we identified 240 of those packages with a total value of at least $75 million each; the aggregate cost is more than $64 billion. Many of them reach into nine and even ten figures. There are eleven deals costing $1 billion or more in public money.

Most astounding are the costs per job. The average for our 240 megadeals is $456,000 and there are 18 for which the cost per job is $1 million or more.

Megadeals have been awarded to many of the largest and best known companies based in the United States as well as foreign ones doing business here, including: General Motors, Ford, Nissan, Toyota and just about every other large automaker; oil giants such as Exxon Mobil and Royal Dutch Shell; aerospace leaders Boeing and Airbus; banks such as Citigroup and Goldman Sachs; media companies such as Walt Disney and its subsidiary ESPN; retailers such as Sears and Cabela’s; old-line industrials such as General Electric and Dow Chemical; and tech stars such as Amazon.com, Apple, Intel and Samsung.

Sixteen of the Fortune 50 are represented. Not included is the company atop of the Fortune list: Wal-Mart. That’s not because Wal-Mart doesn’t receive subsidies—Good Jobs First has separately documented more than $1.2 billion in such taxpayer assistance in our Wal-Mart Subsidy Watch website—but its deals have been worth less than $75 million each and thus don’t qualify for our list.

The most expensive single listing is a 30-year discounted-electricity deal worth an estimated $5.6 billion given to aluminum producer Alcoa by the New York Power Authority. Taking all of a company’s megadeals into account, Alcoa is at the top with its single $5.6 billion deal, followed by Boeing (four deals worth a total of $4.4 billion), Intel (six deals worth $3.6 billion), General Motors (11 deals worth $2.7 billion), Ford Motor (9 deals worth $2.1 billion), Nike (1 deal worth $2 billion) and Nissan (four deals worth $1.8 billion).

The overall costs of megadeals have risen over the past three decades (in current dollars). The megadeals from the 1980s averaged $157 million. The average rose to $175 million in the 1990s and $325 million in the 2000s. It then declined to $260 million in the 2010s. The average for the list as a whole is $269 million.

Some of the deals involve little if any new-job creation; indeed, one in ten of the deals involves the mere relocation of an existing facility, usually within the same state and often a short distance. Some of these retention deals were granted in so-called job blackmail episodes in which a company threatened to move jobs out of state unless it got new tax breaks or other subsidies.

The megadeals list is a new enhancement of Good Jobs First’s Subsidy Tracker database, the first compilation of company-specific data on economic development deals from around the country.

Until now, the content of Subsidy Tracker has consisted exclusively of official disclosure data provided by state and local governments. The information has been obtained from government websites and from direct requests to agencies. Given the limitations of the disclosure practices among state and local governments—and often from program to program within jurisdictions—the exclusive reliance on official data meant that Subsidy Tracker was missing information on many large deals that had been reported in the media. Either those deals were missing entirely if there was no official disclosure for the programs involved, or else Tracker had incomplete data if some but not all of the programs used in the package were disclosed.

To rectify this problem, we went back and collected information on large deals using a variety of sources, including press releases, newspaper articles and reports on specific projects as well as the official data we already had. The results went into the creation of the megadeals list and have been incorporated into Subsidy Tracker.

Note: The page containing the Megadeals report also has a link to a spreadsheet with full details on all 240 of the deals.

Corporate Privacy is Alive and Well

we-the-corporations02-e1294670618870 Recent revelations about the electronic surveillance programs of the federal government, which are being carried out with the cooperation of large telecommunications and internet companies, show that personal privacy rights are in serious peril.

Much is being said and written about the discrepancy between the seemingly invincible status of the Second Amendment and the disintegrating Fourth Amendment. Yet the more significant contrast may be between individuals and corporations with regard to privacy and protection from government intrusion.

Despite all the complaints from business groups about the supposedly overbearing Obama Administration, large corporations have it pretty good. This is especially the case in the matter of taxes.

Although the finances of publicly traded companies are supposed to be an open book, firms are not required to make public their tax returns. This allows them to conceal the inconsistencies between what they disclose to shareholders and what they report to Uncle Sam. The recent report by the Senate Permanent Subcommittee on Investigations about tax dodging by Apple showed there was a $4.4 billion discrepancy between the FY2011 tax liability presented in the company’s 10-K annual report and what it listed in its corporate tax return (which the committee had to subpoena).

Revelations about Apple and other tax dodging companies has not resulted in any action by Congress. The European Union, by contrast, is moving ahead with a transparency initiative that will thwart tax avoidance and illegal financial flows.

Anti-corruption and pro-transparency groups in the Financial Accountability and Corporate Transparency (FACT) Coalition have been pressing the Obama Administration to support a plan, backed by British Prime Minister David Cameron, to require the registration of owners of shell companies—a move that would make illicit financial transfers more difficult. The idea will be discussed at the upcoming G8 summit, but there is little indication that Obama, much less the U.S. Congress, is prepared to sign on to Cameron’s “transparency revolution.”

Large corporations enjoy a great deal of privacy with regard to state as well as federal tax liabilities. Publicly traded companies are required only to disclose aggregate figures on the taxes they are paying (or not paying) to the states overall, making it impossible to get a clue on how much dodging is going on in individual states. Although there have been efforts at times to compel publicly traded companies to make public their state tax returns, those documents remain as private as their federal returns.

Corporate financial statements are also usually devoid of any information on the billions of dollars companies receive each year in economic development subsidies from state and local governments. There has, however, been progress in piercing the corporate privacy veil in this arena, but it is mixed.

At the state level, disclosure is better than it has ever been, but there is a great deal of inconsistency from state to state and from program to program within states. Much of the transparency progress relates to grant and low-cost loans, while the tax breaks—which are often the big-ticket items—lag. Fewer than half the states post a significant amount of information online about corporate tax credits.

And as my colleagues and I at Good Jobs First showed in a recent report, disclosure is even more primitive among most large cities and counties. All the disclosed data is collected in our Subsidy Tracker search engine.

Taxes and subsidies are not the only areas in which corporate privacy remains strong. There are also serious limitations, for example, in what companies have to reveal about their labor practices. Even publicly traded companies are providing less and less in their 10-K annual reports about collective bargaining. Reading the 10-K of Wal-Mart, for instance, you would never know that it has fought tooth-and-nail against unions and is now facing a non-traditional organizing campaign. Whether they are sympathetic or not to the goals of the campaign, shouldn’t shareholders at least be told that it exists and what the company is doing in response?

As poor as the transparency rules are for publicly traded companies, they shine in connection with the absence of significant requirements with regard to privately held firms. The secrecy afforded to family-controlled mega-corporations such as Koch Industries and Cargill is a serious public policy problem.

While companies such as Facebook and Google claim to be sympathetic to the concerns of their customers about government surveillance, they continue to enjoy a higher level of privacy. Corporations have been aggressive in asserting First Amendment rights equivalent to those of natural persons, but when it comes to the Fourth Amendment, they seem to be ahead of us humans.