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Transparency and Economic Recovery: What States Are Required To Do and Why They Should Do It

Transparency and Economic Recovery:
What States Are Required To Do and Why They Should Do It

Monday, February 23, 2009

PERMALINK:http://www.progressivestates.org/node/22729

 

event: conference call on progressive strategies for implementing the recovery act

WHAT: A call to bring together progressive state legislators and policy experts from across the country to answer questions and share practical strategies for obtaining federal stimulus funds and using them to shore up budget gaps, restore ailing economies, and effect lasting progressive change.

WHO: Maurice Emsellem, Policy Co-Director, National Employment Law Project
Nick Johnson, Director of the State Fiscal Project, Center for Budget & Policy Priorities
Phineas Baxandall, Federal Tax and Budget Policy Analyst, U.S. PIRG
Jenny Sullivan, Senior Health Policy Analyst, Families USA
Nathan Newman, Interim Executive Director, Progressive States Network

WHEN: 4pm EST, Thursday, February 26

RSVP: http://progressivestates.org/conferencecallrsvp

Increasing-Democracy

BY Nathan Newman

Transparency and Economic Recovery: What States Are Required To Do and Why They Should Do It

The new American Recovery and Reinvestment Act contains significant funding for the states, but it also has tight new transparency rules requiring states to track how all federal funds are being spent and the number of jobs that spending creates.  These provisions aren't just ethically desirable, they are extremely practical fiscal measures for combating the recession and growing the economy.  Strict transparency policies can save states millions in unnecessary expenditures and increase the quality of work they receive from private contractors, while simultaneously ensuring that contractors create quality, decent-paying jobs to help turn the economy around.

The unfortunate reality is that most states are not collecting the necessary information to meet the standards required by the Recovery Act. This Dispatch is designed to summarize what states need to do.  In a nutshell, we recommend states enact a combination of:

As we discuss below, enacting this combination of legislation will ensure that states are collecting data needed for federal reports and moving their states towards the transparency increasingly demanded by the public.  It is important to note that despite fears about the costs, the experience of states and the federal government has been that transparency is not only cheaper to set up than most expect, the costs savings are close to immediate and pay for themselves many times over.

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Transparency Required from States Under Recovery Plan

While every reporting detail has not been specified by the federal government yet, it is clear that both the enacted legislation and likely regulations will require states to establish transparency in how they are distributing funds far beyond what most states are currently requiring.   

New Transparency Rules for States:  OMB Watch has a good initial analysis of transparency language in the recovery law and the crucial part for the states is the following:

The bill would require all recipients, including states but not individuals, of recovery funds (grants, loans, and contracts) from a federal agency to report quarterly the following:
  • Total amount of recovery funds received from the agency.
  • Amount of funds expended or obligated to projects.
  • A detailed list of all projects for which recovery funds were expended, including:
    • The name and description of the project.
    • An evaluation of the completion status of the project.
    • An analysis of the number of jobs created or retained by the project.
    • Detailed information on any subcontracts or subgrants, including data elements required by the Federal Funding Accountability and Transparency Act of 2006 — that is, elements that are required to be reported on USASpending.gov

States will need to create mechanisms to collect contracting and grant information nearly in real time in order to conform with provisions that require the Government Accountability Office to issue bimonthly reports on the use of funds by select states and localities.  

The Good News:  While all of this will require major changes in how states track and disclose contractor and grantee information, the law also helps defray the costs to recipients, including states, of reporting the data enumerated in the bill by specifying that federal agencies will be allowed to “reasonably adjust” limits on administrative expenditures for contracts and grants.  So along with funding critical programs, the Recovery Plan will also help fund increased transparency in spending decisions throughout our democracy as well.

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Collecting Data on Job Creation by State Contractors and Subsidy Recipients 

Demand for transparency in government is rising in the age of Google, but most states still don't collect even the most critical data from recipients of state grants or state contracts.  

While states on the whole have been improving their data collection and disclosure in recent years, it will be a challenge for almost every state to track the number and quality of jobs created by state contractors and subsidy recipients, as will likely be needed to meet federal transparency rules.  See reports by Progressive States Network, Good Jobs First and MassPIRG for more detailed discussions of the limits of current data collection by states, but here are a few key problems:

  • Job Data for Economic Subsidies Rare:  Only a few states -- notably Minnesota, Rhode Island and Illinois -- are systematically collecting information on job creation efforts by companies that have received direct economic subsidies or grants.  Even when most states require information to be provided on job creation before the initial economic grant, few states conduct followup reviews to see if the subsidy recipients have delivered on their promises.  Minnesota's law provides some of the best practices, mandating the disclosure of the type and amount of subsidies, the number of jobs created, the hourly wage of each job created, and the cost of health insurance provided.  Good Jobs First also has detailed model language for economic subsidy data collection.
  • Job Data for State Contractors Almost Non-Existent:  Even fewer questions are usually asked about job creation by state contractors.  While states collect some information on individual contracts, they usually lack any systematic review of what companies are doing with the public funds they are given under those contractsHawaii is just beginning a pioneering effort to collect any significant information on subcontractors.  Rhode Island is one of the only states currently to have language requiring agencies to collect information on the number of private contract employees for each contract and their hourly wage rate.  New York has a proposed bill AB 403 which would make all state contractors on public works projects list their subcontractors and to pay ten dollars per such independent contractor listed.
  • Review of Performance and Costs of Contracts is Generally Weak:   In surveys of state agencies around the country, the Council on State Governments found that "many agency directors could not provide estimates of cost savings from privatization" (p. 20).   States will need to strengthen their review not just of initial contract bids, but of contract results year-to-year to assure that public money is not being wasted on low-performing contractors.

The Proposed Oregon Model:   For contracting information, states should incorporate Rhode Island's requirements or, even better yet, follow proposed legislation in Oregon, which will require the kind of detailed information from contractors that allows real review of both job creation and performance claims by companies contracted to provide public services.  

As it was drafted last year (and will similarly be introduced this year), Oregon's bill would, among other things, require all state and local government agencies to yearly collect the following information from all contractors, and subcontractors:


  • Number for employees on each contract.
  • Number of hours the employees work.
  • Employees' compensation.
  • Expenditures made on each contract that fiscal year.

In order to promote "prudent procurement management, oversight and policy making," all of this data will be aggregated into central databases by each agency, which will list all individual contracts, the frequency of contracts awarded, the number of bids, the number of contracts disapproved, and the methods used to award different contracts.  The databases will also include aggregated yearly expenditures, number of employees, and compensation of those employed by contractors and subcontractors.

All of these changes form a model for states to track not only what jobs contractors and subcontractors are creating with their dollars, but to help them better gauge the performance of contractors over the long term. 

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Online Transparency: Making the Data Accessible to the Public

States do need to improve the data they are collecting from economic subsidy recipients and contractors, but many are beginning to build online websites that are improving transparency.  When Good Jobs First surveyed state online disclosure in 2007, they didn't give any state an "A grade" overall, but gave solid "B grades" to Connecticut, Indiana, Nebraska and New York.

While 26 states and DC received an "F" for online disclosure in 2007, the good news is that a large number of states have enacted new legislation to not just put data online but create comprehensive, centralized and easily searchable databases of state government spending data.  Dubbed the "Transparency 2.0 movement," the goal is to put government contracts, spending, subsidy and tax expenditure information in one place, where citizens can search data with a single query or browse using common sense categories.  Ideally, citizens should be able to sort data by recipient company or organization, amounts received, legislative districts, granting agency, purpose or keyword.  

While a number of states have implemented various forms of online transparency, a proposed Massachusetts bill contains many of the best practices incorporated from other states, including clear language on creating a searchable database -- housing data from grants, contractors, and subcontractors -- as well as annual reports on funding for each recipient of public money and the outcome of spending for that year.

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How States Can Pay for Transparency

While many states are facing often dire fiscal constraints this year, improving data collection and transparency among subsidy recipients and contractors can not only be done inexpensively, but will save states money through identifying poorly performing recipients of state funds and improving the overall procurement process.

Use Federal Recovery Funds:  As noted earlier, states can expect some help from the federal government this year, since states can apply for reimbursement for the administrative expenses incurred in meeting the reporting and transparency requirements under the federal Recovery Plan.  

Initial Costs are Less than Expected:  Creating online transparency websites cost less than most states think, as documented by the Transparency 2.0 report:

  • The federal transparency website — which tracks $2 trillion in federal spending — cost less than $1 million to create.
  • Missouri’s website - which is updated daily and tracks $20 billion a year in spending — was created by executive order and runs entirely on existing staff and revenues.
  • Oklahoma’s Office of State Finance created its transparency website with $40,000 from its existing budget.

Transparency Saves Money:  Results from initial states implementing greater transparency show that any initial costs rapidly transform into even larger savings, as relatively small investments in better data collection eliminate waste in public spending decisions:

  • New Efficiencies: In Texas, the Comptroller was able to utilize the transparency website to save $2.3 million from a variety of efficiencies and cost savings.  As other states implement transparency provisions, they will likely find similar savings from streamlining operations and improving overall contracting practices. 
  • "Clawback" savings: States are often paying for services or subsidies to companies that aren't delivering on their promises, yet they aren't collecting the data in ways to recoup funds for those failures.  By tracking the performance of state subsidies, Minnesota and Illinois in particular have both been able to recapture money from numerous projects that failed to deliver promised results.
  • Avoiding Unneeded Privatization:  Various analyses have found that contracting out often doesn't save taxpayers money, yet failure to evaluate performance by contractors means that a lot of costly and wasteful privatization is occurring.  Better monitoring of contracting will ensure that each contract is evaluated for whether it makes economic sense. 

 

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Conclusion

The national recovery plan is a chance to revive state economies across the country.  But to accomplish that goal, states need to make sure the money is creating good jobs in the most cost-effective way possible.  By implementing stronger data collection from all recipients of public funds and making that information more accessible to citizens, not only will states be fulfilling the requirements of the federal recovery law, they will ultimately be saving money for their own budgets and strengthening trust in government among their citizens.

 

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Masthead

The Stateside Dispatch is written and edited by:

Nathan Newman, Interim Executive Director
Caroline Fan, Immigration and Workers' Rights Policy Specialist
Julie Schwartz, Broadband and Economic Development Policy Specialist
Christian Smith-Socaris, Election Reform Policy Specialist
Adam Thompson, Health Care Policy Specialist
Austin Guest, Communications Specialist
Marisol Thomer, Outreach Coordinator

 

Please shoot us an email at dispatch@progressivestates.org if you have feedback, tips, suggestions, criticisms, or nominations for any of our sidebar features.

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