John Edward teaches economics at Bentley and UMass Lowell. He’s a frequent contributor of columns on economic issues. Here is his latest:
A billion dollars is a lot of money. When the government is spending taxpayer money we need to keep a very close eye on it. We need audit scrutiny.
My last column discussed the minimal scrutiny standard. Some economic issues are so important that government action is necessary. However, as I concluded, we must closely scrutinize the results.
In Massachusetts, the Office of State Auditor is our government watchdog. According to their web site the office “is committed to ensuring that every dollar given to state government is a dollar well spent and that state agencies and contractors follow the rules when spending public funds.”
Audit reports are available on-line. Each now carries the tag line “Making government work better.” Examples of recently released audit findings include:
• children under Department of Children and Families protection not receiving required medical screenings,
• people acquiring transitional assistance using the Social Security Numbers of dead people,
• UMass Medical School officials getting large bonuses without proper eligibility criteria, and
• verification that Middlesex Community College was using American Recovery and Reinvestment Act (i.e., economic stimulus) funds for intended purposes.
The last example identifies an important point. The audits of stimulus spending verify that recipients properly account for where they spend the money and that they spend it for intended purposes. The audits do not assess whether the spending was effective. Evaluating the economic stimulus effect of federal spending would be beyond the charter and expertise of the Auditor’s office.
However, the Massachusetts legislature could give the Auditor the authority and means to conduct results-based audits of state spending. If lawmakers pass a bill with an intended economic impact, someone should try to verify not just the means, but also the ends.
In Massachusetts, policies designed to promote economic growth often feature tax incentives for businesses. The Commonwealth gives away over $2 billion every year in tax breaks to corporations.
Do the companies that get the tax breaks really qualify? Are transferable tax credits handled properly? If a company does not hold up their end of the bargain does the state get its money back?
These are questions the State Auditor should be able to answer but cannot. Verifying company compliance would require access to tax return data. The State Auditor has requested that authority, but the legislature has not granted it.
Big business lobbies are against audit scrutiny. Large corporations get the vast majority of the tax breaks. They are glad to take taxpayer money, but they do not want the government knowing their business.
As pointed out in a Boston Globe column by Steven Syre, businesses would not be the first to forego some privacy in order to make government work better. Audits of the Department of Transitional Assistance require low-income earners to share private information to verify they qualify for benefits.
We know from at least one example that tax breaks result in both fraud and waste. The Attorney General’s Office caught a movie director illegally collecting $4.7 million in film tax credits. The Department of Revenue (DoR) issued a report showing that the state spends $128,575 for every job created in the state because much of the benefit of the film tax credit goes to Hollywood.
The DoR is responsible for implementing tax credits. We need a neutral office verifying that government agencies like the DoR properly implement economic policies, and that the policies have the desired effect.
In certain cases the Auditor’s Office will need to work with the DoR, including the Office of Tax Policy Analysis, other state agencies, research universities, or private economic research firms. However, we need an independent watchdog – the State Auditor, to drive the process.
In 2012, the Auditor released a report on the Massachusetts Convention Center Authority. The audit found the Convention Center Authority: “maintained adequate management controls and complied with applicable laws, rules, and regulations for the areas tested.” The audit said nothing about results. It would be nice to know if the Boston Convention and Exhibition Center promotes economic development in a cost effective manner.
Now legislators on Beacon Hill want to spend a billion dollars to expand the convention center. The Boston Globe quoted one state Senator as saying: “It is our belief that the return for the taxpayers will be greater than the funds we are expending” (my emphasis).
It is impossible to validate that belief. Given increasing competition for hosting conventions, the return on investment for taxpayers is in serious doubt.
Before committing another billion we should try to verify the return on the existing convention center, which is also in doubt. In general, we need independent audit scrutiny of economic results to support huge spending decisions like this.
The legislature needs to adopt an audit mindset. When they draft legislation designed to improve the economy they need to think about how we measure success. Then they need to give the State Auditor’s Office the tools they need to take measurements after the fact.
Who audits the State Auditor? We do. It is an elective office. The press must watch the watchdog, but we get to decide if the Auditor is doing their job. The Massachusetts State Auditor, Suzanne Bump, is up for re-election in November.
Some economic policy issues are so critical, that we should assess the need for government action with minimal scrutiny. The fact that the problems are so critical mandates we audit both policy implementation and results.
Next month I will discuss an economic problem that is reaching a critical level. We need changes in government policy to fix the problem. We need to monitor the success or failure of policy changes. Do not worry – I will have specific policy, and audit, recommendations.