Billion-Dollar State Tax Subsidies Call for Better Sunshine Laws

A federal judge ruled last month that the Department of Government Efficiency must release internal documents to comply with transparency laws. On the surface, it’s shocking that a federal judgment is necessary to get the US government to comply with its own laws. But unfortunately, such opaqueness seems to exist at all levels of government across the country.

It isn’t usually for lack of legislation. Many states have their own laws intended to provide transparency into government decision-making—either for other branches of government or the public. These often are referred to as “sunshine” laws under former US Supreme Court Justice Louis Brandeis’ notion that “sunlight is said to be the best of disinfectants.”

However, there’s evidence that state and local sunshine laws don’t always serve the public any better than federal ones. Even though meetings and resulting decisions from these governing bodies are of real political and economic consequence, the public often is the last to know. Improving sunshine laws’ effectiveness will require refocusing them on public disclosure and properly enforcing other transparency rules.

Take government subsidies as a key example: States annually grant billions of tax dollars to corporations. In 2022 alone, at least eight companies received tax subsidy packages from US state and local governments worth more than $1 billion apiece, not to mention thousands of smaller subsidies.

Such subsidy deals—which span reduced property and employment tax assessments, subsidized loans, and cash payments—aim to spur local economic employment and investment. But how well do they work, and does the public even know about them?

My colleagues from Stanford and Yale and I addressed these questions in a recent academic research study. We wanted to know just how much these tax subsidies boost local employment—and especially how state transparency laws affect the efficacy of these subsidies in achieving their intended outcomes.

What we found surprised us.

In our analysis of more than 48,000 subsidies granted by 27 states from 2008 to 2015, amounting to nearly $15 billion in benefits to companies, we found that local employment does increase in a county where a business accepted a subsidy. We also found that subsidies are far more cost-effective when the granting agencies are legally required to provide disclosures of their processes and decisions to other parts of the state government—most typically the state legislature.

So sunshine laws requiring internal disclosure do work. But what about sunshine laws that require disclosures to the public? Were these laws also associated with better subsidy outcomes?

No, they weren’t. Laws requiring public disclosure didn’t meaningfully improve the effectiveness of subsidies at generating local job growth.

We investigated why and learned just how easily subsidy granting agencies can circumvent their own state’s public transparency laws. Granting agencies are less likely to grant subsidies under programs requiring public disclosure. And when they do, they’re slow to make public information that would be useful to evaluating their subsidy granting decisions, effectively preventing the public from monitoring the decisions in real time.

Subsidy-granting agencies aren’t the only ones skilled at dodging sunshine laws. The Texas Public Information Act and Texas Open Meetings Act, for instance, both intend to provide transparency to the public. But these laws are frequently violated and can even be avoided, such as by limiting the number of people in a meeting to preclude the requirement to publicly announce the meeting in advance.

There are two ways to improve this lamentable state of affairs.

First, sunshine laws should focus on both internal disclosures and public disclosure. Although it’s admirable for state legislatures to internally monitor the decision-making of their governmental agencies, the arguments for withholding this information from the public are flimsy. All transparency laws should require that meaningful information be provided to the public in a timely way.

Second, state transparency laws must be enforced. The Iowa House of Representatives recently approved a bill requiring increased training on compliance with sunshine laws and increased penalties for violating them—the second year in a row such legislation has been considered. The Iowa Senate should approve the law, and more states should follow.

Until that happens, what we don’t know can hurt us.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Lisa De Simone is a professor of accounting at the McCombs School of Business at the University of Texas at Austin and co-host of the podcast “Taxes for the Masses.”

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