GOP lawmakers want to know how millions in tax breaks and incentives will be used before they vote.
State officials are taking steps to improve oversight over two government offices responsible for much of Tennessee’s recruitment of business and industry — as well as the incentives and tax deals that attract those companies.
Republican lawmakers are weighing measures that would require officials with the Department of Revenue and the Department of Economic and Community Development to share with the legislature more information about public business deals they are involved in, the programs they create and the decisions they make in taxpayer cases.
The moves come after years of battles between the legislature and the administration of Gov. Phil Bredesen over the limits of disclosure in tax and economic development deals. Lawmakers have repeatedly complained about being asked to approve projects crafted by former Revenue Commissioner Reagan Farr and sitting Economic Development Commissioner Matthew Kisber without being told their expected cost or how key decisions would be made.
Recent events such as a business partnership among Bredesen, Kisber and Farr have lawmakers also willing to consider more disclosure from administration officials on their private business dealings.
The partnering of the revenue and economic development departments has produced most — if not all — of the Bredesen administration’s big economic development wins. Those deals have burnished Bredesen’s reputation as a governor who can bring investment to the state.
But in several instances, lawmakers were asked to vote on the tax credits without being told how they would be used, and while some estimates exist for how much individual incentives might have been worth, revenue and economic development officials have said that some parts of the incentive packages are confidential taxpayer information, exempt from public disclosure.
Lawmakers say the legislature is growing more cautious about continuing to sign off on incentives without being given information about how they will be used.
“I think the legislature is going to be more demanding of additional information,” state Rep. Beth Harwell, the Republican nominee to be House speaker, said last week. “I certainly understand the role of the executive when they’re approaching big companies to locate here. But, again, when you’re dealing with public dollars and public tax money, you have to involve the legislative process and you have to have it available to the press and to the public.”
Farr rose quickly
Under Bredesen, the role of the Department of Revenue has shifted. Once solely a tax collection agency, the department has taken on the task of developing tax breaks intended to woo high-profile industries to the state.
Closer coordination between the Department of Revenue and the Department of Economic and Community Development has been credited with helping to bring more than $3 billion in investment to Tennessee.
The level of cooperation between the departments has become evident under Farr. An accountant and lawyer, Farr wrote at least some of the legislation behind these deals himself, including the incentive package that persuaded Nissan to relocate its North American headquarters from Southern California to Middle Tennessee in 2005.
At the time of the Nissan announcement, Farr was an assistant commissioner within the Department of Revenue, responsible for tax administration.
But when state officials were told that Tennessee’s incentives were far behind those offered by other states, Farr was given the task of working with Nissan’s site-selection consultant and economic development officials to craft a package of reimbursements and other incentives worth an estimated $64 million more than the state’s standard offer.
Over the next 13 months, Farr would receive two promotions to become the Department of Revenue’s top executive. His work brought in even more major economic development deals.
Farr developed a tax credit that would offset any possible federal taxes on carbon emissions for companies that invest more than $250 million to produce green energy technology. That credit was a factor in decisions by Hemlock Semiconductor Corp. and Wacker AG to spend $1 billion each on facilities that make polysilicon crystals, a raw material for the solar panel industry.
Farr also oversaw the creation of the state’s “super” job tax credit, which gives companies up to $5,000 per year per job for investments of $1 billion or more. That credit helped bring Volkswagen AG to Chattanooga.
TNInvestco draws attention
Farr’s role in economic development also included designing TNInvestco, which channeled cash from insurance companies into venture capital firms through the sale of state tax credits.
Farr and Kisber reviewed the 25 business plans submitted for TNInvestco funding themselves, grading and ranking each one. They selected the 10 finalists less than a week after the application deadline, all of which would eventually receive $20 million in tax credits.
One of the losing applicants filed a public information request asking for the release of the scoring matrix that Farr and Kisber used to arrive at their decision. State lawyers have fought the request in court, saying that the matrix includes confidential information and that its release would embarrass the losing applicants.
“The state is spending roughly $200 million, and the questions is, ‘How did they select the people they selected?’ ” said Larry Coleman, the Franklin venture capitalist who has pressed for the records’ release. “This was a contract-bid situation, so there wasn’t really anything (confidential) in there.”
Several lawmakers also questioned the program’s transparency last year. They beat back a legislative measure supported by Farr and Kisber that was meant to strengthen the legal arguments for keeping the information confidential.
Lawmakers are now more likely to include language requiring more disclosure to bills authorizing programs such as TNInvestco, said state Sen. Randy McNally, chairman of the Senate Finance, Ways and Means Committee
“When it’s done in secret, I think it just raises questions,” he said. “Whether it’s things done exactly according to the book, the public doesn’t know. So there’s always suspicion that it’s not done exactly properly, (and) the entire process comes in question.”
Farr has come under scrutiny since leaving government Sept. 1 to start, with Kisber and Bredesen as business partners, a new company that would help finance the construction of solar arrays. The trio’s recent venture in the private sector also could trigger new disclosure requirements.
Public records show that Farr registered the company, Silicon Ranch Corp., before he left office. This fall, Farr and Kisber, who continues to oversee the state’s economic development efforts, has called on at least one state contractor, Corrections Corporation of America, to discuss their business plan.
CCA told Farr and Kisber that they had no plans to install solar technology. But the dealings should nonetheless have been disclosed publicly, rather than uncovered later after such meetings took place, McNally said.
“If individuals within positions of power have private dealings, then I think there needs to be a certain amount of disclosure about that,” he said. “It’s the revolving door. Maybe there needs to be a cooling-off period as well.”
‘Done in the open’
The Bredesen administration has maintained that it has struck a balance between transparency and secrecy. Administration officials also point out that despite some complaining, the General Assembly voted for all of the governor’s major economic development plans.
The identities of prospects have to be kept confidential until they have committed to the state, Bredesen said last week. Afterward, administration officials have been willing to walk through incentives that they stand to receive, he said.
“I’ve been dealing with the legislature for eight years, and every time they don’t like something or don’t want to tackle some issue, someone will say we don’t have enough information,” Bredesen said. “It’s not like it’s not been placed out there and done in the open.”
Mark Drury, a spokesman for the Department of Economic and Community Development, said the issue of disclosure had not been raised with department officials.
“At the end of the day, a majority of state lawmakers and policymakers felt their questions were sufficiently answered to allow them to cast a vote in favor of each of the projects and initiatives,” Drury said in a statement.
Sentiments appear to be changing in the legislature, though, even with GOP Gov.-elect Bill Haslam preparing to take office. Business recruitment plans that include tax incentives may get a deeper level of scrutiny, if not forced disclosure.
“When you’re using tax dollars, you have to have transparency,” Harwell said. “I understand the need from an investor’s point of view to have some things confidential, but not when you’re using public money.”
