Group Faults Oversight of State Development Funds

California has spent more than $39 billion on economic development since the mid-1990s but with little oversight and scant attention paid to measuring outcomes, according to a report from a nonprofit research group.

In a 124-page document planned for release today, the California Budget Project asserts that “California’s current structure of economic development spending is fragmented and lacks a systemic review and evaluation process.”

Without such a system, the group says, “it is difficult, if not impossible, to determine whether the $7.8 billion devoted to economic development in 2000-01, or even the total $39.3 billion since 1995-96, has had a measurable impact on the vitality of the state’s economy.”

The report calls for the creation of a “unified economic development strategy” and a rethinking of the current practice of spending more than half the development dollars on general business support, instead of specific, targeted initiatives.

One key problem is that 70% to 80% of the state’s economic development spending comes in the form of tax credits or other tax incentives. For instance, manufacturers can receive credit for making improvements to their plants.

“Those, with very, very few exceptions, have absolutely no evaluation or outcome measurements,” said Hilary McLean Jean Ross, executive director of the California Budget Project, adding that the group based its conclusions on reading the laws that enabled such tax incentives and from talking with state officials.

“[A business] files a tax return and claims a credit,” Ross said. “The only force of law there is, is that you may get audited.”

The report did not identify specific problem programs, and the spending tallies cited did not include economic development funds from bonds, federal or local dollars.

Ross said Gov. Gray Davis agrees that more accountability is needed in one area--job creation and training.

Davis’ recently released budget proposal, Ross said, includes steps designed to “improve access and accountability, eliminate program duplication and achieve cost efficiencies” in work-force development. The report also recommends a “systemic review” of programs funded through tax incentives.

Ross said slightly more than half the programs funded by specific budget appropriations receive a formal evaluation.

The report states that California’s non-tax-related economic development spending is “scattered across more than two dozen departments, agencies, boards, commissions and authorities.”

“There is no point where all of these people sit down and say, ‘What’s the most important economic goal for California and how do we marshal our resources to get there?’” Ross said. “Right now, we have programs with very similar functions, and there’s very little evidence that they communicate.”

Ross said the goal of the report, timed to precede the start of budget deliberations, is not to “create a gigantic bureaucracy.”

Rather, she said, “it’s to get all the little bureaucracies to communicate.”

“We think it’s important to make sure that the system works together,” she added. “Otherwise, you run the risk of having programs that are at cross-purposes to one another. Or you have potentially duplicative efforts.”

Especially now, when the state is facing a budget deficit, Ross said, “we ought to know where those [economic development] dollars are going and what the state is getting for those dollars.”

“Now we need to tighten the state’s belt and make sure that we are funding programs that work.”

The report states that only about 16% of economic development funds appropriated through the budget are administered by the state’s Department of Technology, Trade and Commerce.

Norman Williams, a department spokesman, disagreed with the notion that the department’s programs are not reviewed.

“The people who will judge whether the efforts are effective are the taxpayers and the Legislature,” said Williams, noting the economic and job expansion that has occurred since Davis took office.

“If you look at our track record--930,000 more jobs created under Gov. Davis; we’re now the fifth-largest economy in the world--obviously our economic development efforts are working.”