Auditors Find That Economic Development Agency Doesn’t Have Good Data
HARTFORD, CT — The Auditors of Public Accounts released an interim report Tuesday that found the Department of Economic and Community Development, which is in charge of giving out loans and grants to businesses, is not collecting accurate data about its economic assistance programs or the number of jobs created.
Tax credits, economic assistance programs like the Small Business Express program, and the Manufacturing Assistance Act have been underestimated or overestimated by tens of millions of dollars, according to a preliminary report.
As far as the number of jobs created through assistance given by DECD, the auditors found the agency “likely overstated the number of jobs retained because certain companies received funding multiple times or under multiple programs. Companies that received funding multiple times may have had a requirement to retain the same jobs each time they received funding. DECD counted these jobs multiple times. In addition, if companies received funding under multiple programs, DECD likely counted the jobs retained under multiple programs. It is unclear how many jobs DECD may have overstated.”
In the Small Business Express Program, DECD actually understated the amount of new jobs to be created by 195, in addition to understating the amount of jobs to be retained by 1,405. So even when it was good news the data didn’t support the numbers in the annual report.
In its response, the DECD said it is possible that companies with funding under multiple programs may include “a very small amount of overlap in employee retention numbers.”
“Further, when we analyze future economic benefits to the state, we do not include the retained employees,” the agency said. “We look only to the incremental new jobs created by the company that will impact the state economy.”
The auditors, John Geragosian and Rob Kane, were not satisfied with the answer.
“Even though only a small percentage of companies received funding multiple times or under multiple programs, it would still result in the overstatement of thousands of retained jobs,” they said. “DECD uses the amount of retained jobs as a statistic to demonstrate the success of its business assistance and incentive programs. Therefore, it is important that DECD reports accurate job retention amounts.”
They reasoned that “DECD uses these amounts to determine the dollar cost per job that businesses created or retained. If DECD overstates the amount of retained jobs, therefore, it would understate the cost per job.”
But that impact on the state economy is also lacking from DECD’s annual report, according to the auditors.
The Department of Economic and Community Development, is not, according to a preliminary report from the auditors, doing an analysis of the programs’ estimated economic effects on the state’s economy, an analysis of whether the goals of each business assistance or incentive program are being met, recommendations as to whether any such existing business assistance program should be continued, modified, or repealed and it’s not including methodologies and assumptions used in carrying out an analysis.
“It appears that the data required to analyze the estimated economic effects on the state’s economy is currently not being collected,” the auditors, who were asked by the legislature to review the DECD’s annual reports, said.
The agency, in replying to the auditors report, said they are “unable to obtain, verify, and report on information in a timely manner when the information is not held at DECD.”
Some of the economic assistance programs are monitored by other state agencies, but the data, according to auditors, should be shared with DECD.
As far as tax credits are concerned, the auditors found DECD understated the Urban and Industrial Site Reinvestment total tax credits awarded by $71 million or 12 percent of the total and overstated total credits earned by $14.9 million. It also understated the total Film Production Infrastructure tax credits issued by $7.2 million and overstated the Film and Digital Media Production tax credits issued during the fiscal year ended June 30, 2017 by $1 million.
The report also found DECD did not report on 297 projects that received $242 million in financial assistance under the Manufacturing Assistance Act because the company has gone out of business, relocated, or the department’s contract with the company has expired.
DECD said the omissions “were due to different cut-off dates in the data worksheets used for the REMI analyses. DECD recognizes the importance of reporting accurate data in the annual report, and will improve its internal controls to ensure that the calculations and data reported in the annual report are supported and accurate.”
The numbers, however, are even worse when they are run through the Regional Economic Models Inc. analysis.
When the REMI analysis was used DECD overstated the cumulative net state revenue for the Manufacturing Assistance Act by $259.6 million. It overstated the cumulative net state loss for the Film and Digital Media Production tax credit by $19 million and it overstated the cumulative net state loss for the Film Production Infrastructure tax credit by $11.2 million. It also overstated the cumulative net state loss for the Digital Animation tax credit by $3 million.
“These omissions noted above were due to formula errors or omissions of source data in our worksheets,” the agency said. “DECD shall improve its internal controls to ensure that the calculations and data reported in the annual report are supported and accurate.”
DECD conceded that the errors the auditors found were troublesome.
“At DECD, we set a high bar for the quality of our work,” DECD Commissioner Catherine Smith, said. “Unquestionably, this report highlights areas where we did not meet that bar and we are committed to taking meaningful and necessary steps to maintain the integrity of our reporting mechanisms. We can—and will—make the necessary adjustments to ensure accuracy so that the Annual Report properly reflects the overall effectiveness of our programs.”
DECD will submit corrected data.
State Comptroller Kevin Lembo, who fought for the legislation that led to this report, said it shows that the DECD “has failed to independently and accurately analyze which ones are working and which ones are not.”
Lembo said for more than five years, “up against vetoes and fierce opposition” he tried to “ensure that scarce state resources are focused on only the most effective economic development and job-growth programs.”