By James M. Hohman
Lawmakers in every state offer cash and other favors to select companies. Often the companies and politicians sign nondisclosure agreements that oblige both parties to keep quiet about negotiations. Pat Garofalo is appalled by this lack of basic transparency. Garofalo directs state and local policy at the American Economic Liberties Project, working with a coalition of groups and lawmakers to outlaw legislative nondisclosure agreements. I speak with him about his efforts for the Overton Window podcast.
The first thing he wants people to realize is that this dealmaking is ineffective.
“They aren’t actually beneficial for the economy,” Garofalo says. “The job creation that’s promised doesn’t materialize, the investments don’t pan out. But a lot of money goes out the door that could pay for basic services and the general business of government.”
Garofalo considers it an affront to people’s sense of decency that public officials keep details of their negotiations for public favors secret. “We are talking about contracts between elected leaders — people who are in public office doing public service — and private corporations that prevent those elected leaders from disclosing the terms of their dealmaking with the public,” he says. “If that sounds outrageous and corrupt, it’s because it is… Every time I explain to a normal person that these agreements exist, the most common reaction is shock that it’s even legal.”
The deals rarely work out as promoted, however. Politicians put out press releases, go to ribbon-cutting ceremonies, and get press about how they helped create jobs for their constituents. But even when companies don’t meet expectations, they still get to cash in on their favors.
“One of the reasons that corporate subsidy deal-making persists is because the political capital built is useful in future elections,” Garofalo says. “These NDAs persist because political leaders realize that they can accrue the short-term political capital and then deal with any scandal that comes out because of the agreement.”
The NDAs prevent scrutiny of deals from outside parties. But sometimes people who aren’t part of the negotiations for favors are able to stop deals before they happen. Garofalo cites a group that stopped an Amazon data center in Maryland. “A guy who’s literally a Christmas tree farmer got wind and organized his neighbors,” he says.
In this case, the group was able to put a stop to the retail giant’s plan. “They used clever legal tactics, including open meetings law and FOIA to stop this deal,” Garofalo says. “As soon as Amazon realized that it was going to have to argue for this in public, it pulled the plug.”
Garofalo is trying to prevent lawmakers from signing nondisclosure agreements.
“There’s a group of folks around the country who have introduced bills to make these agreements illegal under state law,” he says. “The one that’s gotten furthest has been in New York. There’s a great champion on this issue in Sen. Michael Gianaris. He has gotten his bill voted out of the New York State Senate twice. And the most interesting thing about this to me is that it has been voted out twice unanimously.”
The idea is popular. “My organization and our sister organization have polled this before. It shouldn’t shock you that it polls off the charts,” Garofalo says. “The general voter and the general community member, when they hear about this issue, think that it should be illegal for politicians to sign these binding contracts with corporations.”
Bans on legislative nondisclosure agreements also run into expert opposition. The government agencies that give out cash and other favors oppose efforts to prevent nondisclosure agreements, as do and the businesses that receive assistance. “You can’t discount the machinery inside government that is helping to grease the skids for these deals,” Garofalo says.
Institutional opposition makes it hard to change the process. “That is a key obstacle for those of us who want to change things,” Garofalo says. It usually breaks down on elites and the politically connected, usually larger business and the economic development bureaucracy. And on the other side, everybody else.”
But Garofalo is optimistic. His organization and the Mackinac Center are part of a coalition called Ban Secret Deals. “I think one of these is going to get across the finish line,” Garofalo says.
Recent abuses around the country have raised skepticism about business subsidy dealmaking. The shameless bidding by the many states vying for the second Amazon Headquarters project left a bad taste in many citizens’ mouths, even residents in the winning locations in New York and Virginia. Louisiana put some restraints on its main business subsidy program, and the gubernatorial candidates have endorsed those changes.
“One of the biggest changes they made in Louisiana was that the corporations asking for subsidies now needed to go to the local government bodies that would be affected and make a public case for their subsidy,” Garofalo says. “One of the reasons that the use of this subsidy dropped so dramatically is because corporations simply didn’t want to do that. So they stopped asking.”
He thinks that the bills will get passed when people get more animated about the issue and share their opinions with their representatives. “If you know in your state that a bill exists, write to the sponsors and say you support it,” Garofalo says.
Doing so can change the political calculus that lawmakers perform to decide which way to vote on an issue. “Right now, the calculus is that it’s better to do the dealmaking and deal with the fallout because that will be better for me, politically. But if we flip that and show that it’s going to be costlier, politically, to do the deal than to fight it, then politicians are going to read the writing on the wall,” Garofalo says.
“I think the momentum is our way. I’ve been working on these issues for a bit now and I feel cautiously optimistic,” Garofalo says. “I think pre-HQ2, the idea that a bill banning NDAs in these deals would pass any state legislative chamber was silly nonsense. Now it’s come up unanimously, twice, out of the New York State Senate. So that gives me hope.”
Check out the conversation at the Overton Window podcast.
Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.
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