On the floor of the Kansas Legislature in early February, lawmakers held a brief debate on a bill called the Attracting Powerful Economic Expansion Act, or APEX. The bill would provide a substantial tax incentive – estimated at a total of $1.2 billion – to entice a large company to build a production plant in the state. The company name, however, was a secret.
In what one lawmaker called “a good old-fashioned, pro-business vote,” the state House and later the Senate approved the plan. A few days later, the bill was signed into law by Governor Laura Kelly. The name of the company is still unknown to the public.
“You kept hearing them say ‘company’, ‘company’, ‘company’. It’s because those elected officials deciding what to do with $1.2 billion in public money literally had no idea what company they were talking about,” says Pat Garofalo, director of national and local policy at the nonpartisan American Project. Economic Liberties Project. “They didn’t even know where the factory was going to be. The few people who had these details signed NDAs.
Non-disclosure agreements like those signed in Kansas have become a disturbing part of how economic development plays out in communities across the country. Companies from Amazon and Google to Facebook and a number of anonymous manufacturers regularly use NDAs in their negotiations with cities where they plan to build warehouses, offices and factories. Tax incentives to attract business are often covered by these NDAs, leaving taxpayers in the dark about what is being built and how much it is costing them.
A new campaign, Ban Secret Deals, calls for an end to the use of NDAs in economic development relationships. Launched by the American Economic Liberties Project and a coalition of political and advocacy groups spanning the political spectrum, including the Center for Economic Accountability and Good Jobs First, Ban Secret Deals advocates for legislation banning NDAs at the state and local levels . He calls on ordinary citizens to sign a petition urging state lawmakers to take action.
“Governors, mayors, city councils and economic development department officials sign these agreements with companies who say that they, the public officials, are not allowed to disclose anything about the agreement , often including the identity of the recipient, until it’s finalized and essentially a done deal,” Garofalo says. “We think that’s extremely problematic.”
The scope of the problem is vast. An estimated $95 billion in grants and corporate tax incentives are issued each year in the United States, and many of these incentives are only fully disclosed to the public after contracts or laws are signed. They include eliminating the taxes businesses have to pay and offering payroll refunds when businesses begin operations. “NDAs are a corrupt way to prevent the public from influencing the use of public resources,” Garofalo says.
The campaign includes a growing database of recent examples of major grant and tax incentive deals involving NDAs, sometimes made public only through Freedom of Information Act requests. The transactions include the $475,000 issued by St. Petersburg, Florida to footwear retailer Foot Locker; the $54 million issued to Google by Columbus, Ohio; and several projects totaling more than $1 billion in incentives awarded to Amazon.
“The worst player I’ve seen in this space is Amazon,” says Garofalo. “They just get tons and tons of subsidies for their warehouse contracts.” Fulfillment, a 2021 book on the impacts of Amazon by journalist Alec MacGillis, explores some of the ways the company has been opaque about its warehouse developments. (Amazon did not respond to a request for comment.)
The use of NDAs for these projects is not an innovation of technology companies. “Over the past 50, 60 years, corporate interests have sold a particular idea of economic development to the public, [that] the way you build a local economy is to give a corporation a lot of money to move to a particular place and hire a group of people and create ripple effects,” says Garofalo. “The vast majority of academic research shows that these deals don’t actually do what they’re supposed to do and don’t actually create the economic prosperity they’re supposed to do.”
A recent report by the Center for American Progress shows how rarely promises of such grants are realized. In Wisconsin, where the state offered $2.85 billion in incentives to Taiwanese electronics maker Foxconn more than four years ago, the planned factory has yet to open. The state recently revised its deal to a still substantial $80 million.
These agreements often have serious effects on communities, which use large amounts of local funding to secure projects. “We’re really talking about places with limited resources,” says Garofalo. “Most states are constitutionally mandated to balance their budgets. Doing these deals really means taking money out of something else – schools, infrastructure, workforce development, child care.
Companies may be less upfront about the reasoning behind their use of NDAs. Garofalo says they often cite the need to protect trade secrets, but decisions about where to locate a warehouse or factory don’t necessarily require those details to be disclosed.
“They want to have information asymmetry. They want to be able to go back and play states against each other and prevent all the stakeholders involved from knowing what is going on in order to drive up the price of these grant deals,” he says. Amazon’s nationwide search in 2017 to find a city to host its second headquarters is a glaring example. Cities across the country entered into NDA agreements with the company in the early stages of simply throwing their name in the hat for the project and its many jobs. Some, like New York, which initially won part of this HQ2 race, bowed under public pressure over the grants included in the project and backed out of contention.
Back in Kansas, the Attracting Powerful Economic Expansion Act was designed as a way to compete with neighboring Oklahoma for the limited company’s production facility. Garofalo says there’s no way for the public to know if the two states were even competing for the project. “We think if there’s more transparency, you’ll bring the cost of these things down and hopefully eliminate them one day,” he says.
A growing number of states are getting there. Legislation prohibiting the use of NDAs is currently pending in New York, Illinois, and Michigan. (The use of NDAs in labor negotiations has also met with strong opposition in recent years.) Garofalo says he hopes the Ban Secret Deals campaign inspires others to follow suit. Even if states don’t shoulder the burden, Garofalo argues that local governments, from city councils to county commissions, can make their own efforts to prevent NDAs from clouding the economic development negotiation process.
“People in local communities are much more empowered about this than they realize,” he says. “It only takes a few of them getting together and saying, ‘No, we’re not going to put up with it,’ to make a big difference.”