Where are the jobs? The real numbers are in
Bob Segall/13 Investigates
Indianapolis - A new audit of Indiana's job creation programs confirms what WTHR has been reporting for the past year: tens of thousands of new jobs promoted by state leaders have never come. The actual number of jobs created is far less than expected.
Only a fraction of job commitments announced by the Indiana Economic Development Corporation have resulted in actual Indiana jobs, according to an independent IEDC program review obtained by Eyewitness News.
The review, presented to the IEDC audit committee earlier this month, is part of an audit that examines how state job numbers are collected, tracked and announced by IEDC. The numbers presented in the audit offer a stark contrast between the job realization figures cited by Governor Mitch Daniels and his job creation agency and those reported by auditors and WTHR. It also presents statistics in a manner that allows state leaders to still cite high levels of job creation, even though the realization figures suggest otherwise.
Dissecting the numbers
The "Summary of Incentive Program Review" prepared by audit firm Crowe Horwath examined 597 job-creation projects outlined in IEDC annual reports from 2005 to 2009. The projects were listed as "Indiana Economic Successes" that would bring new jobs to Indiana.
According to the report, those projects were expected to create 44,208 jobs by late 2010 and, based on the most recent information available to auditors, have so far resulted in 37,640 actual jobs – a realization rate of 85%.
But the state's job realization rate is actually much lower than 85%, according to additional data reviewed by WTHR.
The numbers cited above are based solely on data for "reporting companies," and they do not include job data for 200 other projects also listed as "Indiana Economic Successes" in IEDC annual reports. Including those projects, as well, the number of newly-created jobs the agency had anticipated to materialize by the end of 2010 is 57,088 (not 44,208), according to the report. Using that figure, IEDC's job realization rate is 66%.
And nowhere does the audit report mention the 98,683 total new job commitments announced by IEDC from 2005 to 2009. Using that number – which IEDC and the governor have repeatedly promoted in their press releases, speeches and annual reports – the audit data suggests, so far, only 38% of jobs announced by IEDC have resulted in actual jobs. While that percentage is expected to increase in coming years (some of the companies are not expected to fulfill all of their job commitments for several more years), the overall numbers show IEDC's real job realization statistics are much lower than the agency portrays to the public by citing far more limited data.
Spinning the data?
Why does IEDC boast that 800 companies will bring 98,683 jobs to Indiana in its press releases and annual reports, but then omit 200 of those companies from its jobs data when calculating its job realization numbers?
Despite repeated requests from Eyewitness News, the agency has not yet explained its justification. So far, IEDC has also not granted WTHR's request to speak directly with members of the Crowe Horwath audit team that helped prepare the report. The auditors are contractually prohibited from speaking about the audit without written permission from IEDC.
But sources close to IEDC tell WTHR the agency chooses to include only "reporting companies" in its job realization numbers because those companies are more likely to have been successful in creating jobs. Companies that are required to report their job-creation data to the state have formally accepted a state incentive package (which often includes tax breaks and training grants offered by IEDC) and that shows a higher level of commitment to create jobs that have been promoted by IEDC.
By comparison, many non-reporting companies failed to meet their announced job commitments due to financial problems or a decision to not follow-through with their expansion plans in Indiana. Often, those companies never formally accepted IEDC's offer of state incentives because their projects began to fall apart shortly after they were announced. By omitting non-reporting projects from its calculations, IEDC's job realization numbers are considerably higher than if the agency were to include all projects in its reporting.
WTHR is choosing to report all of the numbers to provide a more complete picture of IEDC's job creation success.
IEDC's angry response
Presented with all of the numbers, Indiana Secretary of Commerce Mitch Roob declined an interview with WTHR to discuss the audit results. (At the recent audit committee meeting, Roob said he would come back to talk with us after taking a short break, but he never did. Instead, IEDC's public relations director appeared 40 minutes later to say "He's done for the day.") But he did e-mail Eyewitness News a statement, which accuses WTHR of presenting misleading numbers.
"You are blatantly misrepresenting the information and intentionally creating an incomplete picture of Indiana's economic development successes," Roob wrote. He did not explain why presenting all numbers available to IEDC – including total job projections included in his agency's own annual reports – would create an incomplete picture of IEDC's performance.
Morton Marcus disagrees with the commerce secretary's assessment. The former director of the Indiana Business Research Center at Indiana University reviewed the IEDC "Summary of Incentive Program Review," as well as WTHR's presentation of the statistics.
"It's no misrepresentation … and I see nothing unfair about reflecting the realization [numbers] compared to the expectations that have been set up by IEDC," said Marcus, a professional economist for more than 30 years. "Asking why the agency is not calculating and presenting all of the data is a very legitimate question. That would be a more complete presentation of their figures, and what they're telling the public is certainly not a comparison of what they know with what was initially promised."
But by selectively presenting data, IEDC is able to claim high realization numbers without lying to the public. Crowe Horwath's audit summary states "Based upon our review of IEDC Annual Report data, there is no evidence that IEDC has inflated job projection or project figures."
"If you're only presenting part of the information, there's no need to inflate the figures because the presentation takes care of that for you," Marcus said. "I think the public wants a more full picture – not just the numbers that make IEDC look best."
The man who helped shape IEDC as its first president also believes it's good public policy to release both sets of numbers – "reporting companies" as well as "all companies" – when reporting IEDC's job realization rate.
"Both statistics are important and have merit, especially in light of the economy," said Michael Maurer, who was appointed by Gov. Daniels in 2004 to lead the newly-created IEDC. "As long as you're reporting both sets of numbers together, there's nothing wrong with that, but you have to see both."
Asked if it is proper for IEDC to report its job realization numbers based solely upon "reporting companies" without showing calculations for all companies, Maurer responded: "If I were the one reporting, I wouldn't do that. I'd be presenting both of them."
To date, IEDC has not publicly presented its job realization numbers in terms of total jobs announced. Last month, when IEDC presented its job realization statistics to the state legislature's budget committee, lawmakers heard only that IEDC had achieved an 87% realization rate – based solely on the limited data set of "reporting companies."
"What you're doing is good investigating," Maurer told WTHR. "You need to be reporting the other numbers, too."
Some recommendations ignored
As part of its report, Crowe Horwath provided a series of recommendations to help IEDC better track and more accurately report job realization figures to the public. Among the recommendations:
-Clarify the job numbers used in IEDC reports
-Clarify terminology internally and externally related to the evaluation and reporting of job creation figures
-Finalize new processes to improve the auditing and monitoring of companies that do business with IEDC
-Reconcile prior year job projections and report adjustments in IEDC annual reports
-Use a formula-based logic when calculating IEDC "net new job" figures
Thayr Richey, an economic development expert and a former executive director of the Indiana Department of Commerce, believes the recommendations are good ones.
"I think it's absolutely essential that any agency verify the statistics they're using … because the public depends on you telling them the truth," Richey said. "I think the [audit] report is very clear that that should have been done. It just makes sense you'd want to make sure those data are accurate."
It appears IEDC has, so far, not heeded some of the auditors' recommendations. Since the report was presented to the IEDC audit committee January 7, WTHR has asked the agency to clarify job numbers and terminology associated with the audit and its job creation reports. The request has gone unanswered.
And job figures provided to WTHR last week by secretary Roob fail to incorporate the formula-based logic recommended by auditors, making IEDC's job creation statistics appear higher than they are. Those are the same numbers presented last month to the state legislature's budget committee.
Other recommendations are already being implemented – at least in part.
Last year, after WTHR confronted Roob about his agency's suspect job numbers, IEDC decided for the first time to publish adjusted job realization numbers in its annual report. Publishing that updated information conforms with one of the audit recommendations.
But the adjusted numbers do not provide any context. In its 2009 annual report, IEDC claimed "a 13% reduction factor" in anticipated jobs (another way of claiming an 87% realization rate) based upon "most current information reported by companies to the IEDC." The agency does not clarify whether the numbers presented reflect adjustments for all projects announced by IEDC or only for "reporting companies." Auditors are now recommending IEDC better clarify numbers and terminology used in its reports.
Massaging the numbers
The commerce secretary continues to maintain his agency's numbers are being skewed by Eyewitness News.
"Knowingly manipulating the information available is nothing short of irresponsible and unprofessional, Roob wrote last week to WTHR, adding "By the way, an independent Washington D.C.-based organization recently ranked Indiana the 8th most open state in the nation for economic development data."
Others believe it is IEDC that is manipulating information, and they point to recent statements by the commerce secretary as proof.
Roob's comment about economic development data openness refers to a December 2010 report by Good Jobs First, a national policy resource center promoting corporate and government accountability in economic development. The report does, indeed, rank Indiana 8th on its list of economic transparency among states. IEDC boasted of its ranking at a recent audit committee meeting and on its website.
What Roob and IEDC do not point out is, according to the report, the 8th place ranking comes with a C- grade for transparency based on a "dismally low" average score of 46 points out of a possible 100. The only thing preventing Indiana from getting a grade of F for its economic development transparency is that Good Jobs First says it graded states like Indiana on an extreme curve.
"We would not say C- and a score of 46 is anything to brag about," said Good Jobs First executive director Greg LeRoy. "To the contrary, that's not good at all, and the bar has been set very low. We had to lower the curve because, overall, the scores were so bad. But everyone knows what 46 out of 100 would get you in 10th grade: a very low F. There is a lot of information Indiana does not disclose and the idea that the information cannot be disclosed is utter hogwash."
A recent press release sent by IEDC public relations director Blair West on behalf of Roob shows examples of other questionable statements that are either incorrect or tell just part of the state's economic picture.
In the press release, which promotes 23,000 new job commitments for Indiana in 2010, Roob is quoted as saying "It is no coincidence that as Indiana continues to make job recruiting efforts top priority, the state is emerging as the nation's economic leader, leading the country for much of the year in private sector job growth."
While Indiana fared relatively well in private sector job growth compared to other states in 2010, data from the U.S. Department of Labor's Bureau of Labor Statistics shows Indiana led the nation in private sector job growth for one of the past twelve months – not for "much of the year" as Roob contends. The most recent bureau statistics show eight other states have outpaced Indiana when it comes to the largest percentage increase in jobs during 2010. Indiana's 1.26% increase represents 34,800 additional jobs – down considerably from numbers reported last summer and far below the 1.96% increase (200,700 additional jobs) reported for Texas.
IEDC and Roob also claim Indiana's "record-breaking year comes as the state's economy gained national accolades," and as proof, the press release points to several magazines that awarded Indiana high marks for its business-friendly climate. But the state's economy has been lagging behind that of almost every other state in the nation, according to statistics recently released by the U.S. Bureau of Economic Analysis.
The bureau's 2009 estimates of state gross domestic product (state GDP measures the value of all goods and services produced within a state's borders) shows Indiana's GDP declined 3.6% in 2009, compared to a 2.1% decline nationally – earning Indiana a 46th national ranking. According to the bureau, over the past five years (2004 through 2009) Indiana's average annual GDP growth rate (0.2%) was significantly below the national average (1.1%) and also ranked 46th in a nation.
"Those [GDP] numbers show the number one most legitimate number that expresses what's going on with the economy of the state, and the figures I see indicate Indiana is among the bottom states in the nation in terms of growth of our economy," Marcus said. "There is a tendency for all organizations to make themselves look as good as possible. I think the public wants a more full picture … not just the numbers that make IEDC look best."
Marcus also says IEDC should not be embarrassed to release all data related to the state's job realization numbers.
"Not all commitments will turn into jobs. That's perfectly normal and IEDC does not need to be ashamed of that," he said. "I believe the leadership at IEDC is excessively sensitive to possible criticism, and that's keeping them from presenting all the numbers. IEDC could actually look better in the public eye if they gave us more detailed statistics."
The good news
Hoosiers do have reason to be optimistic.
A breakdown of IEDC audit data shows job realization numbers have improved dramatically over the past two years -- a sign that companies may be shrugging off the effects of a lingering economic recession.
For jobs announced from 2005 to 2007, IEDC reports 21,849 of the 32,616 jobs expected by the end of 2010 have materialized – a 67% average realization – based upon IEDC's data for "reporting companies."
For jobs announced in 2008 and 2009, IEDC says 15,794 jobs have already materialized compared to 11,592 expected – a 136% average realization – based upon "reporting company" data.
(While the job realization numbers decrease significantly using data for all companies for which IEDC announced jobs, those statistics still show a marked improvement in recent realization rates. Based on the number of jobs anticipated by the end of 2010 for all companies, the 2005-2007 realization average is 51% compared to an average realization rate of 112% for jobs announced in 2008 and 2009, according to information contained in IEDC annual reports and the Crowe Horwath program review.)
Richey believes the audit also contains more good news for Indiana. He says the recommendations outlined by auditors – combined with media scrutiny of IEDC – will force the agency to be more transparent about its job numbers.
"The recommendations are good," said Richey. "They need to update their stats and I think they will do that. The public should have access to that data."
Why WTHR is tracking state job numbers
13 Investigates began its "Where are the jobs?" investigation in early 2009 after IEDC refused to provide WTHR with specific data to support its claim that the agency had helped bring nearly 100,000 jobs to Indiana.
While IEDC and the governor continued to announce new job commitments across the state, Eyewitness News began to investigate the companies that IEDC had previously announced as "Indiana Economic Successes." 13 Investigates discovered shut-down factories, desserted office buildings and empty cornfields where IEDC claimed companies were in the process of creating tens of thousands of new jobs. Many of the job projects had gone bust, but IEDC was still reporting them in its official job statistics as if the jobs would be realized.
The governor repeatedly declined WTHR's requests to discuss the issue. Eventually confronted with WTHR's findings in March 2010, Gov. Daniels claimed most of the state's job commitments had turned into jobs.
"We audit all the time. We're getting about 92% compliance, fulfillment, of the jobs that are committed," he said.
At the same time, Roob told WTHR "We believe about 87% [of job commitments] have actually or are in the process of coming to realization."
Based on months of research and tracking companies statewide, WTHR reported the state's actual realization rate was likely closer to 60% -- far below the numbers cited by the governor and IEDC.
The recently-released audit shows, based upon all job announcements promoted by IEDC, the governor and IEDC did overstate Indiana's job realization success by citing numbers based solely on limited data. According to the audit report, more complete data available to IEDC shows 66% of the jobs IEDC expected to materialize so far have actually resulted in real jobs.
To date, IEDC continues to withhold detailed job realization information from public disclosure. While IEDC considers the information confidential, other states routinely release the same information to provide full disclosure of their job creation efforts. Most companies that work with IEDC receive tax incentives and/or training grants that are funded with public dollars. WTHR believes publicly-funded programs should include a high level of transparency so Indiana residents can easily track how their tax dollars are being spent.