The Department of Economic and Community Development overstated the economic impact of its business assistance programs, according to a recent evaluation of their annual reports.
The DECD, which measures the direct and indirect impacts of its business assistance and incentive programs, relies on a model designed by Regional Economic Models, Inc. (REMI). The model gauges the indirect impacts of the financial assistance based on the direct economic activities entered, such as project costs and the degree of assistance provided.
However, a closer look at the 2022 DECD annual report has raised a few concerns:
DECD reportedly exaggerated the direct net state revenue for the Small Business Express program by $22.8 million which accounts for 18% of the total.
Discrepancies were also observed in the Film Infrastructure tax credit inputs, which were overstated by $644,897. The exact impact of these variations on the estimated net state revenue remains undetermined.
In the broader context, the DECD claimed a direct net state revenue of $126 million for the Small Business Express program. Meanwhile, the department reported a net loss of $11.5 million in the state Film Infrastructure tax credit revenue.
According to the auditors, such discrepancies can seriously impede the decision-making process about business assistance and incentive programs, given that accurate data on their economic impact is essential.
The cause of the oversight was identified as DECD’s inclusion of repayments for Recovery Bridge Loans in the Small Business Express calculation. Interestingly, the report explicitly stated the exclusion of Recovery Bridge Loans in its analysis. Another error was noted in counting ineligible acquisition costs for one of the Film Infrastructure tax credit recipients.
These findings are not new. Similar issues have been reported in evaluations covering fiscal years from 2017 through 2019.
In light of these revelations, recommendations have been made urging DECD to ensure the accuracy of amounts incorporated in its economic impact assessments.
In response to the findings, the agency concurred with the evaluation and has committed to rectifying the errors in their 2023 annual report.
