Washington State Auditor’s Office Troy Kelley Independence Respect Integrity Performance Measures in Economic Development Opportunities to Enhance Transparency and Improve Processes Joint Legislative Audit and Review Committee October 15, 2014 Sara del Moral, Senior Performance Auditor Jason Hennessy, Performance Auditor

Washington State Auditor’s Office 2  State leaders want to know if economic development dollars have the desired impact.  Statute requires the Department of Commerce to maintain performance measures for the economic development organizations they support with grants.  The performance measurement system has not given legislators meaningful information on results. Why we did this audit

Washington State Auditor’s Office 3 1.Is it technically feasible to isolate the effect associate development organizations (ADO) have on economic outcomes? 2.Are the performance measurement practices used by Commerce to manage ADO contracts aligned with statutory intent? 3.Are the performance measurement practices used by Commerce to manage ADO contracts aligned with leading practices? Audit questions

Washington State Auditor’s Office 4 ADO grants are the state’s primary means of supporting local economic development  $3 million annually in state support (GFS)  Distributed to 34 ADOs, serving all 39 counties State supports local economic development through grants Local partners, federal aid and private supporters also help fund ADOs.

Washington State Auditor’s Office 5 ADOs deliver a range of economic development services Direct assistance to businesses, including:  Market their areas to attract new companies  Provide site location and selection assistance  Refer companies to available resources Support regional planning efforts, including:  Help coordinate job skills training  Help develop county economic development plan  Help implement strategies to attract new industry sectors ADOs carry out two broad areas of work: 12

Washington State Auditor’s Office 6 Does the program deliver the expected results? Annual targets Annual information sent to Commerce Report to Legislature every 2 years What to measure Information system Definitions Consistent measures statewide How to measure State law includes requirements for:

Washington State Auditor’s Office 7 What we did 1.Determined if ADO impact is measurable  Literature review  Interviews with experts and stakeholders  Statistical analysis 2.Compared Commerce performance measurement with statute and leading practices

Washington State Auditor’s Office 1. It is not feasible for Commerce to measure ADO impact Why is it so difficult to isolate the effects of ADOs? 8 Washington state economy $300 billion ADO grant funds $3 million

Washington State Auditor’s Office What does it mean for an ADO to “cause” a job? Technical expertise Availability of capital Interest rates Cost of inputs Labor market Regulatory environment Local need or demand Prevailing wage Business owners consider many factors when making decisions to relocate, invest or expand. Assistance from local ADO "Should I hire more employees?" 9 Business owner “Should I hire more employees?”

Washington State Auditor’s Office  Aspects of the performance measurement system do not align with statutory intent.  Measuring outcomes for planning and research is difficult. Measures vary greatly among ADOs.  The performance measurement system has produced undesirable consequences.  The requirement to report annually on ESD statistics does not inform users about ADO performance. 2. Measures are not working as statute intended 10

Washington State Auditor’s Office Commerce does employ some leading practices Prepare Developed some program goals Trained ADO staff Develop Assigned additional staffer to improving measures Clarified definitions Manage Implemented information system Data accuracy checks Encouraged ADOs to follow definitions Report Biennial report clearly presented information on progress Commerce has improved its performance measurement system, following the four key steps identified in leading practices. But following more leading practices, especially by clarifying program goals in statute, could help.

Washington State Auditor’s Office 12 Clear goals are the basis for effective performance measures Example goal, outcomes and associated measures

Washington State Auditor’s Office 13 Recommendations for Legislature 1.Clarify goals 2.Reform reporting requirements:  Require measures be aligned with goals  Reduce information required in annual reports  Allow descriptive reporting for some activities

Washington State Auditor’s Office 14 The audit report provides additional resources on performance measurement.audit report Recommendations for Commerce and ADOs 3.Improve performance measures, following applicable leading practices: Align measures to goals Reduce number of measures Add efficiency and quality measures Clearly define measures

Washington State Auditor’s Office 15 Contacts Chuck Pfeil, CPA Director of Performance Audit, (360) Website: Troy Kelley State Auditor (360) Lou Adams, CPA Deputy Director of Performance Audit, (360) Sara del Moral Senior Performance Auditor (360)