Washington State Auditor’s Office

Troy KelleyI n d e p e n d e n c e • R e s p e c t • I n t e g r i t y

Performance Measures in Economic Development

Opportunities to Enhance Transparency and Improve Processes

Joint Legislative Audit and Review CommitteeOctober 15, 2014

Sara del Moral, Senior Performance AuditorJason Hennessy, Performance Auditor

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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

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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

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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.

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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:

1 2

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Does the program deliver the expected results?

What to measure

• Annual targets• Annual information sent to Commerce• Report to Legislature every 2 years

How to measure

• Information system• Definitions• Consistent measures statewide

State law includes requirements for:

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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

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1. It is not feasible for Commerce to measure ADO impact

Why is it so difficult to isolate the effects of ADOs?

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Washington state economy

$300 billionADO grant funds

$3 million

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What does it mean for an ADO to “cause” a job?

Technical expertise

Availability of capital

Interest rates

Cost of inputs

Labor marketRegulatory

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?"

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Business owner“Should I hire more

employees?”

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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

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3. 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.

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Clear goals are the basis for effective performance measures

Example goal, outcomes and associated measures

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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

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The audit report provides additional resources on performance measurement.

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

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Contacts

Chuck Pfeil, CPADirector of Performance Audit,

(360) 902-0366Chuck.Pfeil@sao.wa.gov

Website: www.sao.wa.gov

Troy KelleyState Auditor

(360) 902-0360Auditor@sao.wa.gov

Lou Adams, CPADeputy Director of Performance Audit,

(360) 725-5577Louella.Adams@sao.wa.gov

Sara del Moral

Senior Performance Auditor(360) 725-5612

Sara.delMoral@sao.wa.gov