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Federalism encourages states to act as “laboratories of democracy,” wherein states experiment with untested ideas and policies to gauge their effectiveness and potential value elsewhere, including at the federal level.¹ Over the decades, state-level innovations have made dramatic improvements in the lives of millions of people in the areas of social insurance, child labor protections, and health care reform. States continue to take up the mantle of innovation by experimenting with various economic and election-related policies.²

However, this mantle of states being laboratories of democracy has not always been used for the public good. Unfortunately, states can also be used as a testing ground for policies that skew political and economic power toward corporations or billionaires and away from everyday Americans. In too many states, this is precisely what is happening today.

Across the country, conservative lawmakers are adopting policies that make corporations and billionaires richer while hurting American families. These legislators are accomplishing this by implementing irresponsible tax cuts, depriving governments of revenue for public goods and services, and making communities and workplaces less safe through deregulation and attacks on unions. To maintain power and keep bad policies in place, lawmakers further corrupt democratic processes to skew elections in their—and their wealthy donors’—favor.

Many harmful state policies are byproducts of corporate lobbying and conservative special-interest groups that act as what this report calls “corruption consultants.” In this report, “corruption” describes the exploitation and manipulation of the lawmaking process to benefit the rich and powerful. Under current law, this activity need not be illegal. In exchange for money—in the form of membership dues or donations—groups and corporations gain unprecedented access to and influence over lawmakers. For their part, overworked and underpaid state legislators are often grateful for research assistance, political advice, and networking opportunities with potential funders.³ This, in turn, leads to policies that benefit the superrich at the expense of everyone else.⁴

One notable example is the American Legislative Exchange Council (ALEC), an organization funded by corporations, wealthy donors, and philanthropic foundations that serves as a hub for its funders to closely interact with state legislators.⁵ ALEC offers lawmakers low membership fees to incentivize them to join. Meanwhile, corporations must shell out thousands of dollars to become members.⁶ But they are not complaining. For corporations, ALEC’s high membership fees are well worth the cost. In addition to getting special access to and face time with legislators, corporations can draft model bills that carry out their agendas and deliver them straight to willing state legislators. ALEC is successful in part because it recognizes the importance of social ties; its corporate-sponsored conferences and retreats create opportunities for state legislators to mingle with political leaders and corporate lobbyists, generating incentives for members to come back year after year.⁷

ALEC is far from atypical. Another example, the Bradley Foundation—a conservative special-interest group based in Wisconsin—is believed to have exercised significant influence over former Wisconsin Gov. Scott Walker’s policy agenda during his time in office.⁸ The group was reportedly behind the former governor’s anti-union efforts.⁹ Moreover, the Bradley Foundation’s former president and CEO was one of Walker’s closest political advisers.¹⁰

By using conservative special-interest groups as the conduit, corporations and billionaires can essentially buy laws that further their interests and increase their bottom lines. An investigation examining legislation at the state level found at least 10,000 instances where state legislators introduced bills drafted or influenced by special interests.¹¹ Roughly 83 percent of bills that the study identified were tied to industry or conservative groups.

In addition to drafting legislation that favors corporations and wealthy donors, corruption consultants engage in strategic misdirection and deceptive tactics to get what they and their rich donors want.¹²

Dangerous policies promoted by corporations and special interests have cost everyday Americans their jobs and financial well-being, not to mention their ability to make their voices heard in the democratic process. The results of this profit- and power-driven approach to state governance has been painful for working families—particularly for employees who work in unsafe conditions. Moreover, those who are hardest hit tend to be people of color and low-income Americans.

Building off their success in conservative states, corporations and special interests are now working to export their policies across the country and to the federal level.¹³ After using states as a testing ground, they are seeking a nationwide takeover. In other words, those who misused the laboratories of democracies to experiment with harmful laws at the state level are scaling up.

This report brings to light how these corruption consultants have turned too many state governments into corrosive laboratories. It then offers several recommendations on how to counter that trend, including:

• Rebuilding and protecting unions as advocates for the broad-based public interest
• Unrigging elections with critical reforms to expand access to the ballot, eliminating gerrymandering, and curbing the influence of money in politics
• Ensuring that state and federal legislative offices have appropriate funding so that lawmakers do not need to rely on special-interest groups and lobbyists for support

Across the country, special-interest groups have successfully pushed for cuts in taxes for businesses and wealthy individuals, privatization of public sector services, and deregulation of industry. The purpose of these policies is ostensibly to advance so-called free market economic ideologies. But in reality, they operate to award corporations and the superrich a privileged place in the economy, to the detriment of working families, the environment, and people of color. Corporate protectionist policies ultimately put pressure on state budgets, resulting in public revenues being slashed and workers’ rights being threatened.

This first section of the report describes strategies corruption consultants, along with corporations and conservative lawmakers, have used to bend economic rules to favor wealthy special interests. These strategies, which include tax cuts, privatization of public goods, deregulation, and attacks on unions, benefit the superrich but harm the public.

Tax cuts lead to government cutbacks of important services

Since the 1970s, conservative lawmakers and interest groups, with encouragement from wealthy donors, have promoted an anti-tax agenda. Supporters of tax cuts make the dubious claim that lower taxes allow businesses to dedicate more resources toward expanding production and investments, which they say will ultimately lead to more jobs and increased wages for American workers.²⁵ In reality, studies of past tax cuts for large businesses and the very wealthy show that these tax cuts rarely improve the economic circumstances of most Americans.²⁶

In fact, estimates of federal tax law changes suggest that roughly 70 percent of the financial benefits accrued from corporate tax cuts go to the wealthiest 20 percent of households.²⁷ Corporate-backed groups such as ALEC and AFP have long pushed for similar tax cuts at the state level.²⁸ ALEC’s armory of anti-tax model legislation includes creative titles such as the “Capital Gains Tax Elimination Act,” the “Taxpayer Protection Act,” and the “Automatic Income Tax Rate Adjustment Act.”²⁹

Tax giveaways—which is what they are—have real repercussions for everyday Americans and state economies. State taxes fund vital initiatives in transportation, public education, and health care, just to name a few examples.³⁰ The loss of revenue from tax cuts creates budget deficits that, in turn, require spending cuts to important programs and public services. Put simply, tax cuts result in corporations and the superrich paying less than their fair share while increasing the fiscal burden on governments and everyday Americans.

Kansas’ disastrous experiment with tax cuts provides a clear example. In 2011, then-Kansas Gov. Sam Brownback (R) began peddling what became known as the “Kansas experiment.” The experiment—designed in part by Stephen Moore and Arthur Laffer, both prominent ALEC-affiliated economists and proponents of President Donald Trump’s federal tax cuts—involved passing legislation in 2012 that instituted massive tax cuts in Kansas.³¹ The law reduced individual tax rates, decreased the number of tax brackets, and eliminated taxes on pass-through business income. Gov. Brownback claimed that these tax cuts would pay for themselves.³²

In advocating for the tax cuts, the Kansas Policy Institute—an SPN member—claimed that they would generate at least $323 million in new revenue for local governments in the first five years.³³ Yet this estimate was challenged by the Kansas Legislative Research Department, which instead projected that the tax cuts would result in a $2.4 billion deficit during the same period.³⁴

Once the law was implemented, Kansas began hemorrhaging money. State revenues decreased by nearly $700 million—almost one-tenth of the entire state budget—after just the first year, requiring significant budget cuts with serious consequences.³⁵ The budget cuts included siphoning away “rainy day funds” and transportation funding, delaying road projects and pension contributions, and reducing Medicaid spending.³⁶ Moreover, reductions in education funding led to teacher layoffs, fewer school programs, and school districts being forced to end the school year more than a week early due to financial pressures.³⁷ The private sector ultimately suffered as well in that the tax cuts did not generate the economic boom that Brownback and others had promised. In 2015, Kansas experienced negative growth in gross domestic product and, at one point, entered a technical recession when its economy shrank for two consecutive quarters.³⁸ For several years, job growth in Kansas lagged behind the national average, as well as that of most neighboring states.³⁹

The “Kansas experiment” ultimately proved to be a massive failure. Kansas’ Republican-controlled Legislature ultimately overrode Gov. Brownback’s veto in order to roll back the tax cuts.⁴⁰ While wealthy individuals were able to take advantage of the tax cuts by becoming “pass-through entities” and lowering their tax rates, everyday citizens paid the price when the state slashed jobs and services during a critical time of recovery following the Great Recession.⁴¹

Privatization of public goods and services

Governments own, manage, or regulate certain goods and services. Utilities, health care, and education are all examples of areas where state governments are heavily involved. Privatizing these goods and services provides corporations another lucrative avenue to increase their profits. When fewer goods and services are offered by the government, there are more business opportunity for private entities. To that end, ALEC has several pieces of “model” legislation that aim to privatize a variety of public functions, including foster care and adoption services, Medicaid and Medicare, prisons, and schools.⁴²

Proponents of privatization—namely corporate special-interest groups—argue that shifting the management of goods and services from the public sector to the private sector cuts costs and improves quality for consumers. The theory is that to compete for a limited number of government contracts, private companies will improve the value and efficiency of their products and services to win a contracting bid. However, handing control of public functions over to the private sector can result in goods and services that are less safe and of lower quality, while also increasing costs to taxpayers.⁴³ Faced with the challenge of generating a profit, private contractors trim where possible, often skimping on labor costs by hiring nonunion and low-skilled workers, which leads to higher employee turnover and decreased security.⁴⁴

For their part, corporations and private entities have major financial incentive to promote privatization schemes. For example, in 2014, prison privatization was estimated to be a $4.8 billion industry.⁴⁵ Private prison companies have been a driving political force behind prison privatization and, by pushing for harsher sentencing laws, have contributed to the rise of mass incarceration, with massive implications for communities of color.⁴⁶ They have used lobbying, political contributions, and close relationships to lawmakers to secure contracts with state governments.⁴⁷

The privatization of public goods creates perverse incentives. Government officials with connections to corporations may engage in unethical conduct to help drive profits for their corporate friends. In the particularly egregious scandal dubbed “Kids for Cash,” a private juvenile detention center paid two judges in Pennsylvania millions of dollars to sentence young people to their facility, allowing the private company to earn higher profits.⁴⁸ As noted by The Washington Post, “The influence of private prisons creates a system that trades money for human freedom, often at the expense of the nation’s most vulnerable populations: children, immigrants, and the poor.”⁴⁹

Florida, in particular, has been a hotbed of prison privatization. Today, several adult prisons and all juvenile residential programs in the state are owned and operated by private corporations, with one of the nation’s largest private prison companies headquartered there too.⁵⁰ When Florida began privatizing prisons in the early 1990s, proponents claimed that it would improve service quality and reduce recidivism, all while decreasing costs and increasing efficiency.⁵¹ However, research shows that incarcerating people in private prisons does not save jurisdictions money and can even be costlier than government-run facilities.⁵² There is also no evidence that private prisons are more successful in reducing recidivism than government-run programs.⁵³ Making matters worse, private prisons tend to be less safe for incarcerated people compared with government-run facilities.⁵⁴ Security concerns are exacerbated by a lack of transparency and accountability. For instance, because private prisons often do not comply with Freedom of Information Act (FOIA) requests and state public record laws, it can be difficult to track bad behavior and build a case against companies that run private facilities.⁵⁵

The privatization of prisons is just a glimpse of efforts by corporate special interests to take over public functions. Additionally, corporate-aligned entities have succeeded in expanding private school voucher programs by more than 500 percent over the past decade and now educate more than 450,000 students across the country.⁵⁶

Private school vouchers divert state budget funds away from public education systems toward private schools backed by corporate and special interests.⁵⁷ These programs are not subject to the same level of oversight and education standards as public schools.⁵⁸ In many states, participating private schools do not administer the same assessments as public schools, making it difficult for parents to gauge how their children are performing relative to statewide standards.⁵⁹ Recent studies of multiple statewide programs have also shown that private school vouchers can increase socio-economic and racial segregation in schools.⁶⁰

In 2011, the SPN-affiliated Goldwater Institute and the American Federation for Children—a group founded by current Secretary of Education Betsy Devos that focuses on private school vouchers—backed Arizona’s creation of Empowerment Scholarship Accounts. This type of private school voucher program, also known as education savings accounts, provides funds directly to families to pay for tuition or other educational services.⁶¹ Initially, these accounts were only offered to children with special needs; however, a series of eligibility expansions made it clear that the Arizona Legislature’s true intent was to crack open the door to universal private school vouchers.⁶²

Audits of the Empowerment Scholarship Account program uncovered a spate of controversies over fraudulent spending, and Arizona voters ultimately rejected lawmakers’ bid to extend them to all 1.1 million students in the state.⁶³ Beth Lewis, co-founder of a nonpartisan group that advocates for strong public schools in Arizona, said, “This result sends a message to the state and the nation that Arizona supports public education, not privatization schemes that hurt our children and our communities.”⁶⁴

Deregulation

Government regulations exist to keep people safe and corporations honest. They work to prevent America’s water sources from being polluted and to ensure that companies aren’t using carcinogenic chemicals in products. They also help keep financial institutions from cheating customers while maintaining the safety of the nation’s food and medications.

Corporations and conservative special-interest groups argue that government regulation stymies productivity and innovation while forcing companies to waste resources to comply with government rules.⁶⁵ The truth, however, is that companies like deregulation because it often increases their ability to access markets while shielding them from government oversight and legal liability. Too often, the result is higher corporate profits at the expense of consumer safety.

Over the years, ALEC, at the behest of industry groups and its corporate members, has pushed deregulation efforts in states, including legislation that would prevent municipalities from regulating the use of tobacco, guns, and environmentally harmful plastic bags.⁶⁶

Some large telecommunications providers have spent millions lobbying lawmakers at all levels of government to prevent and roll back government regulations dictating basic quality-of-service requirements and anti-monopoly directives.⁶⁷ The deregulation of internet and cable service providers has resulted in