Archive for May, 2008

Oregon’s Limits on Growth Reduce Impact of Housing Price Decline

May 29, 2008

Even as other states struggle with housing price declines that have cut homeowner borrowing and spending power, Oregon’s land use controls are being credited with bolstering its housing market and economy.

Housing sales in the state have slowed and home prices in several Oregon cities have been described as “overvalued.” But compared to Midwest and Sun Belt states, where home prices have typically declined 20 percent, Oregon’s housing market remains strong.

For example, a recent Chicago Tribune article cited the 4.5 percent rise in 2007 housing prices in North Plains, a small town near Portland located in Oregon’s thriving high-tech “Silicon Forest.”

Unlike Phoenix and the San Francisco Bay Area, where similar high tech booms have sparked speculative housing construction and sprawl, North Plains and other Oregon communities have higher-density housing, the result of urban growth boundaries that protect farm, forest and coastal areas and that keep housing supply better aligned with actual demand. As a result, according to the Tribune, Portland area housing prices so far have only fallen slightly.

In the 1970s, growth management policies were adopted to protect Oregon from what then Governor Tom McCall, a Republican, called the “grasping wastrels of the land.” McCall noted that “unlimited and unregulated growth leads inexorably to a lowered quality of life.”

While free market proponents continue to decry Oregon’s growth management policies as a potential drag on the state’s economy, current evidence strongly suggests that (in addition to other benefits) such “sensible growth” policies are instead stabilizing the state’s economy in a period of economic turbulence.

Northeast Ohio Mayors Set Sights on Shared Regional Prosperity

May 29, 2008

Frustrated by years of “go-it-alone” interregional competition for jobs and economic development, mayors from the 16-county Northeast Ohio region (including Cleveland) voted recently to pursue a new regional agenda. The plan will include a regional tax sharing agreement and joint land use planning.

This came on the heals of a new report, the Northeast Ohio Economic Revenue Study, authored by the Lorain County Community College and Amerigis, a private research firm led by regional-governance guru Myron Orfield. It found that the region’s cities and suburbs are overwhelmingly struggling with weak tax base, slow growth and growing social needs. Moreover, the way the region is currently growing means that these issues will only get worse.

Smart regional planning is crucial to Northeast Ohio; an area whose population is not growing, but is sprawling further and further from the central cities and inner-ring suburbs. Also, the study finds that tax sharing would allow two-thirds of the region’s residents to get better services at less cost. A portion of tax revenues (40 percent of property taxes and 20 percent of income taxes) from new commercial and industrial projects would be shared among the region.

The Twin Cities Metropolitan Region is a pioneer in regional planning with a regional governance system and a metro-wide tax revenue sharing agreement. Montgomery County, Ohio and Allegheny County, Pennsylvania also adopted revenue sharing agreements.

Flying-Car Company Looks to Taxpayers for Lift

May 27, 2008

Henry Ford and other pioneers of the horseless carriage relied on private financial backers to build their operations. Today, a company that has developed a flying car wants taxpayer help in literally getting off the ground.

The Boston Herald reported yesterday that a two-year-old company called Terrafugia Inc. plans to meet next month with the Massachusetts Office of Business Development to discuss a subsidy package for the company, which was founded by a group of MIT graduates. Gov. Deval Patrick has shown increasing interest in corporate giveaways lately. He was a strong proponent of the new refundable tax credit for film production, which my colleague Jeff McCourt recently blogged about here.

But the Bay State is not guaranteed to be chosen as the site for Terrafugia’s planned production facility. The Herald article mentions that two states with a history of boat making—Maine and Rhode Island—are also interested in bidding for the flying car firm, as are Texas and Michigan, the traditional home of the car business. The company, which prefers to call its retractable-winged product a “roadable aircraft” rather than a flying car, hopes to create some 500 manufacturing jobs by 2013, assuming the business takes off—literally and figuratively.

“I’d rather stay right here in Massachusetts,” Terrafugia’s CEO Carl Dietrich told the Herald, but “economics are economics.” Apparently, the actual cost of building the vehicles, which will sell for about $150,000 to $200,000, is less important than how much in the way of public money can be obtained.

The Man Without a Plan, Uncle Sam

May 22, 2008

The man without a plan? That would be Uncle Sam!

 

It has been 20 years since cities started adopting clawbacks, often in the wake of plant closings, and they are everywhere today.

 

It has been 14 years since the living wage movement took off and today Job Quality Standards are found in most states’ development code and many cities’ and counties= contracts.

 

It has been 13 years since Minnesota enacted what was then a terrific disclosure law and half the states now disclose to varying degrees.

 

It has been 10 years since the Los Angeles Alliance for a New Economy won its first Community Benefits Agreements, that model has spread across the nation.

 

We are way past any dogma that these reforms are going to somehow “poison the business climate.”

 

Yet look at the pathetic state of the federal government=s main economic development agencies and programs:

HUD is in shambles, not just because of Secretary Jackson’s departure under an ethics cloud, but because its funding has been repeatedly cut and its staff demoralized so that it has grown irrelevant on the big issues of the day.

 

Did HUD avert the subprime scandal? Is HUD weatherizing millions of homes to curb global warming and help people deal with soaring energy prices?

 

Community Development Block Grants C HUD’s biggest urban aid program C lack basic safeguards, and they don’t require Community Benefits.

 

It is because of cutbacks in programs like Block Grants that city officials claim they must mortgage our future C that they must create TIF districts that impoverish our tax base and our schools for 15, 23, even 35 years.

 

The Department of Labor’s Workforce Investment Act also spreads money everywhere, but it lacks a firm Job Quality Standards requirement (although some local WIBs have attached them).

 

The same structural accountability problems exist with major Department of Commerce programs.

 

And as one newspaper exposé revealed, even the Agriculture Department spends billions for economic development, much of it fueling sprawl or favoring big businesses over small ones or subsidizing projects in wealthy areas that don=t need help.

 

There is one tiny office of the Environmental Protection Agency doing some terrific work on smart growth, but it is just one tiny office.

 

It is a big issue that Uncle Sam Has No Plan. According to estimates made in the mid-1990s, the federal government spends two and a half times more on “corporate welfare” than do all 50 states combined — about $125 billion per year C versus $50 billion for all the states.

 

As in the states, most of those federal dollars are uncollected taxes: tax credits, tax exemptions, bonus depreciation, and so forth. But we still don’t have specific details about who got what.

In my next blog: how Uncle Sam’s incomplete disclosure systems reveals only the tip of the iceberg.

 

 

 

 

North Carolina Group Calls for More Sunshine on Tax Breaks

May 15, 2008

The Corporation for Enterprise Development (CFED) is making hay with a new calculation that 90 percent of economic development spending in North Carolina last year was funded through tax incentives. That’s up from 77 percent in 1995/96. Moreover during the same period, the state’s outlay for economic development has about doubled, growing to $1.29 billion.

Tax breaks for economic development are huge in most states; it’s no exaggeration to call appropriations the tip of the iceberg and tax expenditures the bottom. However, since tax spending is often poorly accounted for, legislators often continue to approve more of it while cutting outlays to other programs, even when states struggle with deficits. In At What Cost? North Carolina’s “Budget” for Economic Development, CFED recommends increasing accountability standards for state tax expenditures.

CFED obtained the data from a one-time report released by Fiscal Research Division of the North Carolina General Assembly. CFED recommends that the state continue to publish these reports on a regular basis and adopt universal performance measures on which to judge all subsidy programs. To date, only a few states have institutionalized regular reports (called Unified Economic Development Budgets or UDBs) on spending line items for economic development, including the cost of subsidies.

However, several state watchdog groups have created their own UDBs. In Kentucky, the Mountain Association for Community Economic Development published an exemplary UDB in 2005. However, watchdog UDBs are not a permanent solution, since it is ultimately too much work for a non-profit and should be the states’ responsibility.

Goldman’s Rules in Rebuilding Lower Manhattan

May 13, 2008

While the rebuilding of Lower Manhattan after the September 11, 2001 attacks rarely makes national headlines these days, an article in yesterday’s Daily News reminds us how lopsided the negotiations are between New York’s economic development officials and major firms like Goldman Sachs. 

Goldman Sachs is moving its headquarters from one side of Lower Manhattan to the other, adjacent to the World Trade Center site on publicly owned property also known as Battery Park City. After plenty of politicking, construction is underway.  

The politicking goes back to shortly after 9/11 when the firm had concerns that its new entrance would be located at the entrance of a then proposed tunnel.  Not surprisingly, Goldman executives thought this could be a security risk.  When these concerns fell on the deaf ears of then-Governor Pataki in 2005, the firm did what any self-respecting, Fortune 100 Company that wants attention from economic development officials would do. It publicly threatened to relocate. 

In response the Governor took the tunnel off the table, created a timetable for the rebuilding, and along with Mayor Bloomberg tried to smooth things over with new subsidies which rose leaps and bounds from the initial proposal of $1 billion in post 9/11 “Liberty Bonds” to $1.65 billion in Liberty Bonds sweetened with cash grants and tax breaks. 

What the Daily News uncovered yesterday, updated today and was picked up by The New York Times is a provision found in SEC documents that taxpayers would be penalized possibly up to  $320 million if a timeline negotiated between officials and Goldman execs for rebuilding isn’t met. 

Over and over again, large firms like the ones “anchoring” Lower Manhattan’s rebuilding say tax breaks are not factors in location decisions. Subsidy watchers should not be surprised that Goldman took advantage of the lack of leadership in Lower Manhattan’s rebuilding by demanding more subsidies to get the attention of officials to address larger planning issues. 

 

 

Postcard from the Good Jobs First conference

May 7, 2008

If you are a researcher or campaigner concerned about economic development accountability, the place to be this week is the national conference of Good Jobs First outside Baltimore. Gathered here are activists who are seeking to remake the relationship between the public and the private sectors.

Some of the most impressive presentations came this morning in a plenary session put together by the Partnership for Working Families (PWF). Madeline Janis, head of the Los Angeles Alliance for a New Economy, and Phaedra Ellis-Lamkins, who runs the South Bay AFL-CIO and Working Partnerships USA, described remarkable changes that have taken place in parts of California. Union-sponsored non-profit organizations, working with community allies, are turning the tables on developers who used to have the red carpet rolled out for them. Now the right to build large subsidized projects is being made contingent on providing benefits to the community ranging from apprenticeship programs and living-wage jobs to affordable housing, more green space and air pollution abatement. Janis and Ellis-Lamkins seemed to be describing a parallel universe in which the common good takes precedence over monied interests.

Their themes were echoed later in a presentation by Cecilia Estolano, chief executive of the Los Angeles Community Redevelopment Agency, a remarkable public official who is converting the agency from what she said was a “cookie jar” for developers into a promoter of projects that bring about broad improvements in living standards.

The good news comes not only from California. For example, Deborah Scott of Georgia Stand Up recounted how her group cajoled local officials in Atlanta to provide for community participation in major development projects taking place adjacent to an old rail line ringing the city.

I was unable to attend the PWF workshops (one of five tracks) because I was giving presentations of my own — in my capacity as research director of Good Jobs First — in workshops on advanced research techniques relating to subsidies and corporate taxes. Joining me in the latter were Matt Gardner of the Institute on Taxation and Economic Policy, who told us how to unearth the real tax rates of major corporations (which are often well below what the company claims), and Michael Mazerov of the Center on Budget and Policy Priorities, who described his proposal to compel corporations to disclose abbreviated versions of their state tax returns.

This is only a sample of the provocative ideas swirling around this conference. Wish you could be here.

(This item is being crossposted on Dirt Diggers Digest.)

Stars in Their Eyes? Cost of State Film Subsides Soar, Along with Concern

May 2, 2008

After decades of taxpayer-funded “smokestack chasing”, many states are now trying to lure Hollywood film projects with big subsidies. In a remake of beggar-thy-neighbor competition, states in every region are matching and surpassing special tax breaks for the film industry. Meanwhile, as these tax giveaways become more common and so less effective, the actual economic and fiscal payoffs of this subsidy-driven competition remain in doubt.

Still, starry-eyed state officials have been rushing to launch new incentive programs to attract film productions, or extend or expand existing ones. The Michigan legislature recently fast-tracked a package of film industry subsidies, including a fully refundable 42% tax credit for production costs for Governor Granholm’s signature. New York recently tripled its film tax incentive to compete against Connecticut and other neighboring states.

The necessity and efficacy of film industry subsidies has become a dogma for their proponents in state government and in the film industry. Seeking renewal of the Illinois Film Tax Credit (a 20% rebate on qualifying in-state expenditures), Governor Rod R. Blagojevich recently touted a seven-fold increase of film industry spending in the state from a low of $23 million in 2003 to a record $155 million in 2007, while claiming 26,000 film project jobs in 2006.

However, Blagojevich did not report the cost of the state’s subsidies to the film industry, the quality and duration of the jobs created, or the tax revenues generated by film projects.

In fact, the number of critics of state film incentives seems to be growing. A 2006 analysis by the Federal Reserve Bank of Minnesota concluded that while such incentives are indeed popular, “neither will you find much evidence that, as a strategy, incentives do anything better than break even at the public box office.” While noting that film industry incentives do seem to bring film projects to states that have few, a Federal Reserve Bank of Boston study noted that they are also costly, particularly since film production does not generate significant economic activity in other business sectors.

Meanwhile, the high cost of film tax credits is becoming clearer. Massachusetts’s new refundable tax credit, which even reimburses unprofitable film companies with no tax liability, is expected to soon exceed $100 million annually. The chief economist of Louisiana’s state fiscal office describes the state’s film $50 million-a-year film credit as a “government subsidy program” whose costs exceed its benefits, while Connecticut and Rhode Island are reportedly re-examining the real costs versus benefits of their film subsidy programs. Cities like San Francisco hurt by competition from other regions are trying to find ways to support homegrown film producers. Perhaps these small steps towards rationality will eventually inspire other states and cities to restrain this particularly unprofitable interstate competition.

Taking Aim at the Big-Box Economy

May 1, 2008

Today’s guest blog is by Stacy Mitchell, author of the highly recommended book Big-Box Swindle and a keynote speaker at our conference next week.

Wal-Mart wants your rebate check. So does Home Depot. But spending it at a big-box store will only further gut the U.S. economy.

As these companies expand, they continue to decimate two pillars of the middle class: small business owners and unionized manufacturing workers. In exchange for all the family-supporting livelihoods they take away, the chains leave us with nothing but very low-paying jobs working in their stores.

It’s a raw deal and a vicious cycle of ever-widening working poverty.

Yet cities continue to welcome, and often subsidize, the construction of more big-box retail. This is not economic development. It’s more like economic colonialism. Studies show that only about 14 cents of every dollar spent at a big-box store stays in the local community —compared to about 50 cents of a dollar spent at a locally owned business.

The chains manage this feat of wealth-extraction by keeping local payroll to a brutal minimum, requiring none of the local services (such as banking, printing, accounting, etc.) that independent retailers need, and carrying virtually no products produced or grown anywhere near the store.

Perhaps most disturbing of all, the rise and continued growth of mega-retailers have been driven in large part by public policy: Billions of dollars in development subsidies for big-box stores. Massive tax loopholes that favor chains over local businesses. Diminished rights for workers and communities. Transportation and planning policies that mandate sprawl. An utter failure to enforce antitrust laws. And the list goes on.

Fortunately, there’s a growing and increasingly effective grassroots movement to withdraw government backing for big retailers and build an economy that supports the common good.

These are a few of the successes so far: Arizona passed a bill last year that bars subsidies for big-box stores and shopping centers. Several states have eliminated a major tax advantage for chains and more are weighing legislation now (including Massachusetts and Colorado). Maine recently enacted a landmark law requiring economic impact studies for retail development.

But perhaps the biggest success of all was that every one of these victories was made possible by exciting, and potentially powerful, new coalitions among independent business alliances and labor and environmental groups.

I’ll be talking about these exciting developments at next week’s Good Jobs First conference — a great forum for building and expanding these ties.


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