Archive for December, 2008

RAD-ical TIF Deregulation a Cause for Concern in NJ

December 17, 2008

or any city services, for that matter...New Jersey’s Revenue Allocation Districts (RADs—the Garden State’s version of tax increment financing) may soon undergo severe deregulation. Senate Bill No. 2299, passed by the Senate Economic Growth Committee, loosens up RAD regulations on multiple fronts. The proposed legislation expands the types of revenue that municipalities may direct within RADs, expands the types of areas eligible to become RADs, and eliminates the requirement that local finance boards approve RAD plans.

The bill expands the permissible sources for incremental revenues. Under the proposed RAD revisions, allowable revenue sources would encompass, among other things, (take a deep breath here) incremental payments in lieu of taxes, payroll and wage taxes, lease payments made to the municipality, sales and hotel taxes, 95 percent of the property tax increment, and income from operation of public facilities. (Full list available here.)

The bill would also allow the creation of RADs in “areas in need of rehabilitation” as well as redevelopment areas. Moreover, under the former RAD Financing Act, proposals were required to undergo two levels of approval—one local and one state. The proposed legislation eliminates the requirement that local finance agencies authorize new RADs. The staggering lack of municipal oversight over the financial impacts of new RADs allowed by the proposed bill is a dangerous turn for local finances. Especially so when one considers that the state legislative fiscal estimate of the bill’s effects on municipal revenue losses and gains is entirely “indeterminate.”

The legislation is supported by the New Jersey Business and Industry Association, the state Chamber of Commerce and the National Association of Industrial and Office Properties, all of whom know a good deal when they see one. “Now is not the time…to worry about upsetting apple carts or to be timid” with economic development strategies, said Senator Raymond Lesniak, chairman of the Senate Economic Growth Committee and the bill’s sponsor.

We’re not so sure about that. In the current economic climate, TIF is proving to be an unwieldy burden for many cities, especially those faced with tight budgets and outright shortfalls. According to Jon Shure, president of New Jersey Policy Perspective, a nonprofit research organization, “This is like going on a diet because you’re starving. While needs are growing, revenue will shrink. Once more, we’ll prove that giveaways are a poor substitute for building prosperity through public investment.”

“Smoking Gun” found in NYS Investigation of New Yankee Stadium

December 17, 2008

smoking-gun1Juan Gonzalez of the Daily News reports today that an investigation into the public financing of the new Yankee Stadium project by Assembly Member Richard Brodsky, (Chair, Committee on Corporations, Authorities and Commissions) has uncovered emails that show City officials inflated the land value under the new stadium, allowing the team to obtain a higher amount of tax-free bond financing.

This new revelation comes into play as Brodsky and Rep. Dennis Kucinich (D-Ohio) chair of the House Domestic Policy Subcommittee have been pushing the city to release all email exchanges among city agencies on the issue. This past summer, Brodsky reported that his initial investigation suggested that the city Department of Finance boosted the value of the land from $26.8 million to $204 million. 

While it would be out of character for Brodsky to end his quest for all the documents he’s requested, this newest finding he claims is the “smoking gun”.

But don’t think this recent news would cause city officials to reconsider a new round of public financing for the Yankees or the Mets. Yesterday, the New York City Industrial Development Agency posted a public hearing notice on a proposal to give the Yankees an additional $371 million in tax exempt financing (of which $111.9 million would be federally taxable) in addition to the $942 million approved in 2006. The Mets, which got $547 million at the same time the Yankees got their financing, are requesting $82.2 million more.

In the past few months, the new Yankee Stadium project has taken more twists and turns than any time since the project was announced in 2005.  In addition to this week’s news, other emails made public recently showed that City Hall considered withholding its support for public financing if the City didn’t get a luxury suite with free food.

The news of more giveaways to rich baseball teams at a time when Gov. Paterson proposed a doomsday budget yesterday, we hope, will encourage New Yorkers to make their voices heard at next month’s IDA hearing.

Foreign Auto Plants Have Received $3.6 Billion in Subsidies, Mostly from Southern States

December 15, 2008

Responding to many queries, Good Jobs First released its summary of state and local subsidies given to foreign-owned auto assembly plants, totaling $3.6 billion.

“As elected officials debate aid for the Big 3, taxpayers have the right to know the full extent of government involvement in America’s auto industry,” said Greg LeRoy, GJF’s executive director. “And while proposed federal aid to the Big 3 would take the form of a loan, the vast majority of subsidies to foreign auto plants were taxpayer gifts such as property and sales tax exemptions, income tax credits, infrastructure aid, land discounts, and training grants,” he said.

Honda, Marysville, OH, 1980, $27 million*
Nissan, Smyrna, TN, 1980, $233 million**
Toyota, Georgetown, KY, 1985, $147 million
Honda, Anna, OH, 1985, $27 million*
Subaru, Lafayette, IN, 1986, $94 million
Honda, East Liberty, OH, 1987, $27 million*
BMW, Spartanburg, SC, 1992, $150 million
Mercedes-Benz, Vance, AL, 1993, $258 million
Toyota, Princeton, IN, 1995, $30 million
Nissan, Decherd, TN, 1995, $200 million**
Toyota, Buffalo, WV, 1996, more than $15 million
Honda, Lincoln, AL, 1999, $248 million
Nissan, Canton, MS, 2000, $295 million
Toyota, Huntsville, AL, 2001, $30 million
Hyundai, Montgomery, AL, 2002, $252 million
Toyota, San Antonio, TX, 2003, $133 million
Kia, West Point, GA, 2006, $400 million
Honda, Greensburg, IN, 2006, $141 million
Toyota, Blue Springs, MS, 2007, $300 million
Volkswagen, Chattanooga, TN, 2008, $577 million

Total: more than $3.58 billion

* total of direct subsidies to all Honda facilities in Ohio
** includes about $200 million for expansions of Smyrna and Decherd plants

List does not include joint ventures with U.S. companies

These data, drawn primarily from contemporary media accounts, are very conservative. They do not account for inflation; some would be worth far more in today’s dollars. They do not include any estimate of subsidies granted to hundreds of foreign-owned auto supply companies that have located in the same areas, virtually all of which were also heavily subsidized. Finally, they do not reflect later news accounts, which often place higher subsidy values.

Good Jobs First is a non-profit, non-partisan research center promoting best practices in economic development and smart growth, based in Washington, DC, with offices in New York and Chicago.

Opposition Grows on Proposal to Cut Bond Transparency

December 9, 2008

In November we blogged about an IRS proposal that would lessen the public approval and transparency requirements states and localities must follow when they issue tax-exempt bonds for private economic development and housing projects. These bonds have been used for a variety of purposes involving affordable housing, nonprofit organizations (including hospitals),  and (in some cases) commercial firms, Wal-Mart warehouses, and private prisons. [This paragraph was updated on 1/23/09].

The following local and national groups joined Good Jobs First and Good Jobs New York in submitting comments against the proposal, either individually or jointly:

Center for Tax and Budget Accountability (Chicago, IL)

Citizens for Tax Justice (Washington, DC)

Coalition for the Homeless (New York, NY)

Community Service Society (New York, NY)

Develop Don’t Destroy Brooklyn (Brooklyn, NY)

Families United for Racial and Economic Equality (Brooklyn, NY)

The Fiscal Policy Institute (Albany, NY and New York, NY)

International Brotherhood of Teamsters (Washington, DC)

Law Office of Weinberg, Roger & Rosenfeld, on behalf of its Building and Construction Trades Clients (Alameda, CA)

Living Wage Coalition of Sonoma County (Santa Rosa, CA)

Metro Justice (Rochester, NY)

New Jersey Policy Perspective (Trenton, NJ)

New York Industrial Retention Network (New York, NY)

New York Jobs with Justice (New York, NY)

New Yorkers for Parks (New York, NY)

NYC Park Advocates (New York, NY)

Pratt Center for Community Development (Brooklyn, NY)

Service Employees International Union (Washington, DC)

Service Employees International Union, Local 32 BJ (New York, New York)

UNITE HERE (San Francisco, CA)

United Food and Commercial Workers Union, Local 1500 (New York, New York)

U.S. Public Interest Research Group (Boston, MA)

Willet, Daniel (Silver Spring, MD)

Working Families Party (NY)

Those listed above specifically challenged the following aspects of the IRS proposal, in addition to others:

1) Decreasing from two weeks to one the amount of time the public has to research an announced project and prepare testimony in support or opposition.

2) Allowing localities to proceed with no hearing at all if there are no “timely requests” to participate.

3) Limiting the information now made publicly available prior to a hearing by allowing for more general project descriptions.

[Updated on 1/21/09] A public hearing is scheduled for January 26 at 10 AM at the IRS. Anyone wishing to testify must submit an outline of topics to be discussed by December 29, 2008. Please contact us for more information.

Kansas City Forced to Bail Out TIF Districts

December 5, 2008

piggybank_sm11In Kansas City, subsidized development projects designed to pay their own way with “guaranteed” revenue streams are requiring local government bailouts and cash advances to stay afloat. The city—already strapped for cash and expecting a $60 to $80 million budget shortfall next fiscal year—just received more bad news for city finances. A recent memo addressed to the City Council and Mayor Mark Funkhouser projects a $9.3 million shortfall in tax revenue dedicated to debt service for tax increment financing (TIF), sales tax increment financing (STIF), and Super TIF projects in the city.

Of the fourteen development projects described in the memo, ten are failing to meet financial performance expectations. The underperforming projects include retail and hotel developments, parking garages and a manufacturing facility. The Power and Light TIF district alone is falling short of break-even revenues by $4 million. The city has no choice but to make up the difference in stopgap funding and appropriations from the city’s general fund.

Despite many warning signs (also here and here) Kansas City has continued to subsidize even development projects deemed “high risk” by its own Tax Increment Finance Commission. In addition to the problems of weakening tax increments, developers are encountering obstacles to obtaining private financing. The developer of Citadel Plaza recently turned to the city for a cash advance after losing private funding due to destabilized bond markets. With the support of Mayor Funkhouser (who, by the way, ran on a platform of reining in TIF abuse in the city) the council recently approved a $20 million cash advance for the project, in addition to the $40-plus million TIF funds already approved by the city.

We’re seeing headlines from all over the country describing troubled TIF districts. Cities and towns in Texas, Indiana, Illinois, Ohio and California, just to name a few, are being forced to foot the bill for TIF-ed projects that aren’t paying out as planned.

Given current economic conditions, you’d think local governments would reevaluate their heavy reliance on the taxpayers’ credit card to fund risky development projects. State and local financial outlooks for this year and next are abysmal and budgets will likely remain highly unpredictable for a while. It’s high time cities questioned the reasoning behind the long term diversion of sales and property tax revenues to subsidize private development, especially when they’re being forced to cut back on services to meet debt service on these projects. Plummeting tax revenues are wreaking enough havoc on local budgets without the additional financial burden of underperforming TIF districts. The use of TIF is risky under good circumstances, and may be completely untenable in the current economic climate.


Follow

Get every new post delivered to your Inbox.

Join 50 other followers