Archive for January, 2009

Messing with Subsidies in Texas

January 30, 2009

nobankroll2Two new proposed charter amendments up for public vote in Dallas this May should have developers a little anxious about their ability to secure large subsidies without public scrutiny. If successful, they have the potential to change the way Dallas does development.

First, the Dallas Right to Vote proposed charter amendment would subject all proposed development subsidies over $1 million to approval by public referenda. Private development affected by the amendment includes any “hotel, convention center, luxury residential condominium, or retail facilities, and/or infrastructure” serving any of these (with the exception of small retail development designed to service subsidized housing).

All grants, tax concessions or tax relief, authorizations of debt or debt instruments by the city to support the project, and the granting or below-market sale of city-owned land over $1 million will trigger a public referendum. This means tax increment finance districts and public improvement districts could face a public vote before receiving approval for financing. The petition drive to place the amendment on the ballot in May has already raised over 30,000 signatures.

The second charter amendment appearing on the ballot in Dallas this May concerns the financing of a proposed city-owned convention center hotel. Citizens Against the Taxpayer-Owned Hotel has already submitted 60,000 petition signatures to the city in order to prompt a referendum that has the potential to obstruct public financing for the $550 million, 1,200 room hotel. The hotel’s ground breaking is scheduled for April. Dallas Mayor Tom Leppert supports the hotel and believes the referendum will have no effect on its construction. The legal outcome of a successful referendum on hotel financing has not yet been determined, but Citizens Against the Taxpayer-Owned Hotel has not ruled out a future lawsuit. Interestingly, there is no affiliation between Citizens Against the Taxpayer-Owned Hotel and Dallas Right to Vote, according to Anne Raymond, an organizer for the former group.

This November, we reported on the failure (by a narrow 4% margin) of a proposed charter amendment in Austin, Texas known as Stop Domain Subsidies that would have prohibited the use of subsidies to incentivize new private retail development in the city. This spate of recent voter-led policy initiatives in Texas indicates a shift in the way that voters perceive private development subsidies. At a minimum, it indicates a growing public awareness of the use of taxpayer dollars in economic development deals. Our experience tells us that when subsidized development is subject to public vote, it rarely receives approval. Democratizing the development process results in greater accountability and fewer dubious deals.

Report Calls Endless Tax Incentives for Retail Expansion A Losing Strategy for St. Louis

January 28, 2009

Dead Mall Despite years of diverting massive amounts of public revenue to private development throughout the St. Louis region, a new study by the East-West Gateway Council of Governments finds these tax expenditures have done little more than redistribute retail sales and low-wage jobs around the region. Over the last 15 years, local governments have doled out more than $2 billion to developers through tax increment financing (TIF) and special tax districts. Knowledge of the full impact of tax expenditures is limited by poor data reporting. From what is known, these expenditures result in a zero-sum competition between neighboring communities. The study concludes: “Focusing development incentives on expanding retail sales is a losing economic development strategy for the region.”

East-West Gateway has been designated by state and federal agencies as the metro planning organization for the region. This latest report is aa work in progress, commissioned in early 2008 by the East-West Gateway Board of Directors, a group made up of local elected officials. The Board authorized the study to examine the effectiveness of local development incentives, out of concern for the long-term economic health of the region and the fiscal well-being of local governments.

The authors of the report said their ability to analyze trends was limited by a lack of transparency and accountability in the reporting of revenues, expenditures, and outcomes in all tax incentive programs. Tax abatement data was so incomplete that it was not included in this report. Given more information, the report estimates that tax abatement totals “could easily double” the $2 billion attributed to TIF and special tax districts. In most cases, the authors observed weak penalties for failing to report expenditures and economic outcomes, thereby providing little incentive to improve record keeping. The report recommends immediate legislation to require uniform full disclosure.

The report found that 80% of TIF and special tax district incentives were used to build new shopping centers. However, retail jobs have increased only slightly, and taxable retail sales have remained stagnant for years. A mere 5,400 new retail jobs were created in the region between 1990 and 2007. This translates to local governments spending $370,370 in tax incentives per retail job created. This number is staggering, the report notes, considering annual wages for retail jobs in the area average just $18,000.

The overall message of the report is that the principle effect of diverting tax revenues to expand retail operations has been a losing strategy for the region, resulting merely in the redistribution of retail sales and jobs, rather than expansion.

Cooper Tire’s Novel Approach to Subsidy Competition: Pay to Survive

January 23, 2009

In a grim variation of the subsidy game that may become more common in a tanking economy, Cooper Tire last month successfully squeezed over $66 million in subsidies for plants in three states, pushed down union wages and benefits, and eliminated one plant altogether.

Cooper Tire announced in October that it would close one of its four U.S. plants. It then “invited” employees and state and local governments in the different locations to help it decide by offering worker concessions and public subsidies.

The plants pitted against each other were in Tupelo, Mississippi (1200 workers), Texarkana, Arkansas (1,400 workers), Findlay, Ohio (1,100 workers), and Albany, Georgia (1,400 workers).

Mississippi moved quickly to offer Cooper Tire state and local subsidies worth more than $36 million, mostly in workforce training and infrastructure improvements. Some press reports suggested Mississippi’s speed in offering a subsidy package put pressure on the competing sites, especially the unionized ones.

The Findlay and Texarkana plants stayed open after new agreements with their United Steelworkers bargaining units were reached. The locals made significant concessions on wages and on employee contributions to health care costs, in each case worth $30 million over 3 years. The Tupelo and Albany workforces are not unionized.

In addition to worker concessions, the company received $2 million from the Arkansas Governor’s “quick action” closing fund; a 6.5 percent sales tax credit for capital improvements; a five-year, two percent income tax credit for and a 10-year, five percent rebate on payroll for new employees. Cooper Tire received $28.5 million in tax credits, grants and loans from Ohio state and local governments. Georgia reportedly offered $32 million in incentives in an unsuccessful bid to sustain the Albany facility.

In December, Cooper announced the Albany plant would close, with the three surviving plants adopting a “24/7” production schedule that the company said might lead to further hiring. The comparative weight of subsidies, union concessions, and other factors in Cooper Tire’s decision was not clear, although Cooper Tire’s 2006 conversion of its Arkansas factory into a “flex” plant more adaptable to production increases and decreases may have helped it survive.

Cooper Tire CEO Roy Armes called the Albany plant’s closing a “difficult decision,” but said it would “allow Cooper to optimize our global footprint and capitalize on current and future market opportunities.”

Mississippi officials and press treated the survival of the Tupelo plant as a consolation for the indefinite delay of production at Toyota’s nearby Blue Springs plant, for which Mississippi has pledged $323 million. A Jackson Clarion-Ledger editorialist saw the Georgia plant closing as warning states not to forget existing companies while chasing new ones.

But the real lesson is how easily Cooper Tire could compound the pain of a plant shutdown in one state by extracting wealth from workers and taxpayers in three others.

New York Baseball Teams’ Win Is Taxpayers’ Loss

January 23, 2009

Last Friday, just one day after a heavily attended public hearing, the New York City Industrial Development Agency (IDA) approved hundreds of millions of dollars in additional tax-free bonds for new stadiums for the New York Yankees and New York Mets. Adding in the subsidies approved in 2005, this brings the total public cost of the new Yankee Stadium well above $1 billion and the Mets’ new Citifield Stadium to over $600 million.

The IDA’s approval came despite increased media attention and new opposition to the city’s deal with the Yankees. Over the past several months, the Yankees’ plea for more public assistance has been met with increasing opposition, extending well beyond those of us who have long been demanding more transparency to the public giveaways for the new Yankee Stadium project.

After receiving wide support from New York City’s daily newspapers in 2005, criticism of the project has grown among major media sources. While The New York Times had been mostly silent on the public finances of the stadium subsidies, last week its editorial board called on the city to renegotiate the Yankees deal before providing the team with more financing. And reporters who have long been critical of the project, like Juan Gonzalez of the Daily News, joined Neil deMause and Patrick Arden to continue to question the additional subsidies. Gonzalez even had extra fodder when project documents revealed that the Yankees wanted more money for improved video boards, suite upgrades and “fancy johns.”

Two New York politicians who initially voted in favor of the Yankees project also stand out: State Assembly Member Richard Brodsky, whose recent sparrings with city officials and the Yankees’ Randy Levine has garnered wide attention, and New York City Comptroller William C. Thompson, Jr. Last year, Assembly Member Brodsky joined U.S. Representative Dennis Kucinich, chair of the Domestic policy Subcommittee, in investigating the financing scheme that allowed the city to provide the Yankees with $942 million in tax-free bonds in 2006. And more recently, Comptroller Thompson, a member of the IDA’s Board of Directors, spoke out against additional subsidies for the Yankees. In deviating from standard IDA practice, where the Board unanimously approves most proposals before it, Comptroller Thompson voted against additional financing for the Yankees.

While it was refreshing to see IDA board members debate at last Friday’s meeting, it’s disconcerting to those of us concerned with transparency and accountability that the projects moved forward. One of the many reasons is that Representatives for the Yankees and Mets each made presentations during the hearing, though by the IDA’s own rules comments in favor or opposition to projects are limited to public hearings.

Despite increasing opposition to public financing for the new Yankee Stadium, the city has continued to let the Yankees play by their own rules.

Transparent Intentions

January 22, 2009

obamaIn some of its first official acts, the Obama Administration has set the hearts of disclosure advocates atwitter at the prospect of a new era of open government. “For a long time now there’s been too much secrecy in this city,” said the new President. “Transparency and rule of law will be the touchstones of this presidency.”

After issuing a memorandum on openness and an executive order repealing restrictive Bush Administration policies on the release of government records, including those relating to former presidents, Obama said: “Starting today, every agency and department should know that this administration stands on the side not of those who seek to withhold information, but those who seek to make it known.”

Transparency will be an issue in some of the administration’s largest initiatives, especially the $800 billion or so that will be spent for economy recovery. The signs there look promising as well. The 258-page text of the proposed American Recovery and Reinvestment Act of 2009 posted last week by the House Appropriations Committee includes some impressive provisions on disclosure. The bill calls for the creation of a special website called Recovery.gov “to foster greater accountability and transparency in the use of funds made available in this Act” (Section 1226).

Aside from general material on the stimulus program, the site is supposed to include detailed data on all contracts awarded and grants issued. However, the bill does state that “proprietary data that is required to be kept confidential under applicable Federal or State law or regulation shall be redacted before posting” (Section 201). Given the restrictive practices in some jurisdictions, this will require some watching.

Another provision of the legislation would create an Accountability and Transparency Board chaired by the President’s Chief Performance Officer (a new position created by Obama). The main aim of the board would be to “prevent waste, fraud and abuse,” but it would also be charged with overseeing practices regarding the reporting of contract and grant information. (Sections 1221-1225). Finally, the bill would require reporting on “the number of jobs created or sustained by the Federal funds…including information on job sectors and pay levels” (Section 12001).

If these provisions survive in the legislation that passes Congress, they will make the recovery act vastly more transparent than the bailout program carried out by former Treasury Secretary Henry Paulson in recent months. The need to bring some openness to the bailout was expressed by Timothy Geithner, Obama’s choice to succeed Paulson, during his confirmation hearing this week. Although most of the hearing was taken up with Geithner’s personal tax fiddles, the nominee declared that the Obama Administration intends to “fundamentally reform” the bailout program with “tough conditions to protect the taxpayer and the necessary transparency to allow the American people to see how and where their money is being spent and the results those investments are delivering.”

This is what watchdog groups have been demanding since the bailout first started. Last month, more than 75 organizations led by Open the Government.org and the National Taxpayers Union sent an open letter to Congress demanding bailout transparency. They are now planning to relaunch that effort.

So far, the Obama Administration is saying all the right things about transparency and accountability, but it has a monumental task before it to make truly open government a reality. We need to make sure it does not cut any corners.

This item is being crossposted on our sister blog Dirt Diggers Digest.

Advice to Obama: How to Make the Recovery Plan Accountable and Strategic

January 8, 2009

To: President-Elect Barack Obama
From: Greg LeRoy, Good Jobs First ~ 1/8/09
Re: The American Recovery and Reinvestment Plan

While honing plans for the biggest recovery stimulus since the New Deal, you and your team have sent some great signals. You’ve said it cannot be structured as patronage “pork,” and that it must not include earmarks. You spoke of transparency today and Vice President-Elect Joe Biden has reportedly said you want a Web-based disclosure system to track the spending.

I applaud such change, and offer here some specific ways—drawn from proven state and local precedents—you can really scrape the rust off of Uncle Sam’s economic toolkit.

Make Spending Hyper-Transparent on the Web: I assume that you really don’t want the public a year from now to hold your Recovery Plan in the same contempt they have for Treasury Secretary Paulson’s bailout debacle. The solution: a Web-based disclosure system that reports where the money is going and what states and localities doing with it.

You can do this by simply augmenting the existing platform at www.usaspending.gov. That’s the website created by a bill you co-sponsored in 2006 with John McCain and others. For the Recovery Plan, disclosure needs to go deeper into sub-grantees and sub-contractors, and it needs to cover outcomes: jobs created, wages and benefits paid, and the demographics and neighborhood locations of the workers who get the jobs. Look to Illinois for a model website; it was created by a 2003 bill that you voted for as a state senator—and that Gov. Rod Blagojevich signed, for free!

Let’s face it: some of the governors and mayors you’ll be writing large checks to are not exactly known as good-government types. A web-based system enabling taxpayers to see where their money is going will empower citizen watchdogs to keep the pressure on state and local officials who will control much of the money—and on private contractors.

Give People the Transit They Demand: Americans are stampeding with their feet—and their bond-vote dollars—to demand more and better public transportation. Since the Recovery Plan won’t be funded with gasoline-tax money, you are not bound to have road-building take up more than four-fifths of the Plan’s transportation budget. Spending a third or more on transit, bikeways and pedestrian improvements will give people what they want—while reducing greenhouse gas emissions and improving America’s physical fitness.

It’s also a potent strategy for economic opportunity: too many carless families (who are disproportionately of color) are prevented from competing for jobs located beyond transit lines. And with the cost of owning a car approaching the cost of housing for lower-income families, making more jobs transit-accessible will be a huge cost-of-living benefit.

Build and Retrofit Everything Green, Public and Private: About two-fifths of greenhouse gas emissions come from the built environment, so building and retrofitting public facilities to green standards offers more job creation and climate change benefits. To their credit, some federal agencies are already building to the U.S. Green Building Council’s Leadership in Environmental and Energy Design (LEED) standards and you’ve set a new goal of modernizing three-fourths of federal buildings.

But for real progress, you need to use the leverage of Recovery dollars to green private-sector construction: every private structure that gets subsidized in any way by Recovery Plan dollars should be built or retrofitted to LEED (or equivalent) standards. This is hardly radical; it is simply getting private property owners to act in their own self-interest (and the planet’s). Green Building Council members report break-even on retrofit costs in just two to three years.

Retrofitting is the lowest-hanging fruit for energy efficiency. Just ask Larry Summers: his Harvard revolving loan fund to retrofit campus buildings returned a whopping 35 percent annually—more than twice the University’s endowment!

Fix It First and Favor Mixed Use: All infrastructure spending is not equal. A “Fix It First” agenda that gives top priority to repairing existing roads, schools, and bridges will create many more construction jobs than building new ones. When you partially demolish something and then rebuild it, without having to buy new land, you devote much more money to work-hours. And in the case of highway repairs, the Transportation Equity Network has also shown that you can create more jobs for African-Americans who have been historically underrepresented in construction workforces.

You should structure some of the Recovery funds as a competitive pot explicitly designed to favor mixed use, affordable housing, and transit access. Take as a model California’s Infrastructure and Economic Development Bank. It rates applications to its Infrastructure Revolving Fund to give strong preference to projects that are located in already-developed areas with high unemployment or low income, include affordable housing and services such as day care or health care, and are accessible by public transit.

By forging a truly accountable and strategic Recovery and Reinvestment Plan, you can prepare America for major improvements in all the federal jobs, housing and transportation programs to be reauthorized over the next four years.

Greg LeRoy directs Good Jobs First, www.goodjobsfirst.org, and co-authored its “Uncle Sam’s Rusty Toolkit” and 2003 study that informed the Illinois disclosure law.


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