Archive for June, 2009

Will the Stimulus Be Frittered by Job Wars Among States?

June 30, 2009

In a perversion of President Obama’s intentions, there are troubling signs that the “economic war among the states” is threatening to fritter away the stimulus act.

If ever there were a time for the states to stop using taxpayer funds to chase smokestacks (and big-box retail and biotech and sports franchises and…), it would be now. Suffering their biggest budget deficits in decades, states have been slashing everything from healthcare for poor children to services for seniors.

Recovery Act dollars have staunched some of the bleeding: dozens of vital public services are being propped up by the Recovery Act’s $177 billion in fiscal relief, plus $129 billion for safety net aid and training, plus $62 billion for energy and environment, plus $48 billion on transportation, etc.)

Surely, President Obama does not intend for the states to take these funds, turn around and dole out massive giveaways to sweepstakes competitions or for job piracy. Yet despite state budget woes, companies still feel entitled to game the system, and the states are passively returning to jobs wars as usual.

Consider these familiar story lines: a company “whipsaws” states against each other for a massive subsidy package; a state reacts to “losing” a competition by announcing it is enacting costly new giveaways; a local government makes a big gaffe and asks for Recovery Act dollars for a job-consolidation deal; and a state cynically labels a giveaway to developers as the “Economic Stimulus Act of 2009.”

  • The Recovery Act includes $2.4 billion from the Department of Energy for the development of hybrid lithium-ion automotive batteries. A multi-company consortium, NAATBat, gets six states to compete for a 2,000-worker facility, and Kentucky “wins” in April with a package valued at $200 million, or $100,000 per job (before the DOE grant).
  • Michigan responds to this news the next day with $555 million worth of subsidies for several battery facilities. Soon the governor of blames his Senate for the loss of an expansion to Michigan, saying it failed to enact enough subsidies.
  • Multinational NCR (formerly National Cash Register) pits a few states against each other for its 1,250 headquarters jobs; the company has been based in Dayton, Ohio for 125 years. Georgia “wins” with a bid valued at almost $100 million; the jobs will move to the Atlanta suburb of Duluth. Ohio officials of both parties sharply criticize the move, saying NCR never gave them a serious chance for retention.
  • To qualify for Georgia’s “Mega Job Tax Credit,” NCR simultaneously announces it will consolidate more than 800 ATM manufacturing in Columbus, Georgia. The jobs will apparently come from multiple locations (perhaps including some from overseas). In a major gaffe, local officials ask for about $5 million in Recovery Act monies as they prepare a vacant plant for the deal.
  • GM (majority-owned by U.S. taxpayers and the beneficiary of almost $21 billion in TARP funds) approaches the governor of Tennessee seeking $200 million or more in “front-end money” to produce a new small car in Spring Hill, Tennessee (pitting it against Janesville, Wisconsin and Orion Township, Michigan). To his credit, Gov. Phil Bredesen complains publicly about the cost and the front-loading. (But then, the Volunteer State set a new record last year for auto assembly-plant subsidies when it awarded Volkswagen a package worth $577 million.) GM chooses Michigan.

Finally, New Jersey: a bill there would create the nation’s most radical Tax Increment Financing (TIF) law, and it was cynically named the Economic Stimulus Act of 2009. The bill, apparently headed soon to Gov. Jon Corzine’s desk, would subsidize developers by allowing the diversion of 22 different revenue sources—that is not a typo, yes 22 revenue sources. Yet the bill has no fiscal note estimating its cost, and the state does not comply with its law requiring disclosure of such giveaways. So taxpayers won’t be able to see how much money is taken away from schools and other public services.

The issue here is simple—money is fungible—so federal taxpayers have every right to question states throwing around such huge sums of it.

In most cases, the connection between Recovery Act dollars and sweepstakes subsidies is one step removed. Most states and cities got that memo long ago: use your own money when pirating jobs from one another, so that technically, legally it cannot be claimed that Uncle Sam is directly paying for interstate job piracy. And with Recovery Act dollars flowing through dozens of state agencies, direct connections are blurred.

But because money is fungible, states are more able to grant these giveaways because the Recovery Act has partially stabilized their coffers.

Cynics might say: what should we expect? Federalism means it is okay for large, footloose corporations to play states and cities like a fiddle so that small businesses and working families get stuck with higher taxes and lousier public services. (And home rule means it is okay for companies to do the same thing to cities and suburbs, fueling sprawl and stretching local tax bases so thin they become unsustainable.)

My cease-fire proposal: the U.S. Chamber of Commerce and the National Governors Association should jointly announce for the next two years, as the Recovery Act plays out, a moratorium on the economic war among the states. To borrow a phrase from Seattle activists: It’s Time for More Important Things.

President Obama: don’t let your Recovery Act investments get frittered away by corrosive, zero-sum, unbridled federalism!

Enterprise Zones Have No Net Effect on Employment in California

June 24, 2009

This month, the Public Policy Institute of California released a study that describes the economic impacts of the state’s Enterprise Zone program.  Its findings:  “…the program, on average, has no effect on job or business creation.”  That’s a tough break for the California Association for Local Economic Development, whose members proposed expanding the $500 million program to help stimulate the state’s economy.  The study’s conclusions shouldn’t be a surprise, though.  Other studies around the country have found that Enterprise Zone (EZ) programs are poorly managed and often stray from their original intent to incent job and business creation in disadvantaged urban areas.  In the Chicago area, EZ tax credits have actually contributed to greater metropolitan inequality.  New York is in the process of attempting to rein in Empire Zone companies that for years have failed to meet basic program requirements.  A forthcoming Good Jobs First study shows that many companies in two of Ohio’s largest metropolitan areas simply move from zone to zone to reap the benefits of EZ subsidies.

At a time when state and local budgets are stretched to the breaking point, results-oriented economic development should be a priority.  States and cities can make every dollar count by investing in schools, fixing infrastructure, and creating quality workforces.  More tax giveaways won’t generate consumer demand for goods and services – they’ll only further damage budgets.

Praying for Yet More Guidance

June 23, 2009

Recovery logoThe wait is over. The Office of Management and Budget has released the long-awaited new version of its reporting rules for recipients of Recovery Act funds. In addition to the 41-page memorandum, there is a 13-page list of programs covered by the rules and a 52-page supplement that describes the data model in excruciating detail. These guidance documents do not directly apply to contractors working directly with the federal government, but they do cover grant recipients (including state government agencies) and their sub-recipients and contractors.

The good news is that OMB has given greater clarity to the responsibilities of prime recipients when it comes to the flow of dollars and the creation of jobs. The primes must report detailed data on their own activities and those of their immediate sub-recipients, though they may delegate reporting to the subs. All the information will be collected through an input portal at www.federalreporting.gov and then will make its way to the Recovery.gov site that will provide for public access.

The not-so-good news is that the reporting system seems to extend only to first-level sub-recipients. That means that if a state agency (prime recipient) gives a contract to a company (sub-recipient) which then awards sub-contracts to various other firms, the data on those subcontractors might not get reported. The Coalition for An Accountable Recovery and States for a Transparent and Accountable Recovery have pushed and continue to push for full reporting all the way through the money chain down to a cutoff level of $25,000 or so. And we believe that all the employers in that chain should report directly rather than leaving it up to higher-level entities. It is encouraging that the Recovery Act data system will be set up in a way that could accommodate more comprehensive reporting.

When it comes to job reporting, the new OMB guidance seems to put all the responsibility on the prime recipient and is unclear on the extent to which the prime has to collect thorough data from all the sub-recipients. It also seems that OMB is not imposing strict rules on how employers measure the number of jobs retained as a result of stimulus funding-and is willing to let them lump together jobs created and jobs retained. It can be tricky to come up with exact measures of retained jobs, but there are risks in leaving it up to each employer to decide how to make the calculation.

There are more technical issues that the CAR coalition will comment on soon. Overall, the new OMB document is a step forward but still far from the goal of full transparency. Apparently, we need to pray for more guidance.

(crossposted on the STAR Coalition blog)

Dueling Anecdotes are No Subsitute for Real Data

June 17, 2009

coburn coverThe stimulus anecdote war is escalating. This week Sen. Tom Coburn issued a report that is highly critical of some 100 specific Recovery Act projects around the country. The Oklahoma Republican uses these examples to bolster his argument that “Congress chose the wrong approach to stimulating the economy by spending money we don’t have on things we don’t need.”

Although Coburn claims these example were found “after a review of thousands of projects,” there is every indication that the research that went into the report consisted of little more than energetic keyword searching in media archives such as Google News to find articles about projects that could be easily mocked. For example: a tunnel under a highway designed to be used by turtles and the repaving of a backup runway at the little-used John Murtha Airport in Johnstown, Pennsylvania. This is the same superficial methodology that has long been used to ridicule projects funded by Congressional earmarks.

While members of the Obama Administration may be unhappy about Coburn’s report, they cannot legitimately complain about the way it was put together. The document seems to be meant as a rebuttal to another clip job — with an opposite message — that was issued by Vice President Joe Biden as a purported progress report on the Recovery Act.

Yet Ed DeSeve, Senior Advisor to the President for Recovery Act Implementation, fired back with a 19-page critique of Coburn’s  description of the 100 projects, claiming in most cases that the depiction was false or misleading — or that the project itself is “still under review.”

One interesting exchange concerned item number 73 on Coburn’s list: “Large federal contractors who have paid big fines for violating environmental, safety, and discrimination rules are receiving stimulus funds.” He then cites CACI International (profiled here), one of whose subsidiaries was the employer of civilian interrogators accused of involvement in torture and abuse of inmates at the Abu Ghraib prison in Iraq. DeSeve’s document ignores the question of CACI’s track recoprd and simply notes that it is “one of the 100 biggest federal contractors overall” and that the Forest Service stimulus contracts cited by Coburn are a tiny portion of its government business. This is apparently supposed to make any transgressions by the company irrelevant.

The cherrypicking of self-serving anecdotes from secondary sources — by either proponents or critics of the Recovery Act — is no substitute for real data. We are still waiting for the Office of Management and Budget to release its final rules on how federal agencies should collect data on Recovery Act spending and job creation. Assuming that those rules provide for thorough reporting, we can look forward to the day when debates on the effectiveness of the Act are based on a more solid foundation.

Crossposted on the STAR Coalition website blog.


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