Archive for August, 2010

Misrepresenting Small Business

August 31, 2010

That’s the title of Stacy Mitchell’s terrific new op-ed in Business Week, subtitled “The two groups that have traditionally spoken for small business often push an agenda that only big business could love.” Citing recent legislative debates, she calls out the National Federation of Independent Business (NFIB) and the U.S. Chamber of Commerce for claiming to represent small business while actually carrying water for the Fortune 500.

Mitchell’s argument is consistent with my own experience in economic development. I remember years ago watching a board member of the U.S. Chamber of Commerce address a national gathering of state and local economic development officials. For the first five minutes of her speech, I thought I had misheard where she came from: she sounded like a crusader for family-owned businesses. But then in a seamless sleight of hand, she turned to the meat of her talk, which was all very Big Business: issues such as free trade and deregulation. Feeling like I had just seen how a magician managed a trick, I looked around, but no one else seemed bothered.

If a state adopted a policy that helped a big business undermine small businesses, you’d think NFIB would complain, right? Well, we here at Good Jobs First have documented $1.2 billion in state and local economic development subsidies benefitting Wal-Mart (state law enables subsidies to predatory big-box retailers). Yet even though NFIB counts many small retailers—read Wal-Mart road-kill—among its members, I have only seen one NFIB chapter opine about big-box subsidies.

Mitchell’s op-ed coincides with a raft of criticism about the U.S. Chamber of Commerce. In the past year, as chronicled at U. S. Chamber Watch, its actual membership base has been revealed to be about one tenth of what it claimed. Some state and local Chambers have distanced themselves from the national body, as have several large corporations.

When more small businesses organize and stand up for fairer treatment in economic development and tax policy—as they sometimes do in groups such as the American Independent Business Alliance, the Business Alliance for Local Living Economies, and the Main Street Alliance —taxpayers will benefit.

Right questions, wrong decisions on subsidies for big firms in NYC

August 5, 2010

Deloitte has an office in the city's municipal building on the same floor as the City Comptroller

At the New York City Industrial Development Agency’s public hearing last week, two proposals generated notable controversy: one to bestow millions in tax breaks on Big Four accounting firm Deloitte LLP, and another to revive a subsidy agreement from 1998, still worth millions in unused credits, for information services giant Thomson Reuters. This past Tuesday, the IDA board approved both projects, but not before a handful of board members engaged in a robust dialogue with IDA staffers, especially on the Thomson Reuters proposal.

The Deloitte proposal could have benefited from an even more vigorous discussion. For one thing, it smells like the same old game in which companies pit states and regions against each other in bidding wars for investment. As an IDA staffer explained, the agency “took seriously” a “threat” that Deloitte would leave the city for “other opportunities,” namely New Jersey. (Deloitte LLP plans to use the subsidy to help pay for moving its headquarters from one highly prized Manhattan office location—midtown—to another—Lower Manhattan.) And yet IDA staff also reassured the board that the proposal wasn’t about retention, but about growth. As EDC President Seth Pinsky stated, Deloitte will get no benefits until it increases its employment numbers within NYC. (more…)

Bay State Joins Transparency Bandwagon

August 4, 2010

MassPIRG, Common Cause Massachusetts, and One Massachusetts recently scored a major victory for spending transparency.  Two major reforms were enacted with the passage of the state’s FY2011 Budget.  The first is the creation of a checkbook-style “Google government” transparency site for the state that will allow citizens to view and monitor state spending by public and quasi-public entities.  The addition of this transparency site to Massachusetts’ contract disclosure site and its Recovery Act transparency site creates a strong foundation for enhancing spending accountability.

The second reform enacted with the state budget is the requirement that the new transparency site disclose the names of recipients of certain types of business tax credit subsidies.   Refundable tax credits (credits for which any amount exceeding the recipient’s tax liability is issued as a cash grant) and salable and transferable tax credits (credits that may be sold or transferred to other business entities when their value exceeds the original recipient’s tax liability) will be more transparent under this new law.

Among the business subsidy programs that will now be publicy disclosed in Massachusetts are brownfields tax credits, film tax credits, refundable research credits, and the controversial Economic Development Incentive Program tax credit.  The names of recipients of these credits, the value of the credits, and the date that the credits are issued must now be disclosed on the new spending transparency site.

With this reform, Massachusetts joins Missouri, New Jersey, Pennsylvania, and a host of other states already benefiting from the increased accountability company-specific disclosure brings to state economic development spending.  We look forward to more transparency and accountability reforms as Recovery Act transparency practices continue to influence state spending.

Congratulations to MassPIRG and its allies on their great victory for transparency.   Good Jobs First is currently in the process of updating its 50-state evaluation of state economic development subsidy disclosure practices.  We look forward to sharing our findings this fall.  In the meantime, see Naming Tax Credit Names for a list of states that disclose the value and recipients of corporate income tax credit job subsidies.

Recovery Act Job Reporting Problems Persist

August 1, 2010

The fourth round of Recovery Act recipient data (covering the second quarter of 2010) has just been posted on Recovery.gov, and the numbers are again perplexing. The issue I’ve written about before — the large number of recipients putting a zero in the jobs column — endures, but first I want to address problems relating to those who do cite an employment impact of their ARRA contracts and grants.

The somewhat good news is that the total number of full-time-equivalent jobs associated with the forms of ARRA spending covered by the recipient reporting system rose to 755,000 from 682,000 during the previous quarter. Yet that gain of 73,000 jobs didn’t put much of a dent in the 14 million-person army of the unemployed.

An examination of the spreadsheets underlying the totals reveals many more frustrating trends. The first is that just one of ARRA’s scores of programs accounts for a disproportionately large share of the jobs. The State Fiscal Stabilization Fund (SFSF) accounted for 306,000 of the jobs, or 40 percent of the total. The problem is not with SFSF itself, which has done an important job in helping state governments weather the economic crisis, thereby allowing many public employees to keep their jobs and not swell the ranks of the unemployed.

Rather, it is the fact that just about everything else has been disappointing. Of the 73,000 grant and contract recipients providing employment numbers, 67,000 report fewer than 100 jobs. Scrolling through the spreadsheets, one is confronted with the dismaying sight of thousands of recipients reporting trivial numbers of jobs. Nearly 15,000 recipients report only a fraction of one job, down to the absurd listings for .01 jobs.

The average number of jobs per recipient is only about 10 — while the average amount of ARRA funding recipients have already gotten is $1.1 million. Excluding SFSF, the jobs average falls to about 6. Overall, the cost per job (in terms of ARRA funds already received) for non-SFSF programs is about $117,000, while for the dozen states with the highest SFSF numbers, the cost is only $72,000.

There is also a significant difference between grant recipients and contract recipients (the latter refers only to those working directly for the federal government). For grant recipients overall, the cost per job is $103,000, while among contract recipients it is $159,000. While some of the grant money ends up being used by states to award their own contracts, the discrepancy suggests that states do a better in creating job with their ARRA money than do federal contractors.

This brings us to the issue of the zero-job reporters. As in previous quarters, a large number of recipients (some 24,000) claim that their employees performed no work at all in connection with their ARRA grant or contract. Many of these projects have not yet started work or are not very far along. If we exclude those whose status is listed as “not yet started” or “less than 50% completed,” we are left with 9,298 recipients. If we then exclude those reporting they have not yet received any ARRA funds (which is hard to believe when a project is at least half done), then we are still left with 8,566 zero-job reporters. This is up from 6,806 in the previous quarter.

What are we to make of the large number of ARRA recipients claiming either no jobs at all in connection with their contracts and grants or a microscopic employment impact? There are at least three possibilities.

The most benign is the matter of timing. Some of the projects reporting low job numbers are just getting started, even though we are well into the second year of the Recovery Act. Others may have already been completed before the last quarter or were winding down during that period, causing them to have few jobs to report. (The employment reporting is not cumulative.)

A more serious issue is the possibility that many recipients still do not understand the rules for job reporting. There was considerable confusion over the original regulations, which required recipients to calculate jobs created and jobs retained, so the Office of Management and Budget adopted a new system. Recipients are now supposed to tally all hours of work associated with ARRA projects, even if the position is not a new or retained one. It appears that many of them are still mixed up and are reporting unrealistically low numbers.

Finally, there is the possibility that many ARRA recipients are demonstrating the same inclination seen among U.S. employers in general these days: In the face of economic uncertainty, they are minimizing their hiring. In doing so, they are thwarting the intended job creation aspect of the Recovery Act.

When ARRA was first being debated, many critics charged that all that government spending would be rife with waste and fraud. That does not seem to have materialized on a significant scale, but perhaps we need an investigation of whether many employer recipients are abusing the Act by not using the funds to put more people to work.


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