Archive for March, 2011

New Yorkers Kept in Dark About Outcomes of Recovery Zone Facility Bond Program

March 31, 2011

Cover photo by Scott Lenger. Used with permission.

UPDATE April 7
After the release of our report, and as reported in Crain’s Insider last week, we have confirmed that New York City Economic Development Corporation officials agreed with one of our recommendations regarding transparency and are considering ways to update the agency’s website to better inform New Yorkers on the status of proposed projects.

A city entity charged with allocating $122 million in Recovery Zone Facility Bonds regularly announced preliminary approvals and held public hearings on projects but left New Yorkers in the dark when deals fell through according to new report released today by Good Jobs New York. The report: Kept in the Dark: Poor Reporting on New York City’s Recovery Zone Bond Deals exposes a confusing and un-transparent process that prevents New Yorkers from holding companies accountable for job creation. The report is available at www.goodjobsny.org.

“Despite historical changes in subsidy disclosure at all levels of government as part of the Recovery Act, the Recovery Zone Facility Bond Program fell dramatically short,” said Bettina Damiani director of Good Jobs New York and an author of the report.  “GJNY spent countless hours breaking down the byzantine approval process to determine which projects received these special bonds when basic details should be at every New Yorker’s fingertips.”

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1 in 5 Subsidies in Minnesota Fail, State Frequently Fails to Enforce Clawbacks or Disclose Subsidies

March 31, 2011

A new investigative analysis by two Star Tribune reporters, David Shaffer and Glenn Howatt, shows that Minnesota’s economic development subsidies often fail to create jobs, to be disclosed to the public or to undergo clawbacks if they fail to meet contract benchmarks.

Between 2004 and 2009, Minnesota taxpayers were put on the hook for 650 job-creation deals. Of those, 125 companies failed to meet benchmarks.

Despite failing to meet contractual obligations, Shaffer and Howatt found that the state skirted enforcement of clawbacks. Within the JOBZ program alone, a $33 million a year program pushed into existence in 2004 by former Governor Tim Pawlenty, 77 companies that failed to meet hiring goals were only forced to repay about four percent of the state tax breaks awarded. Worse, half the cities that should have reported on JOBZ subsidies failed to do so. A recent academic study published in Economic Development Quarterly found scant evidence of JOBZ’s impact on county-level economic growth.

Not only do these subsidies fail but the reporters discovered irregularities pointing to a lacking economic development strategy. The head of the Department of Employment and Economic Development admits the absence of goals. Subsidies to one company that failed to open a facility, Excelsior Energy, seem to be connected to large campaign donations to both parties. Another company received subsidies after pirating a patented idea from another Minnesota business. After losing a patent lawsuit and declaring bankruptcy, it got the state to give it a bailout. Woolen Mills, a wool blanket manufacturer in Faribault, MN, closed after subsidies inside the state kept it afloat while subsidies from the state of South Carolina encouraged it to take on a risky expansion. It failed, and the city of Faribault now seeks a $305,000 judgment from the former CEO. Arctic Cat, an ATV manufacturer, got subsidies in one Minnesota city after it promised to move its engineering team from another part of the state.

Economists have long known about these problems. Art Rolnick, the former Minneapolis Federal Reserve research director and now senior fellow at the University of Minnesota, has long opposed such subsidies. Many companies, he claims, would have expanded without government subsidies. The real problem, in his view, is that states and cities are playing a very flawed game stealing jobs from each other instead of investing in public goods that promote long-run economic growth like early childhood education.

Last year six economists, three from the University of Minnesota, urged the legislature to expand disclosure to economic development tax credits. No legislation has yet been introduced to correct that gap or the clawback problems or to cancel ineffective subsidy programs.

Stimulus Accountability: There’s An App For That

March 31, 2011

(This post originally appeared on the States for a Transparent and Accountable Recovery blog)

Thanks to the Recovery.gov website, the American Recovery and Reinvestment Act of 2009 (ARRA) has proven to be the most transparent federal spending bill in U.S. history.  Now all that data can literally be right at your fingertips.

A free Recovery Act application is now available for the iPhone and iPad, giving interested citizens the ability to instantly look up detailed information about stimulus projects in their community or wherever else they happen to be.  Indeed, with its GPS-based sensitivity, the app transforms your iPhone into a sensor for stimulus dollars, the ultimate tool for debating Recovery Act skeptics.  Like Recovery.gov, the new app includes a wealth of information including sections about project status, contractors and job creation, although the job figures continue to be problematic.

Perhaps the best thing about the app, which maps out every ARRA grant, loan and contract, is a feature that allows users to submit feedback and a photograph about specific projects.  That makes it easier than ever to report fraud, waste or abuse concerning Recovery Act funds, or just document a stimulus success story.

That’s a point Recovery.gov Director Mike Wood hammered home when I spoke with him recently.  Wood noted that the feedback feature is intended to be useful for people who “like [certain ARRA projects] or have complaints.”  He added that the app is part of Recovery.gov’s efforts to ramp up what they are doing with social media, giving citizens a new tool to engage in a “dialogue” about the stimulus with the government – and each other.

The idea to create an iPhone app to track stimulus projects originated with state employees in Arkansas, which developed the first state-based ARRA project search application for the iPhone in May 2009.  But the new app is more advanced and covers projects all across the country, making it a nice step forward for government accountability.

Bondholders of Yankee Stadium Garage Bonds Get Extra Innings

March 25, 2011

The April 1 deadline for the Bronx Parking Development Corporation to get its act together is no prank. Thanks to a glut of parking space at the new – subsidized to the hilt – Yankee Stadium, the parking garages, also subsidized to the hilt, have gone so unused the owners are struggling to pay its bondholders. It was widely reported that the $237 million in private activity bonds to finance the garage were going to default at the end of next week. However, today Juan Gonzalez at the Daily News reports that directors at the firm agreed to dip into its debt reserves (again) to pay the bondholders as well changes to its operations, like getting approval for expenses from an appointee chosen by the bondholders.
 
We can’t say New Yorkers didn’t see this coming.

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Report: Slashing Ineffective Corporate Subsidies Can Bolster State Budgets

March 21, 2011

Eliminating or reducing ineffective corporate subsidy programs can make a significant contribution to the efforts of state governments to address budget deficits, according to a report released today by Good Jobs First, a non-profit, non-partisan research center based in Washington, DC. The report, Slashing Subsidies, Bolstering Budgets, is available at www.goodjobsfirst.org.

“Billions of dollars are being wasted each year on subsidies that fail to deliver on their intended purpose of creating jobs and growing the tax base,” said Good Jobs First Executive Director Greg LeRoy. “That money could be put to much better use.”

The report presents ten case studies of wasteful programs that cost states a total of $2.8 billion per year (see below for the full list). “These are just a sample of the large numbers of subsidies that states could target instead of cutting vital public services such as education and healthcare,” said Philip Mattera, Research Director of Good Jobs First and principal author of the report.

The programs are plagued by problems such as:

Cost. Some of the programs cost state and local governments enormous amounts of money, in a few cases more than half a billion dollars a year. For example, Louisiana’s Industrial Tax Exemptions cost some $745 million annually; New York’s Industrial Development Agencies give out some $645 million a year in tax breaks.

Poor or undocumented job-creation/retention results. Most of the programs have been criticized for failing to create or retain many jobs, especially in relation to their cost. Programs such as New Jersey’s Urban Enterprise Zones have actually been found to produce zero or even negative job growth.

Disproportionate shares going to large corporations that need help the least, shortchanging small businesses. In Iowa’s Research Activities Credit program, more than 80 percent of the tax breaks have been going to fewer than a dozen firms, some of them large multinational corporations.

Awards to poverty-wage employers such as retailers. Among the recipients in programs such as New Jersey’s Urban Enterprise Zones and New York’s Industrial Development Agencies have been large retailers such as Wal-Mart, which are known for not paying family-supporting wages or benefits.

Poor accountability practices.  Many of the state agencies running the programs do a poor job of tracking how money is spent and whether the desired outcomes are achieved. The lack of clear standards in Pennsylvania’s Keystone Opportunity Zone program caused one development official to refer to it as “legalized tax evasion.”

Other accountability problems include poor disclosure of recipient data and conflicts of interest. The Texas Emerging Technology Fund has been accused of recurring cronyism involving major campaign contributors.

Given these drawbacks, reconsideration of such programs would make sense at any time, the report argues. There are precedents for abolishing or curtailing subsidy programs to deal with budgetary problems. In fact, as this report is published, the California legislature is considering abolition of the state’s expensive and poorly performing Enterprise Zone program.

Yet there are still scores of costly and often ineffective programs that remain unexamined and untouched. Eliminating or scaling back these subsidies would by itself probably not solve the budget gap in any state, the report acknowledges, but it would make a significant contribution to the effort.

The full list of profiled programs follows:

  • Iowa: Research Activities Credit
  • Louisiana: Industrial Tax Exemptions
  • Massachusetts: Single Sales Factor
  • Michigan: Film Tax Credits
  • New Jersey: Urban Enterprise Zones
  • New York: Industrial Development Agencies
  • Oregon: Business Energy Tax Credit
  • Pennsylvania: Keystone Opportunity Zones
  • Texas: Emerging Technology Fund
  • Texas: Texas Enterprise Fund

Opening the State Checkbook

March 18, 2011

States may have less money these days, but they are becoming more transparent about how those funds are being spent. That’s the conclusion of a new study by the U.S. PIRG Education Fund called FOLLOWING THE MONEY 2011.

The report is USPIRG’s second annual ranking of the relative performance of states in providing what it calls “checkbook-level” info through online databases. The focus is on three categories of spending: contracts with private vendors, economic development subsidies and the activities of quasi-public agencies. USPIRG is not interested in plain-vanilla disclosure. Its focus is on Transparency 2.0—“comprehensive, one-stop, one-click” websites.

USPIRG cites nine states as leading the way in advanced openness. The highest rated states are Kentucky and Texas, which are given a grade of A; Arizona, Indiana and Louisiana with an A-minus; Massachusetts with a B-plus; North Carolina with a B; and Ohio and Oregon with a B-minus. Thirty-one other states are described as “emerging”—a euphemism for mediocre disclosure—and the remaining ten are labeled “lagging,” which in nine cases means they have transparency sites lacking basic features such as vendor-specific data. The remaining state, Maine, is said to have no public site and thus could not be rated.

According to USPIRG, states are making significant progress. The report points to 14 states that created new transparency portals in 2010 or made significant improvements to their existing site. USPIRG encourages more states to follow suit by pointing out that creating the sites is not an expensive proposition and their existence can even save money.

Report Documents Proof of Low-wage Employment at NYC Subsidized Projects

March 11, 2011

This week, Good Jobs New York, along with the Fiscal Policy Institute and the National Employment Law Project, released a report highlighting how New York City economic development policies often support low-wage jobs. The policy brief An Overview of Job Quality and Discretionary Economic Development Subsidies in New York City, describes the variety of subsidies and jobs at three well-known projects: Yankee Stadium, Gateway Mall in the Bronx and the Queens warehouse of Fresh Direct, an on-line grocery store.

Yesterday, the findings of the report were discussed at a forum at the City University of New York’s Graduate Center for Worker Education.

Data to estimate the wages at firms came from various sources including public records, government wage data and field interviews.

Together, the projects analyzed in the brief won tens of millions of dollars in benefits from the City, but because there are no job quality standards attached to employment at the projects, many jobs pay remarkably low wages.  Of the 4,909 jobs studied (concession food and beverage workers, warehouse workers, retail salespersons, security guards, and cashiers) the estimated annual median pay ranged from $17,534 to $26,395 for a full-time worker. Ironically this is only 58 percent to 87 percent, respectively, of the Bloomberg administration’s own 2008 poverty threshold for a four-person family in New York City. Security guards, representing about 563 of the jobs nearly 5,000 jobs studied, earned the highest wages at $12.69 an hour.

Cashiers working full-time in the retail industry (a rarity as a business that depends on part-timers) earn approximately $17,500 a year. The prevalence of low wage employment continues at the controversial, heavily subsidized new Yankee Stadium where seasonal jobs are the norm; starting wages there are estimated to be $9.19 an hour. Of the over 1,200 employees working in a Queens warehouse for Fresh Direct, the starting wage was typically the legal minimum.

Obtaining the data for the report (originally released last May and updated with new data) was a daunting task. Transparency about how discretionary subsidies are allocated has improved greatly over the years. But as the report states, the city falls flat on providing data enabling New Yorkers to determine the quality of jobs at subsidized projects.

Colorado Proposal Would “STIF” Taxpayers

March 4, 2011

Buckingham Square Mall, Aurora, Colorado

The Colorado Senate is evaluating a risky new development subsidy proposal that passed in the House last week.  House Bill 1220 would, for the first time, allow the diversion of incremental state sales tax revenues to back bonds used to finance road construction for new retail projects.  Specifically, the bill would permit sales tax increment financing (STIF) to be used for projects that have been approved by the state department of transportation but lack dedicated state funding to secure federal highway matching funds.

The policy problems inherent in this bill are many.  STIF is designed to subsidize retail projects, ignoring the fact that they are not a very effective form of economic development.  Building new stores doesn’t grow the economy – it only shifts consumer spending from one place to another.  Providing subsidies to move low-wage retail jobs around a metro area is a waste of taxpayer funds.  The East-West Gateway Council of Governments (St. Louis metro region) found in its January 2011 study that the region had spent $4.6 billion subsidizing retail development between 1990 and 2007.  During that period, 5,700 new retail jobs were created in the metro area, at an apparent cost of $370,000 per job.

STIF makes a poor economic development tool for other reasons as well.  Sales tax receipts are unpredictable, especially during leaner economic periods.  Determining the value of the incremental increase in sales tax revenues is nearly impossible if assessors attempt to estimate how much retail spending is “new” and how much was merely cannibalized from nearby retail establishments.  STIF also promotes the fiscalization of land use—the unwise practice of letting tax revenue considerations control planning decisions.  California repealed STIF in 1993 to avoid this problem.  Colorado’s proposal is worse because it would only subsidize new retail developments that rely on highway access, making it biased against existing retailers in urban centers.

Another important consideration is that Colorado can’t afford to sacrifice the existing sales tax revenues that it would lose to STIF-subsidized development.  As a TABOR (Taxpayer Bill of Rights) state, Colorado cannot raise new revenues without statewide voter approval.  This is likely the reason that the development lobby is seeking this subsidy in the first place.  As a result of the economic recession and TABOR, Colorado’s fiscal crisis is so dire that the state cannot afford to fund highway transportation projects despite the fact that federal matching funds are on the table.

HB 1220 would sidestep the appropriations process for funding highway construction, shortchange the state’s sales tax revenue collection, subsidize the relocation of low-wage jobs in suburban fringe areas, and contribute to the growing list of dead malls in Colorado.

Shining A Light On $1.2 Billion In Chicago TIFs

March 3, 2011

A new analysis of the $1.2 billion Chicago has awarded in Tax Increment Financing (TIF) over the past 10 years has found that much of the money has been gone to large corporations and other institutions operating in thriving neighborhoods, not struggling businesses in blighted areas. These findings are not shocking: we’ve noticed the abuse of TIF around Chicago and other metro areas for years. So too have local observers like the now defunct Neighborhood Capital Budget Group and Ben Joravsky at The Chicago Reader.

The new study, conducted by journalism students at Columbia College in Chicago, analyzed hundreds of documents obtained through Freedom of Information Act requests. The students have also mapped the TIF deals—something the city has long declined to do—and posted the TIF agreements. See the map and the documents: here.

Of the 171 TIF deals provided to companies over the decade, the study found that more than half were clustered in or around Chicago’s vibrant central business district, the Loop. Chicago has 77 community areas, but few as prosperous as the Loop, whose residents (62 percent white) have a median income of $75,000. More depressed neighborhoods like Englewood (median income of $19,000, 98 percent Black), West Garfield Park ($23,000, 96 percent Black), and North Lawndale ($18,000, 94 percent Black) got only a handful of projects.

About $600 million went to private sector entities, accounting for the largest share of the $1.2 billion. These included subsidies to companies like United Airlines [Struggling Chicago finds $25 million for United Airlines] ($31 million), USG Corp. ($7 million), and NAVTEQ ($5 million). Some $100 million was used to lure companies to the city or to discourage them from leaving. In many cases, subsidies went to big box retail stores that supplanted small businesses. Target received at least $18.5 million at five locations throughout the city.

Housing developments received $340 million in subsidies, while $200 million went to non-profits, hospitals, and cultural institutions like the Chicago Symphony Orchestra. Many of these non-profits have enormous philanthropic bases. Numerous hospitals in Illinois are under scrutiny as to whether they ought to remain tax-exempt. Some housing developers used TIF money to create luxury condos. Other TIF deals have actually been documented to create blight.

Chicago has yet to implement its 2009 sunshine law and shed light on how taxpayer money is spent. The 2009 law required the city to put online searchable copies of every redevelopment agreement since 2004. Many were not posted and journalists at Columbia College had to undergo arduous Freedom of Information Act Requests to collect the information. The efforts of the students have both provided a useful analysis of the troubled TIF program as well as a valuable public data resource.

Advances in Oregon’s Trailing Disclosure

March 1, 2011

A guest blog post by Jon Bartholomew of OSPIRG

As Oregon faces a $3.5 billion budget deficit, efforts are underway to give taxpayers a fuller picture of how much state revenue is being used for corporate subsidies.  While Oregon provides checkbook-level transparency of direct state spending, it does not provide any detail of spending through the tax code. We can get big picture about each tax subsidy program from our Tax Expenditure Report (TER), but it only tells part of the picture.

Based on what it says in the newest TER, there is likely to be about $600 million in the next biennium in tax breaks for businesses for the purpose of economic development. What you haven’t been able to see in the TER or anywhere online is who got these breaks, how much they got, how many jobs they promised to deliver, and what they actually did. If we are to ensure these programs actually create the jobs they said they would, and to ensure these breaks aren’t going to undeserving businesses, we need to be able to see that data.

One of the largest and most controversial of these tax expenditures that businesses benefit from is the Business Energy Tax Credit (BETC). Just last month, the Oregon Department of Energy began posting who has received and been pre-certified for BETC credits on their website. This information should be mirrored on the state transparency site, but at least it’s available at ODoE’s site. Some improvements that still need to be made are to include the data in a downloadable spreadsheet (instead of a pdf) and to include pass-through partners (where the company that received the credit then sold the credit to another taxpayer). This is the first improvement to transparency of economic development programs in Oregon since Good Jobs First gave Oregon an “F” in their report Show us the Subsidies. The report noted that none of Oregon’s economic development tax subsidies posted data online about who received the benefit and what the taxpayers got for it.

But besides the BETC program, there are hundreds of millions of dollars that go to corporations in the name of economic development that we can’t see online. For the Enterprise Zones, the Strategic Investment Program, E-Commerce Zones, Oregon Investment Advantage and a half dozen other programs, we still need to be able to see who got the money and what they did for it. This is exactly what is behind HB 2825, a bipartisan effort to make economic development tax incentives more transparent to the public. As an editorial in the Eugene Register Guard noted, “Oregonians need a clear picture of what they’re getting from these programs, both because of their big price tag and because it’s essential that the expenditures yield actual results.” This bill had its first hearing on February 17th and has broad bipartisan support.

Transparency is certainly not the silver bullet to ensure the state spends money in the most effective ways, but it is a powerful tool for accountability.  Through transparency, active citizens can analyze how we spend, and make suggestions for improvement. The arguments about state spending shift from about rhetoric to about facts. And since sunlight is the best disinfectant, transparency will also prevent the misspending of tax dollars. While there has been a lot of improvement over the last two years, we still need to ensure ALL state spending is transparent, and we need to make it more understandable.

Jon Bartholomew is a Policy Advocate for the Oregon State Public Interest Research Group (OSPIRG). He is a member of the Transparency Oregon Advisory Commission, a board member of Open Oregon, and works on promoting government transparency in Oregon. In addition, he works on consumer protection and democracy issues for OSPIRG. Prior to working for OSPIRG, Jon worked for Common Cause as Associate Director of Media Reform.


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