Archive for May, 2011

Money Losing Arenas Cause a Big Headache for Small Cities

May 27, 2011

It’s well known that big cities frequently get snookered into using taxpayer funds to build professional sports stadiums and convention centers that turn out to be financial disasters. The same thing has been happening with entertainment arenas built by smaller cities, and one company is behind many of the deals.

This was recently brought to light by the New York Times in an article about Rio Rancho, a suburb of Albuquerque, whose leaders were persuaded by the company, Global Entertainment, to build the Santa Ana Star Center a decade ago.  

The arena, to be operated by Global Entertainment, was designed to be the anchor of a new city center that would boost economic activity in Rio Rancho. Yet soon after the arena opened in 2006, it became obvious that the financial projections were wildly unrealistic.

The 6,500-seat arena turned out to be too small for big events and too big for smaller performances, and it had difficulty competing with Albuquerque’s venues. As a result of these and other problems, the facility soon began racking up heavy losses, and in 2009 the city fired Global Entertainment and sued it over unpaid bills. Arena-related costs squeezed an already tight municipal budget, forcing Rio Rancho to eliminate jobs.

The Times notes that numerous other arenas promoted by Global Entertainment have run into similar difficulties, with the company getting ousted. Yet it goes on making new deals.

When will public officials learn that entertainment and hospitality projects are usually not suitable investments for taxpayer funds?

Subsidy Tracker Has More to Track

May 26, 2011

Subsidy Tracker, Good Jobs First’s database of company-specific info on economic development subsidies, has just completed the first of what we expect to be many expansions.

We have added data on 14 programs in four states, three of which are now represented in Tracker for the first time: Hawaii, Nebraska and Rhode Island. A list of the new programs is below. A new feature, the Update Log, lists these as well and will allow you to see at a glance what has been added to the database in the future.

Subsidy Tracker now contains more than 65,000 entries on 154 programs in 37 states.

New Additions

Hawaii
Enterprise Zones (2007)
Qualified High Technology Businesses Tax Credits (2009)

Minnesota
Special Incumbent Worker Training (2009-2010)

Nebraska
Invest Nebraska Act (2001-2005)
LB 775/Employment and Investment Growth Act (1987-2007)
Nebraska Advantage Act (2007-2009)
Nebraska Advantage Rural Development Act (2009)
Quality Jobs Act (1996-1997)

Rhode Island
Distressed Areas Economic Revitalization Act-Enterprise Zones (FY2008-FY2010)
Incentives for Innovation and Growth (FY2008-FY2010)
Job Training Tax Credits (FY2009-FY2010)
Jobs Development Act/Corporate Income Tax Reductions (FY2008-FY2010)
Motion Picture Production Tax Credit (FY2008-FY2010)
Project sales tax exemptions (FY2008-FY2010)

Ohio Proposal Would Lock Up Profits for Private Prisons

May 24, 2011

Ohio Gov. John Kasich, who pushed through legislation privatizing the state’s economic development functions, now wants to do the same for its correctional system.  The Governor has sparked a controversy by proposing the sale of six state-owned prisons (including one juvenile detention facility) to private corrections corporations, which would then operate the facilities under contract to the state.  The controversy set off by Kasich’s proposal was escalated when the House passed a budget bill that exempts the future prison owner-operators from paying state business taxes.

State Representative Matt Lundy has called the Governor’s proposal “insane,” stating that the plan is a “yard sale that would be the deal of the century.”  Rep. Lundy states that the proposal is a “profitization” masked as privatization.  The one-time proceeds to be gained from the sale of the properties – an estimated $200 million – will not solve Ohio’s long-term structural revenue problems, and the sale would not guarantee lowered costs in the future.

The practice of contracting out prison operations has its own troubled history.  Ethical issues notwithstanding (and these are numerous – see www.grassrootsleadership.org for more information), the fiscal benefits of contracting private sector companies to operate prisons have also been called into question.  A study by the Arizona Department of Corrections recently featured in the New York Times found that prisons operated by contractors cost taxpayers more per inmate than state-run prisons.  Policy Matters Ohio’s analysis of two existing prisons that are operated by contractors found little to no savings to the state.  Further, accountability and oversight problems are common with private contractors in the industry.  This is sometimes a result of the fact that private contractors reduce their operating expenses (and maximize profits) by trimming labor costs, whether by understaffing or cutting wages and benefits.  More job and wage losses can hardly be called beneficial to the state.

Given that the state stands to earn limited short term financial benefit by privatizing the prisons and can’t demonstrate savings from contracting out operations, the plan to exempt prison owners from major state and some local taxes is completely illogical.  This proposal is based on the notion expressed by House Finance Chairman Ron Amstutz that since the state doesn’t levy taxes on its own services, it shouldn’t tax businesses contracted to perform the same functions.  This is almost too nonsensical to bother rebutting.  According to this wacky logic, taxing the profits that a company makes from privatization would be unfair to those companies unfortunate enough to have to “compete” in the same market as the state government.  The Ohio House seems to have forgotten that it’s the government that creates this “market” in the first place.  Economically, this proposal amounts to little more than a massive subsidy to major private prison corporations – a subject about which Good Jobs First has written.  See our 2001 report Jail Breaks for more information about subsidies awarded to private prisons.

The proposal is being considered by the Senate this week.  Hopefully, the Senate’s collective memory is not as short as that of the House.  It might do state officials good to recall the scandalous history of the prison owned and operated by Corrections Corporation of America (CCA) in Youngstown in the late 1990s.  That facility was so thoroughly mismanaged that the state prison oversight committee called the company’s performance “ultimate failure in the primary mission and public promise of any prison.”  More information about CCA’s troubling past can be found in Corrections Corporation of America:  A Critical Look at its First Twenty Years, a joint publication of Good Jobs First’s Corporate Research Project and Grassroots Leadership.

With little short term income, no long term cost savings, and no new tax revenues to show for its proposal to sell and privatize the state’s prisons, Gov. Kasich’s plan should be called out for what it is:  a corporate giveaway.

Chicago’s Mayor Emanuel Promises a Shake-Up of the City’s $1.2 Billion TIF Program

May 20, 2011

Yesterday, Chicago’s new mayor, Rahm Emanuel, took an important first step in improving city government by announcing reforms for Tax Increment Financing (TIF). Many have dubbed TIF Chicago’s “Shadow Budget” not just because its spending is out of control, but also because it’s been used as a political patronage piggybank. TIF has cost taxpayers $1.2 billion dollars across 159 TIF districts. Emanuel deserves high accolades for addressing this issue so quickly after taking office.

After taking the reins, the new mayor says he was shocked to learn that such a large program, about one-sixth of the official city budget, lacked basic standards like job creation and quality benchmarks. Emanuel was clear about what’s wrong with TIF and what needs to be done: “Over the years, it’s mutated,” he said, into subsidies for “downtown and high-rent areas.” Fixing TIF will require the program to “return to its roots” by targeting spending “for blighted economic communities” and ending the use of TIF “as a political instrument.”

Mayor Emanuel is taking various steps that Chicagoans should be enthusiastic about.

  • First, he vowed that TIF will no longer be used as a political bargaining chip.
  • Second, he promised that subsidies will not reward wealthy developers in Chicago’s Loop or other wealthy neighborhoods. (It’s unclear whether that proclamation also means that TIF subsidies will no longer be used to shift jobs from other parts of Illinois, as was the case in the controversial $35 million United Airlines deal.)
  • Third, he promised to focus use of TIF subsidies on creating high-quality jobs in blighted neighborhoods, which was the original intention of program.
  • Fourth, he appointed a task force to come up with ideas for improving the transparency and accountability of the program.

His announcement also came with an improved transparency website: www.cityofchicago.org/TIF. The effort is a good start. The website allows users to view and download subsidy information in a variety of ways. Users can search for and download digital spreadsheets of the data for their own analysis. It even allows users to peruse development documents signed with companies and disclosures about conflicts of interest and lobbying.

Unfortunately, the website isn’t perfect yet. For example, TIF districts and projects could be projected onto a single interactive map that allows users to delve deeper. The website lacks a section devoted to annual follow-up reporting on outcomes relating to jobs, wages, and clawbacks.

Again, congratulations Mr. Mayor. Reforming TIF will be no easy task, but Chicagoans deserve a transparent and accountable TIF program.

States Shine More Light on Tax Spending

May 19, 2011

The CBPP map shows states that do not have tax expenditure reporting (in red) and states that do not include important information in their reports (in orange).

States are doing a better job in letting the public know how much tax revenue is being lost through special credits, deductions, and exemptions, according to a new report on tax expenditure budgets released by the Center on Budget and Policy Priorities (CBPP).

Over the last two years, CBPP notes, two more states–New Jersey and Georgia–passed legislation requiring tax expenditure reviews, decreasing the number of states that do not report on the issue to seven (Alabama, Alaska, Indiana, Nevada, New Mexico, South Dakota, and Wyoming). At the same time, the Center finds, states such as Minnesota, North Carolina, Oregon, Rhode Island, and Vermont as well as Washington, DC have improved the quality of their reporting.

The news is not all positive. CBPP points out that the tax expenditure budgets of 18 states are still deficient. Out of 44 states that have some kind of reporting system (counting Washington, DC as a state), ten do not report on major categories of tax spending and six do not release reports at least every other year. Two states, Arkansas and New Hampshire, don’t bother to put their reports online.

CBPP offers a good list of best practices for tax expenditure budgets. These include putting the reports online; including all tax expenditures, even small ones or those that affect few taxpayers; describing the types of taxpayers that benefit from each tax expenditure; and explaining the purpose of the various categories.

The CBPP report comes at a time when the issue of tax expenditures is receiving growing attention at both the federal and state levels. The first step in addressing the issue is knowing how much these practices really cost, and that makes the need for thorough tax expenditure budgets all the more urgent.

Job Blackmail Pays

May 19, 2011

According to the FBI, the typical bank robber escapes with about $7,600. It would take more than 13,000 such capers to reach the amount that some individual corporations are netting in their own holdups, though of a legal variety.

This year has seen a series of cases in which large companies secure big subsidy packages by hinting that they may move their corporate headquarters to another state, and in several instances those packages have turned out to be worth an eye-popping $100 million.

The fact that state and local governments around the country continue to face severe budgetary shortfalls has not prevented them from offering—and companies from taking—these huge payoffs. Here are some new members of the $100 Million Club:

Motorola Mobility Holdings—one of the two spinoffs from the split-up of the old Motorola Inc. earlier this year—recently extracted $100 million in EDGE tax credits from Illinois as the price for keeping its headquarters and approximately 3,000 employees in the Chicago suburb of Libertyville. EDGE credits normally apply to corporate income tax payments, but the state legislature allowed the smart-phone company to keep employee income tax withholding payments instead. Motorola Mobility was awarded several million dollars more in job training and other grants.

When Panasonic Corporation of America let it be known it was considering moving its headquarters out of New Jersey, the state offered the company a tax credit worth just over $100 million to stay. But it couldn’t remain at its existing site in Secaucus. The Urban Transit Tax Credit required a relocation, so the state’s Economic Development Authority got the Japanese electronics firm to agree to move a few miles down the road to Newark. The arrangement was expected to provide a big boost in tax revenue for Newark (money in effect poached from Secaucus), but the struggling city for some reason decided it was necessary to give back a portion of that to Panasonic in the form of more subsidies, the amount of which has not yet been determined.

After raising the possibility of moving out of state in response to an increase of one half of one percent in local income taxes, American Greetings agreed in March to keep its corporate headquarters in northeast Ohio. All it took was a state package of grants, tax credits and low-interest loans worth an estimated $93 million over 15 years. Once the greeting card company settles on the exact site, it is likely to get additional local assistance that will put its total subsidies above $100 million.

A few weeks after the American Greetings deal, ATM manufacturer Diebold, which had made similar noises about a possible move to another state, was also induced to keep its headquarters in northeast Ohio. It, too, is slated to get total subsidies of about $100 million—$56 million in refundable tax credits from the state and anticipated local “incentives” of more than $40 million.

Sears Holdings could soon join the club as well. Actually, Sears is already a leader in it. Back in 1989 it got a subsidy package of $178 million for moving its headquarters from downtown Chicago to exurban Hoffman Estates, 29 miles away. The state and local tax subsidies from that deal are set to expire next year. Playing the we-might-move-out-of-state game, Sears has set off a frantic effort by Illinois officials to extend the company’s subsidies for another 15 years. No deal has yet been announced.

It is frustrating to see one company after another get away with job blackmail. If only we could get the FBI to take an interest in this kind of stickup.

Reposted from the Dirt Diggers Digest.

Traffic Citation: The Scott Administration’s Faulty Rationale for Dismantling Florida’s Stimulus Website

May 18, 2011

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

Leda Perez’s recent column challenged the Rick Scott administration’s central justification for severely downgrading Florida’s Recovery Act website: that the website was “not used that much.”  I’ve already touched on Perez’s column a bit, but she really got to the crux of the issue when she asked: “Should we eliminate [Freedom of Information access] because an insufficient number of people make requests? Or, should Congress or presidents simply be appointed because an insufficient number of people exercise their voting rights?”

Indeed, transparency, openness and accountability are essential democratic principles and governments should preserve tools that promote those principles no matter how infrequently they are used. 

But even if it’s a poor defense for gutting the stimulus website, it is worth exploring the Scott administration’s claim that the website was “not used that much.”  Perez referenced the “apparent selectivity in what public information remains available via web portals,” and that got us thinking: Just how many viewers did the Florida Recovery Act website attract before the Scott administration gutted it, and how does that compare to other state websites that are maintained at taxpayers’ expense?

We don’t know how the Scott administration evaluated the Recovery Act website beyond spokesman Brian Burgess’s statement on Twitter that “we actually analyzed hard visitor traffic data (at least what was available).”  But here’s what that “hard visitor traffic data” shows, according to Compete.com, a company that tracks web traffic data: The website maintained by then-Governor Charlie Crist had between 1,296 and 5,501 unique visitors per month from April-November 2010, and averaged 2,907 monthly visitors during that period.

Those are hardly earth-shattering figures, but remember that those thousands of monthly visitors to the website consist of contractors looking to hire workers, people looking for jobs, public interest groups organizing around important causes and highly-engaged citizens who want to keep tabs on how their tax dollars are being spent.  Each of these people only count as one visitor, but depending on how they use the website it could have a big impact on their companies, families, neighbors, and even entire communities.

Then there’s the “selectivity” issue that Perez raised.  The traffic figures for the stimulus website that Scott dismantled are comparable to plenty of other state websites that haven’t been taken down.  Here are some examples:

None of this is to suggest that these sites should be taken down.  But why won’t the Scott administration treat the Recovery Act with as much taxpayer respect as the state treats consumer protection, child literacy, hurricane preparedness and the Florida sports industry?

NYC Living Wage Debate Boils Over, Into the Streets and before City Council

May 17, 2011

It’s budget season in New York City, when community groups and labor unions usually take to the streets to protest proposed budgets and this year proposals including teacher layoffs and social service cuts was a serious call to action. But marchers also had an added demand: a living wage at subsidized companies.  May 12 was planned as a day of action; it also was the day the New York City Council Committee on Contracts held a public hearing on the proposed “Fair Wages for New Yorkers Act”. The bill would require firms that receive certain economic development subsidies to pay a “Living Wage” of $10.00 an hour or $11.50 an hour if no benefits are provided.

Mayor Michael Bloomberg opposes the bill and the Speaker of the City Council Christine Quinn is undecided but the momentum is building with 30 co-sponsors (out of 51 members). The bill excludes many small businesses and only covers some subsidy programs. (more…)

Recovery Board’s Mike Wood Addresses the Once and Future Impact of Recovery.gov

May 6, 2011

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

During a May 4 webinar hosted by Government Executive, Recovery.gov Director Mike Wood shared some interesting thoughts about the lessons of the Recovery Board’s work and what the future holds for transparency in federal reporting.

Wood described the Recovery Act and Recovery.gov as a “sea change in the way the government has done business.”  At one point, he recounted how a Deputy Secretary at the Department of Housing and Urban Development told him that the agency “changed their whole management structure … based on how they ran their Recovery program.”  But for the most part, Wood stayed focused on the impact of the landmark website that he oversees.

In particular, he credited the level of transparency on Recovery.gov with the Recovery Act’s “very low non-compliance rate” and “extremely low” fraud rate.  “We will look at fraud after it occurs and try to recoup the money or bring people to justice, but it’s much more satisfying to prevent fraud,” Wood said, “and I think the fraud prevention efforts are much more successful because of our transparency efforts.”

Wood acknowledged that there have been fewer “citizen IGs” using the website to make “hotline complaints” than was initially hoped, although that could just be another sign that the Recovery Act has been largely free of fraud and abuse.  Still, he suggested that “as people get more used to” the types of accountability features on Recovery.gov, they might use them more frequently.

He also addressed the most pressing question raised by the Recovery.gov experience: what impact will the Recovery Board’s transparency and accountability efforts have on other forms of federal expenditures?

Wood explained that the Recovery Board created FederalTransparency.gov, a separate website that is initially tracking the $10 billion Education Jobs Fund, in part as “a tool to show that Recovery.gov can be used as a template” for future federal reporting.  Then, as the webinar came to a close, he struck a particularly optimistic tone about the prospects of enhanced federal reporting beyond the Recovery Act.

Although the Recovery Board sunsets in 2013, Wood said that Congress, the White House and the Inspectors General community have all expressed interest in “capturing these lessons that we’ve learned and continuing on with some of the good things that have happened” with Recovery.gov.  Among the proposals that should be on the table, in Wood’s view, are creating a broader Accountability and Transparency Board that is not limited to the Recovery Act and transferring Recovery.gov’s reporting and presentation technology to the Treasury Department.

We should know more in six months, he predicted.  “It’s not clear now what shape that will take, but there’s enough people in Washington talking about it that I think something will happen.”

South Carolina says Good-bye to Amazon but Hello to even more Wal-Mart stores

May 5, 2011

(A follow-up to a story on sales tax exemption for Amazon in South Carolina from May 3, 2011, You can find everything on Amazon, except sales tax)

Small retailers in South Carolina must be asking themselves: if the enemy of my enemy is my friend, and then we win, and then my “friend” resumes life as another huge enemy, should taxpayers subsidize our demise?

In an announcement that some called a political “payoff,” Wal-Mart and South Carolina Gov. Nikki Haley announced this week that the company will open dozens of new stores employing as many as 4,000 people in South Carolina over the next five years (of course, research suggests that Wal-Mart destroys 3 retail jobs for every 2 it “creates). It already has significant presence in the state with 74 stores, two distribution centers, and nine Sam’s Clubs.

The announcement came just a week after the South Carolina House rejected a bill that would give the online retailer Amazon an exemption from collecting sales tax on the state’s residents (as part of a larger subsidy package). One of the active opponents to the Amazon deal was Wal-Mart.

During the Amazon sales tax exemption debate, Wal-Mart, along with other big-box retailers, joined organizations representing small businesses in South Carolina to actively lobby against the deal. Besides its seven lobbyists  pressing the House, Wal-Mart encouraged its South Carolina employees to communicate their opposition to state representatives.   The retailer argued the Amazon exemption would be harmful and unfair to bricks-and-mortar stores. After the House rejected the deal, Amazon cancelled plans to open a distribution center in the state.

Reacting to this week’s Wal-Mart announcement, supporters of the Amazon deal said that Wal-Mart wanted to reward the Governor for her hands-off approach and the House for opposing the Amazon deal, calling the announcement “suspect,” a “shell game,” and “a payoff.”

Over the years, critics of Wal-Mart have pointed to the retailer’s low-wages, unaffordable benefits, lack of career paths for the majority of workers, contribution to sprawl,  and anti-unionism. Some in South Carolina point out now that the same small retailers that Wal-Mart “partnered” with against Amazon will likely become Wal-Mart’s victims as it gains market share by opening more supercenters. 

Wal-Mart’s rhetoric on the Amazon deal was quite ironic. It  argued that Amazon should not be granted sales tax exemption because it would give Amazon unfair advantage over other retailers. But Wal-Mart and developers who build for it are not shy about asking public officials for economic development subsidies that small retailers often consider an unfair advantage. In  Shopping for Subsides: How Wal-Mart Uses Taxpayers Money to Finance Its Never-Ending Growth, Good Jobs First documented that the retailer benefitted from $1 billion in such subsidies (later updated to $1.2 billion) from state and local governments. In South Carolina, for example, Wal-Mart enjoyed a $10 million deal from the City of North Charleston for infrastructure improvements at its supercenter, and a distribution center in Pageland got a deal worth of $28.2 million in various subsides.  (For a national compilation of such deals, see Good Jobs First’s Wal-Mart Subsidy Watch webpage).

Will locally owned retailers now remind Wal-Mart and elected officials about unfair advantage, whether it applies to Amazon or Wal-Mart? Or will the enemy of their enemy cash in as South Carolina subsidizes Wal-Mart’s new facilities?


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