Archive for October, 2011

Occupying Subsidized Space

October 31, 2011

Photo by Good Jobs New York

The ability of Occupy Wall Street protesters to remain in Zuccotti Park in Lower Manhattan for weeks while Occupy groups in other cities are being evicted from their encampments is, ironically, based on the fact that the park is private rather than public property.

But it’s a special category of private property. The park was created more than 40 years ago as part of a deal in which U.S. Steel, which was building an adjacent office tower now called One Liberty Plaza, was allowed to put additional floors on the structure in exchange for providing an open space for the public. The space is not subject to the same rules, including curfews, that apply to city parks.

The zoning variance is not the only factor that complicates the status of Zuccotti Park.

Brookfield Properties, the current owner of One Liberty Plaza and the park, benefits directly and indirectly from a host of taxpayer-funded subsidies. The New York Daily News reported on some of the direct grants received by Brookfield after 9/11, and further details on the full extent of subsidies are in the chart below and in our Database of Deals.

Brookfield, one of America’s largest commercial real estate companies and its premier tenants, took advantage of city and state economic development programs. Millions of dollars in economic development grants earmarked for rebuilding after the attacks of September 11, 2001 went to Brookfield and some of its tenants at One Liberty Plaza (NASDAQ and the Royal Bank of Canada among them). Some tenants also received discretionary tax breaks from the New York City Industrial Development Agency.

A breakdown of the $176 million given to Brookfield Properties, its subsidiaries and tenants in Lower Manhattan is here.

The subsidy figures don’t tell the whole story. There are other economic development programs that Lower Manhattan firms benefit from, but how much is earmarked for a particular firm isn’t publicly known.

Among the many reasons why the Occupy Wall Street protesters should be allowed to remain in Zuccotti Park is that they are occupying taxpayer-subsidized space.

Thanks to Elizabeth Bird and Dan Steinberg for their assistance.

Connecticut Economic Development Subsidies Are Costly and Poorly Monitored

October 24, 2011

Connecticut’s major economic development expenditures are high in cost, poorly monitored and may be undermining the public goods that actually constitute the state’s competitive advantage for jobs.  These are the findings of a new Good Jobs First report released today.

The report entitled, Connecticut Economic Development Subsidies: Costly and Blunt, found that corporate income tax credits can have high cost-per-jobs figures (one cost taxpayers $169,667 per job) and that some companies getting subsidies don’t meet job creation promises. The report recommends that the state’s existing programs be thoroughly evaluated and that the state adopt better online transparency of costs and benefits before considering new spending.

Among the findings, we found:

  • Two-thirds of the state’s economic development dollars ($173 million in FY 2011) are spent outside the purview of the Department of Economic and Community Development (DECD) which, although it needs improvement, has more rigorous oversight standards than the other controlling agencies.
  • Some of the most expensive subsidies (such as research and development tax credits, the electronic data processing equipment property credit, and the fixed capital investment tax credit) are structured as uncapped, as-of-right subsidies and their eligibility requirements prevent the state from attaining the biggest bang for the buck.
  • Even for those programs that do officially have clawbacks, their application is unknown. An analysis of DECD’s 2010 annual report reveals that 31 business assistance contracts (out of the 70 contracts total) which underwent a DECD audit failed to meet their job creation targets. Combined, these companies were awarded nearly $86 million in subsidies. Unfortunately, DECD has not disclosed whether these companies, all failing state job audits, repaid subsidies. Taxpayers have a right to know whether a clawback occurred, and if so, how much money was recaptured.
  • Tax credits can have high cost-per-job figures and result in job losses. One subsidy cost taxpayers $169,667 per job created. The top ten most expensive subsidy packages cost taxpayers an average of $98,672 per job. Worse, in 2005 Connecticut’s Finance, Revenue and Bonding Committee commissioned a study which found that 14 out of the 24 studied tax credit programs led to net job losses.  For instance, the fixed capital investment credit created a net loss of 226 jobs.
  • DECD does not disclose the wages and benefits paid by each company utilizing subsidies. Annual reports, however, show that some companies received subsidies for promising to create low-wage jobs causing hidden taxpayer costs for employees which must rely on the public safety net system.
  • Most job creation promises made by companies receiving subsidies are not creating new jobs in Connecticut. Eighty percent of the job promises relate to retaining jobs from existing Connecticut businesses threatening to leave the state or shut down. Studies on job creation tax credits show that 70% or more of the credits awarded to recipients paid companies for jobs that would have been created anyways.
  • Many “new” Connecticut jobs are actually relocating a short distance from adjoining states. For instance, Starwood Hotels received $75 million to move less than 20 miles down the road into Connecticut from Harrison, New York. Some affected workers simply commute from out-of-state and therefore don’t pay Connecticut state income taxes, local property taxes, or state and local sales taxes. Shifting jobs in the same metropolitan area doesn’t grow regional economies.

U.S. PIRG Takes on TIF

October 14, 2011

Tax-increment financing is the most insidious type of economic development subsidy. Whereas it’s clear in programs such as property tax abatements that public revenues are being given away, proponents of TIF have often persuaded public officials that it provides something for nothing. That’s wishful thinking, of course—TIF-subsidized projects increase the demand for public services but don’t contribute to the revenues needed to pay for them—but too many officials have succumbed to the illusion. TIF is now used (often overused)  in every state but Arizona.

The good news is that concern about TIFs is spreading from specialized policy organizations to activist groups. The latest sign of this is the report on TIF just published by the U.S. PIRG Education Fund.

In addition to explaining to the uninitiated how TIFs work, the report provides a detailed critique of their pitfalls. These include a tendency to encourage development in areas that are not blighted; enrichment of well-connected developers; and a dangerous diversion of revenues away from vital public services.

The U.S. PIRG report also does a good job in cataloguing the accountability shortcomings of TIFs, including the failure by many jurisdictions to disclose which parties are benefiting from TIF deals or even summary data about the costs of the program. Also included is an appendix providing details on each state’s TIF practices, including whether there are requirements for the creation of a TIF district or the approval of a TIF deal.

Two New Investigative Articles Refute Texas Gov. Rick Perry’s Job Creation Claims

October 11, 2011

Those following Presidential politics are familiar with Rick Perry’s apparent pay-to-play subsidy dealings in Texas. Two new investigative pieces demolish his job creation claims.

The New Republic’s Alec MacGillis visited the sites of two subsidized companies and discovered Perry’s job creation figures to be extremely misleading. The state of Texas claimed that the Texas Energy Center created 600 jobs as a result of aid from the Texas Enterprise Fund some years back, but MacGillis discovered the only remnant of the company to be a small vacant office space inside a local economic development agency. Governor Rick Perry claimed that another facility, the Texas A&M Institute for Genomic Medicine, which received $50 million in subsidies from the Emerging Technologies Fund, would produce 5,000 jobs. MacGillis toured the subsidized facility and discovered that it employs just 10 employees total.

The Wall Street Journal’s Mark Maremont took a deeper look into how Texas subsidy contracts allowed for such rampant misrepresentation of job creation numbers. He found that the initial economic impact analysis on the Institute for Genomic Medicine subsidy was conducted by Perryman Group, the former employer of Governor Perry’s wife. She left the job in 2001 after Perry succeeded George W. Bush as Governor of Texas. The Perryman Group’s study estimated that the project would create 31,000 jobs and add $2.7 billion to the Texas economy. Maremont discovered that the 2005 grant agreement allows the company to count in its job creation figures any “positions with employers in the biotechnology and pharmaceutical industries.”


Follow

Get every new post delivered to your Inbox.

Join 46 other followers