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North Carolina Conflict of Interest Controversies

September 16, 2014

As odd as it sounds, North Carolina’s ethics law allows high-level state appointees to serve on the boards of for-profit

Secretary Sharon Decker

Secretary Sharon Decker

corporations. Such officials are prohibited, however, from taking actions that might create a conflict of interest with their official duties. Sharon Decker, the state’s secretary of commerce, is taking advantage of that law but is ignoring what many observers see as an obvious conflict.

Decker has been serving on the board of Family Dollar Stores, one of the country’s largest chains of deep-discount retailers. That part-time post pays her more (nearly $150,000 last year) than her official salary ($136,000). Being a Family Dollar director these days is more challenging than usual. The company, responding to concerns about its financial performance, agreed a few months ago to be acquired by its rival Dollar Tree. But then the biggest dollar-store chain of all, Dollar General, made its own offer.

The situation remains unresolved, but it is likely that any change in ownership of Family Dollar will jeopardize jobs at the company’s headquarters in Matthews, North Carolina. In other words, Decker, whose duties include promoting job creation, might very well be taking steps in her private position that reduces employment in the state.

Decker’s situation creates serious questions about the policy of allowing high-level economic development officials to sit on corporate boards. On one hand, those officials are responsible for protecting North Carolina jobs and for representing the state’s interest in negotiations with companies. On the other hand, as directors they are responsible for maximizing profits of corporations.

Decker is not the first high-level official whose close relationship with a private company has caused public concern. For 14 years when Gov. McCrory was Charlotte’s mayor, he was also a manager at Duke Energy. The recent coal ash spill caused by the company raised questions about whether the Governor was still advancing the interests of the company.

There is another troubling aspect of this story. The Economic Development Partnership of North Carolina, a newly created private arm of the Commerce Department, is about to start its operation. Its employees will follow the same ethics rules as legislators and executive branch officials, meaning that they could end up in similar positions to McCrory and Decker.

The next time they meet, North Carolina legislators might want to consider whether it’s time to overhaul the state’s conflict of interest rules.

North Carolina Puts the Brakes on Subsidy Spending but Moves Ahead on Privatization

August 25, 2014

North Carolina State Capitol. Image by Abbylabar (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

North Carolina State Capitol. Image by Abbylabar (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)%5D, via Wikimedia Commons

For the past decade, North Carolina has spent heavily on subsidies, abandoning its previous economic stinginess. In an encouraging new reversal, the Tar Heel State is returning to its old ways. In a just completed short session, the state legislature took two important steps to limit giveaways: it ended one of the country’s biggest film tax credit programs and it defeated a proposal by Gov. Pat McCrory and Secretary of Commerce Sharon Decker to create a deal-closing slush fund. The defeat of the fund also meant the rejection of an expansion of several existing subsidy programs and a special deal for a paper mill.

Not everything coming out of the session was positive. Lawmakers moved ahead with an ill-conceived plan to privatize job recruitment functions of the state’s Commerce Department. The plan was approved despite warnings of problems with similar quasi-public agencies across the country and despite revelations by the N.C. Policy Watch that the Partnership’s CEO lacks experience in economic development and led his company into bankruptcy.

It was the second attempt by the Governor and Commerce Secretary to pass this bill. During the previous legislative session, a similar proposal failed when an amendment that would lift the state moratorium on hydraulic fracturing was added to the bill (the North Carolina chapter in our Creating Scandals Instead of Jobs study has more details on that plan).

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Another Scandal at Florida’s Privatized Development Agency

February 28, 2014
Click to watch the CBS12 investigation

Click to watch the CBS12 investigation

For the followers of Enterprise Florida (EFI), another scandal at the organization should not come as a surprise. Television station CBS12 in Palm Beach discovered this week that EFI, the privatized “public-private partnership” responsible for recruiting companies to the state, has spent thousands of dollars on entertaining site selection consultants.

About $21,000 was spent at Yankee Stadium in New York, another $7,100 at the Cowboys Stadium in Arlington, Tex., and $4,400 at Turner Field in Atlanta, Ga. More than half a million more was billed to EFI credit cards for food, hotels and other entertainment. Enterprise Florida justified the lavish entertainment bills by saying it “must build and maintain strong relationships with site selection professionals across the country.” It is important to remember, however, that the majority of EFI’s funding comes from the public coffers, so, ultimately, the Florida taxpayers are the ones paying for those lavish expenses.

Just a few months ago, another scandal revealed that few of the jobs announced by EFI have yet materialized and several of the announced deals actually collapsed.

Integrity Florida, a nonpartisan watch-dog group, sent a letter to Governor Rick Scott calling on him to investigate the EFI spending. We join the Integrity Florida call!

Florida’s Disappointing Job Creation Record

December 10, 2013
PHOTO BY ALAN DIAZ / ASSOCIATED PRESS

PHOTO BY ALAN DIAZ / ASSOCIATED PRESS

Florida Gov. Rick Scott received negative press in the last few days for his job creation record. The Tampa Bay Times and Miami Herald  published a three-part series called “Jobs in Florida: The Rick Scott Record,” in which the newspapers document that only a small fraction of positions that subsidy recipients promised to create have actually materialized, and a significant portion of the deals have collapsed entirely. Accompanying the series is an interactive database showing the performance of 340 subsidy deals.

The series shows that the state pledged $266 million in public money for 45,258 jobs, often subsidizing low-wage industries like call centers and retail (Wal-Mart and its Sam’s Club unit are among the recipients). Ninety-six percent of those jobs have yet to materialize, with 46 deals creating none.

The state’s broader job picture has also been discouraging. The series points out that between January 2011 and November 2013 Florida lost 49,163 jobs at companies bigger than 100 employees, a fact never mentioned by the Scott administration.

We applaud the Tampa Bay Times and Miami Herald reporters for their impressive work (See our previous blog on similar investigations in North Carolina and Washington, DC).

Missouri Gives Rick Perry a Taste of His Own Medicine

August 30, 2013

Texas Gov. Rick Perry has been spending much of his time lately traveling to other states with the overt aim of luring their companies and thus poaching their jobs. In the run-up to his recent trip to Missouri, Gov. Jay Nixon and other state officials have been seeking to turn the tables on Perry.

Click on the image to listen to Gov. Perry ad

Click on the image to listen to Gov. Perry’s ad

In Missouri television and radio ads paid for by a public-private group called TexasOne, Perry criticizes Nixon for vetoing a tax cut bill while enticing Missouri businesses with talk of Texas’s lack of a state income tax and limited regulation of business. In a response, Missouri Secretary of State Jason Kander wrote to Perry advising him that “instead of launching a wholesale public relations effort,” he should “spend time asking Texas business owners if there’s anything [he] can do to help their companies move forward.”

Nixon also responded to Perry with his own radio spot arguing that the Texas ads are misleading and that, in fact, Missouri has a better tax system and business climate than the Lone Star State. Nixon criticized the Missouri Chamber of Commerce for hosting Perry.

Missouri media also reacted to the Texas campaign. St. Louis radio station KTRS refused to play the Texas ads, and the St. Louis Post-Dispatch produced its own version saying “Come to Texas… four million people who work [here], live in poverty….We have the lowest percentage of high-school graduates in America but we still manage to produce more toxic waste than any other state. So come to Texas and get a career in fast food….”

Good Jobs First has extensively covered the economic war among the states in several of our blog posts (for example, see Greg LeRoy’s primer for journalists) and in our  Job-Creation Shell Game report, in which one of the case studies is dedicated to Texas. In the report, we found that “interstate job moves have microscopic effect on state economies.” Specifically, under Perry’s first seven years in the office only 0.03 percent of Texas jobs base annually came from corporate relocations. We recommended that state governments should spend time and money to encourage start-ups and to support expansions in their states, not to waste money poaching jobs from each other.

Arkansas Will Claw Back Hewlett-Packard Subsidies

July 11, 2013

DSC_1979 2

Photo and the caption by Arkansas.gov: “Governor Beebe today [Mar 3, 2010] helped dedicate the HP Conway facility. HP expects to employ 1,200 Arkansans at the new facility.”

After laying off 500 workers from its publicly subsidized facility in Conway, Hewlett-Packard will have to repay some of the money it has received from the state, Arkansas economic development officials announced.

When HP opened its customer support facility in 2010 (the deal was announced in 2008), it was supposed to be a game changer for the economic development reputation of Arkansas. The state was willing to pay the price and offered HP state and local subsidies.

Arkansas never disclosed the full value of the subsidy package, but it was reported that the company received at least $17 million upfront: $10 million from the state’s Quick-Action Closing Fund and $7.2 million from city of Conway, including $5 million the city spent to upgrade the industrial park where the facility was later located.

HP was also eligible for various performance-based tax refunds, rebates and credits. Although Arkansas does not publish data on its subsidies, the state made some of that information available to Good Jobs First. The data, now available through Subsidy Tracker, includes: three awards from the Existing Workforce Training Program for a total of $62,882; an income tax credit from the Advantage Arkansas program worth $53,418; and a refund of $21,801 from the Tax Back Sales and Use Tax Refunds program.

After the layoff, the state officials announced that HP no longer met the minimum requirement of 1,000 jobs at the Conway faculty and that the state would work with the company to determine how much money needs to be returned. It is unclear, however, whether the clawback will include only upfront grants or also already claimed tax and workforce training subsidies, and whether HP will have to return any local funds.

Although HP’s layoffs are not good news, it is encouraging that Arkansas is willing to implement the clawback provisions it wisely included in its deal with the company.

Subsidies to Campaign Contributors in NC and DC

May 20, 2013

Two recent investigative news reports, one in North Carolina and another in District of Columbia, provide useful examples of how major campaign contributors often end up receiving substantial subsidies or special tax treatment.

Click the image to go to the WAMU website

Click the image to go to the WAMU website

The News & Observer in North Carolina published a series of articles called “Missing Money” that examined the state’s tax subsides. One of the articles looked at ties between lawmakers and subsidy recipients. For example, two large hog and poultry processors each contributed $100,000 to a state senator who introduced a bill making the materials they purchased to build their animal housing exempt from sales taxes. Although the contributions were far in excess of legal limits, the processors were not prosecuted.

WAMU, an NPR affiliate in the District of Columbia, has begun a series of reports called “Deals for Developers.” The “Day 1” part exposes connections between political campaign contributions and subsidies.

The investigation shows that one-third of the $1.7 billion in public money paid out over the last decade has gone to the ten developers who contributed the most to local political campaigns. In total, those who received subsidies contributed more than $2.5 million and received subsidies worth some $641 million.

To avoid the city’s limits on campaign donations, the radio station found that developers contributed money through multiple shell companies as well as their employees and family members. Sadly, only a small fraction of the subsidies, about five percent, went to the neediest neighborhoods in the city. (Make sure to check out the station’s table of campaign contributions and subsidies and an infographic examining the connections.)

These two investigations were possible because of the growing transparency of economic development subsidies. North Carolina has done well on Good Jobs First transparency reports and Washington, DC not too long ago started disclosing its subsides. We hope to see similar investigative reports coming from other parts of the country, but for now we congratulate The News & Observer and WAMU on their exceptional work.

Scrutinizing Georgia’s Deal-Closing Funds

May 10, 2013
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Click to see the AJC infographic

The Atlanta Journal-Constitution has just published a devastating critique of two deal-closing funds used by Georgia to subsidize companies that are expanding or relocating to the state.

Three reporters–Michael Kanell, Shannon McCaffrey and J. Scott Trubey–spent weeks at the Department of Community Affairs going over thousands of pages of documents relating to a decade of grants awarded by the Regional Economic Business Assistance (REBA) and Economic Development Growth and Expansion (EDGE) funds. The funds are allocated to local development authorities that pay for company-specific needs like new roads or sewer connections.

They found that 42 percent of subsidized companies failed to deliver the full number of promised jobs, but fewer than 4 percent of awarded grants were not distributed or were clawed back as a result of that underperformance. Overall, the paper found, nine out of ten promised jobs were created, but this figure was skewed by the fact that some companies created more jobs than they promised. Some of those firms, however, later closed down or had mass layoffs. Some companies received subsidies even though their financial situations were uncertain (AJC ran a separate article analyzing giveaways to “red flag” companies).

Despite the widespread underperformance, companies “can – and do – escape any penalty,” the article said. Georgia’s generous exemption policy allows companies to create only 80 percent of promised jobs before any penalty applies. Not long ago, the passing grade was 70 percent.

The article comes with an infographic that includes company names, number of promised and actually created jobs, and the subsidy amounts. This is the first public disclosure of REBA recipients; EDGE recipients have been disclosed on the OneGeorgia Authority website, and that data has been incorporated in our Subsidy Tracker.

In states like Georgia, where subsidy disclosure is generally non-existent or minimal, it is often only through such journalistic investigations that the public learns the truth about the state’s economic development practices. We congratulate the AJC on its great job.

Community Wins in Missouri

December 17, 2012

Congratulations to community groups in Columbia, Missouri on their win last week preventing most of the city from being designated “blighted” to create massive property tax abatements.

Photo credit: Charles Minshew/KOMU, via Flickr. “Columbia residents discuss EEZ concerns: Columbia resident Shari Korthuis (right) discusses the latest version of a map of the city’s Enhanced Enterprise Zone with Nancy Wood and Jeff Memmer at a meeting at Parkade Center in Columbia, Mo., on Wednesday, March 14, 2012.”

Photo credit: Charles Minshew/KOMU, via Flickr. “Columbia residents discuss EEZ concerns: Columbia resident Shari Korthuis (right) discusses the latest version of a map of the city’s Enhanced Enterprise Zone with Nancy Wood and Jeff Memmer at a meeting at Parkade Center in Columbia, Mo., on Wednesday, March 14, 2012.”

A year and a half ago, the Regional Economic Development Inc. (REDI) board proposed to create an Enhanced Enterprise Zone, or EEZ, that would cover most of Columbia (at one point, the Columbia City Council approved a 49-square-mile EEZ; later, the Council repealed its decision). Missouri EEZs (there are 124) allow certain companies to receive 50 percent local property tax abatements and state tax credits for investing and creating jobs. The program also requires zones to be designated as blighted.

A coalition of community groups (including the Columbia Climate Change Coalition, Grass Roots Organizing, and the local chapter of the Women’s International League for Peace and Freedom) opposed the fake blight designation. They spoke during REDI meetings, contacted media, and organized an informational community meeting with Good Jobs First’s Greg LeRoy and more than 80 participants. Using state EEZ disclosure data captured in Subsidy Tracker, LeRoy noted that EEZ credits were dominated by agricultural food processing companies that, of course, need to be close to Missouri’s abundant farmlands.

After months of grassroots pressure, the REDI board last week surrendered, asking the Columbia City Council to drop the plan, citing “lack of community support” as the main reason for its decision.

Newspaper Rips Missouri Economic Development Practices

September 21, 2012

The St. Louis Post-Dispatch ran a scathing editorial  this week criticizing Missouri’s economic development practices.

The occasion for the criticism was the announcement by state Attorney General Chris Koster that his office was bringing criminal charges of theft and securities fraud against the CEO of a company called Mamtek that had received financial assistance from the state through the issuance of industrial revenue bonds. The CEO, Bruce Cole, was accused of using a portion of $39 million in bond proceeds to prevent foreclosure of his Beverly Hills house. Those proceeds were supposed to finance an artificial sweetener factory Mamtek had proposed to build in Moberly, a small rural community in central Missouri. After Mamtek failed to make bond payments and after the collapse of the whole project in 2011, Moberly defaulted on its bonds.

The editorial criticizes Missouri state and local economic development agencies for failing to do an adequate background check before authorizing the bond issue. “[Mamtek] failed,” the newspaper says, “because nobody, including Moberly officials and the state Department of Economic Development did their work. … Nobody was very eager to do the due diligence that would have shown the deal to be bogus.” The editorial points out that both Democrats and Republicans are guilty of subsidy giveaways and both parties are responsible for “creating a climate where business is free from the kind of regulation that could weed out bad actors.”

Mamtek had also been approved for up to $17 million in several additional types of subsidies, including Missouri’s controversial Quality Jobs program, which allows companies to retain state taxes withheld from the paychecks of new workers (Good Jobs First criticized this and related programs in our Paying Taxes to the Boss report last April).

The Post-Dispatch editorial points to an audit of Quality Jobs showing that the number of jobs that participants in the program created was far below the number they had projected (out of 45,646 originally estimated jobs, only 7,176 materialized).

The editorial uses the shortfalls of the Quality Jobs program to make a broader point about the foolish way in which the state tried to encourage job creation. It calls the Mamtek incident  a symptom of “an economic develop strategy, at state and local levels, that relies on promises and demands little accountability. The state this year will pay out a record $629 million in tax credits to wealthy developers, corporations and investors, while money is being cut for schools and health care. Local governments cannibalize each other to make tax incentive finance deals that steal from schools and create few net new jobs.”

We couldn’t have said it better.


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