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Colorado Stock Show Wants Bucks to Sprawl

September 1, 2011

The location of the future Gaylord convention center complex.

The already controversial proposal to construct a massively subsidized convention center complex outside Denver has become even more divisive following an announcement by the city’s long-running National Western Stock Show that it was considering relocating to the site.

The new hotel-convention center complex in Aurora County, currently under development by Gaylord Hotels, is located near the Denver International Airport.   It is receiving up to $300 million in development subsidies via tax increment revenues from Aurora, whose City Council just approved a blight designation for the 125-acre site, now completely vacant land.  The company has also applied for a raft of state subsidies that include $170 million in sales tax rebates over a 30-year period.

Concerns that the 1,500-room complex will leach convention center and hotel business and tax revenues away from Denver are turning out to be well-founded in light of the National Western Stock Show’s announcement that it is considering a site adjacent to the new development for its annual events.  The show, which is celebrating its 106th anniversary this January, is considered a Denver institution.  (Its Centennial celebration drew 727,000 people.)   Denver voters will need to approve $150 million in general obligation bonds to finance the show’s move to Aurora.  Complicating matters further is the fact that the show benefited from $30 million worth of voter approved bonds in 1989 to upgrade its current facilities at the Denver Union Stockyards.  Under the terms of that contract, the organization is required to stay at its current address in Denver until 2040.

The stock show’s announcement has roused a series of accusations from Denver electeds that the organization is in breach of its existing bond contract.  The contract stipulated that the stock show must maintain the upkeep of its facilities, which have fallen into disrepair according to city council members.   The stock show was additionally required to submit annual reports to the city.  Stock show officials state that these were submitted annually to the city’s Theatres and Arenas Department, but this has not stopped City Auditor Dennis Gallagher from accusing the organization of failing to provide his office with financial reports.

Gallagher recently released a statement lambasting the organization:  “I refuse to see our city, our downtown business, our convention center, our historical heritage and the welfare of Denver taxpayers sold down the river because of over-arching greed.”  Other officials have reacted in kind.  City Council President Chris Nevitt accused the show of “fail[ing] to live up to [its] end of the bargain.”  The heart of the issue was best expressed by Aurora resident Shirley Ney:  “As I look at this land out there, I do not consider this land as blighted,” she said. “I think it’s very valuable land … valuable agricultural land is being eaten up by urban sprawl across this country. This proposal adds to that sprawl.”

Sadly, the wisdom of this sentiment may be lost on the National Western Stock Show, which represents an entire industry dependent on agricultural land.  The problem of subsidizing the development of greenfields is twofold.  It exacerbates the problem of sprawling growth and its associated regional costs, while simultaneously providing an unnecessary financial incentive for businesses to withdraw from the urban core.  A stampede of Denver’s urban businesses to Aurora may become unavoidable when such extravagant development subsidies are involved.

Posted in Corporate relocations, Hidden Taxpayer Costs, Job Piracy, Sales Tax, Smart Growth, Sprawl, Stadiums, Subsidies, Tax Increment Financing | Leave a Comment »

Oregon Ramps Up Transparency, Looks to Rein In Subsidies

June 14, 2011

The past couple of months have brought broad changes to economic development tax credit policy in Oregon.  Last month the state enacted major tax credit transparency practices when Gov. Kitzhaber signed into law House Bill 2825, which requires company-specific disclosure of tax credit recipients.  Also up for consideration in the state legislature’s final days is House Bill 3671, which if passed would reduce available business tax credits from approximately $40 million to $10 million annually and make significant structural changes to the contentious Business Energy Tax Credit (BETC) program.

The new transparency law, which was pushed by groups such as OSPIRG, requires state agencies responsible for administering economic development subsidies to disclose via Oregon’s transparency website information about recipients, including their names, addresses, subsidy values, and performance measures.  Programs covered under this law include the controversial manufacturing and renewable energy components of the BETC program, the state’s enterprise zone program, and contributions to the film production development fund, among others.  The law will go into effect later this year.  Oregon scored zero on Good Jobs First’s recent 51-state subsidy disclosure study, Show Us the Subsidies, for its failure to disclose company-specific recipient information for any of its major economic development programs.

As in other states, Oregon’s revenue crisis has forced the state to consider reducing and in some cases eliminating business tax credit programs.  HB 3671 would end the practice of subsidizing construction of major solar and wind production facilities through the BETC program.  It does not completely eliminate subsidies for manufacturers of solar energy equipment and energy conservation activities, but replaces existing subsidies with a set of smaller, more targeted programs.  The bill additionally proposes reducing the total value of business tax credits from the projected $40 million biennially at the state’s current rate to $10 million.  The measure has reportedly gained broad support, although Gov. Kitzhaber has proposed raising the cap to $25 million.

Both of these measures will move the Oregon’s economic development practices toward greater accountability and ultimately, more effective job creation and energy conservation policy.

Posted in Disclosure, Enterprise Zones, Green Jobs, Jobs, Subsidies | Leave a Comment »

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.

Posted in Hidden Taxpayer Costs, Jobs, Subsidies | 1 Comment »

New Jersey’s $1 Billion Subsidy Spree

May 4, 2011

Xanadu, an "offense to the eyes."

According to a new report released last week by New Jersey Policy Perspective (NJPP), a nonpartisan policy research center based in Trenton, Gov. Christie’s administration has awarded $822 million in economic development subsidies in its first 15 months in office.  A Surge in Subsidies documents the recent torrent of tax credit and grants awarded by the Economic Development Authority at a time when the state is slashing budget items for education, health, and social services.

NJPP examined just four of the state’s many economic development subsidy programs.  The controversial Business Employment Incentive Program redirects the personal income tax withholding of employees to participating businesses.  The recently enacted Economic Redevelopment and Growth Grant (ERG) program has been used to approve awards totaling an astounding $351 million in diverted tax increments to New Jersey companies since February of 2010.  Once laudable for its geographic targeting, the Urban Transit Hub Tax Credit is now used so extensively that it is poised to become a major revenue drain for the state.

Despite abundant criticism of recent deals such as the state’s decision to bail out a casino owned by Morgan Stanley ($261 million through ERG) and $101 million to relocate Panasonic’s North American headquarters just eight miles, New Jersey continues to dole out major subsidies.  Gov. Christie once called the stalled Xanadu mall project “an offense to the eyes as you drive up the turnpike.”  Now, he favors a $200 million tax break to rescue the project.

NJPP president Deborah Howlett notes that the Xanadu subsidy brings the 16-month subsidy spending total to over $1 billion, yet “all of that spending to spur job creation has had almost no effect on the unemployment rate.”

Posted in Big Box Retail, Financial Crisis, Jobs, Sales Tax, Tax Increment Financing, Taxes | Leave a Comment »

Stung by Shutdowns, Massachusetts Debates Reforms

April 12, 2011

Recent job loss events in Massachusetts, though unfortunate for the state and its workers, may prompt passage of strong economic development accountability and clawback legislation that would apply to all economic development subsidies statewide.   Announcements by Evergreen Solar and Fidelity Investments – both major recipients of economic development subsidies – that the companies would be moving large numbers of jobs out of state have frustrated development officials, lawmakers and residents alike.

Evergreen Solar announced in January that it would shutter its Devens manufacturing facility and send over 800 jobs to China, despite the $58 million in job creation and development subsidies it received from the state.  Fidelity’s March announcement that it would be relocating approximately 1,100 jobs to two neighboring states from its Marlborough facility also came as an insult to the state; in the 1990s – at Fidelity’s urging and great cost to the state – Massachusetts altered its state tax code to apply single sales factor (SSF) corporate income tax calculation to mutual fund firms.  Weak accountability standards and a lack of safeguards in the state’s subsidy programs mean that Massachusetts will be able to recoup very little from Evergreen and nothing from Fidelity of the subsidies they received to create and maintain jobs in the state.

Executives from both companies were questioned by lawmakers last week about their acceptance of job subsidies and subsequent decisions to move jobs out of Massachusetts.  Evergreen Solar CEO, Michael El-Hillow, stated during the hearing that the company would not be repaying the $21 million it received as direct cash grants and tax credits from the state.  Fidelity’s major economic development subsidy, provided in the form of reduced corporate income tax responsibility through the SSF calculation, is impossible to recapture.  However, even some lawmakers who voted for the passage of SSF are now questioning its value to the state’s economic development efforts.  During the hearing Senator Mark Montigny, chairman of the Senate Post Audit and Oversight Committee, stated that he expected SSF “not to continue in perpetuity with no oversight” or accountability.

Prompted by these revelations,  the Massachusetts State Auditor issued a preliminary review of business tax expenditures this week.  She found that of 91 business tax expenditures, only 8 include a sunset clause, just 10 contain clawback provisions, and only 19 have public disclosure or accountability reporting requirements.  (Program sunsets, clawback provisions, and public disclosure are among the most basic and most critical aspects of key subsidy reforms supported by Good Jobs First.)   Massachusetts passed its first public disclosure law last year, which covers only the recipients of refundable or transferable tax credits.

This law, though a good first step towards strong public disclosure, is narrow and incomplete compared to other states’ disclosure practices.  It would be leapfrogged by S153/H2565: An Act to Promote Efficiency and Transparency in Economic Development, legislation currently being examined by the Joint Committee on Revenue.  Over 50 legislators, including primary sponsor Sen. Jamie Eldridge, are co-sponsoring the omnibus economic development reform bill.  Among its many provisions are the following major subsidy reforms:

  • Transparency, including spending transparency via a Unified Development Budget
  • Enhanced online disclosure of job creation and performance monitoring
  • Mandatory clawback provisions; and
  • Job quality standards

If enacted, the bill would protect Massachusetts’ future investments in economic development and ensure that companies can no longer take taxpayers’ money and run.

Posted in Clawbacks, Disclosure, Job Piracy, Job Quality Standards, Jobs, Single Sales Factor, Subsidies | Leave a Comment »

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.

Posted in Big Box Retail, Financial Crisis, Hidden Taxpayer Costs, Job Piracy, Jobs, Sales Tax, Sprawl, Subsidies, Tax Increment Financing | Leave a Comment »

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.

Posted in Disclosure, Enterprise Zones, Financial Crisis, Jobs, Subsidies, Tax Expenditure Budgets | 1 Comment »

Tough Love for California TIF

February 25, 2011

California Gov. Jerry Brown is proposing extraordinary revenue- raising plans to tackle the state’s $28 billion budget deficit.  The Brown Administration has proposed that the state dissolve the state’s community redevelopment agencies (CRAs), regional quasi-public bodies charged with administering redevelopment dollars.  Tax increment financing (TIF – the mechanism through which redevelopment is funded) is an enormous expense in California, representing $5.8 billion in diverted tax revenues a year.  The current proposal would retire current redevelopment debts with agencies’ existing funds, allowing the $1.7 billion to be applied towards the state budget.  Remaining funds would be returned to local governments and school districts.

Unlike the Enterprise Zone program, also slated for elimination by the Brown Administration, redevelopment in California actually does provide some clear benefits to the state.  TIF plays a significant role in providing affordable housing in California:  twenty percent of all TIF revenues must be set aside for affordable housing projects.  When properly harnessed, redevelopment can spur equitable revitalization.  Some of the most successful community benefits agreements in the country come from Los Angeles, where LAANE and other organizations have leveraged redevelopment funds to provide good jobs and affordable housing to underserved communities.   Madeline Janis, executive director of LAANE, Vice Chair of the Los Angeles CRA Board, and board member of Good Jobs First has argued that reform – not elimination – of CRAs is the best way to advance economic recovery in the state.

Reform would help to address the overuse of redevelopment dollars in California.  A February report by the Legislative Analyst’s Office found that CRAs in some counties have created so many projects that more than 25 percent of all property tax revenue is allocated to the agency.  One needs to look no further for examples of irresponsible use of TIF funds than San Jose and Oakland.  Both cities are scrambling to assemble and approve new subsidized professional sports stadium plans before the state can move to recapture redevelopment funds.  Cities throughout California are moving decisively to spend or otherwise encumber their accumulated redevelopment funds.

California’s $28 billion budget gap is unparalleled, but budget pressures are bringing tough love to the economic development-industrial complex around the country.  Getting back to basics is critical. Programs that pay companies to do what they would have done anyway – that fail to meet the definition of the word incentive, that don’t correct market failures – are deservedly vulnerable.  It’s only fair, given deep cuts being proposed for aid to children, seniors, students and the unemployed.

Posted in Economic Recovery, Financial Crisis, Hidden Taxpayer Costs, Jobs, Property Taxes, Stadiums, Subsidies, Tax Increment Financing | 1 Comment »

California Targets EZ Program for Elimination

February 15, 2011

Facing a budget hole estimated at $28 billion, the administration of California Gov. Jerry Brown has proposed program cuts that have economic development officials panicking.  The Enterprise Zone program, which subsidizes in-zone businesses with hiring tax credits, deductions, and exemptions, is a prime target for revenue-starved California.

The program’s history is controversial.  A host of research has thoroughly debunked the claim that EZs have a significant impact on job creation.  (See the Public Policy Institute of California, whose study we covered on this site in 2009;  the state Legislative Analyst’s Office in March 2010 and again this year; and most recently, the California Budget Project.)  In its February report, the California Budget Project describes a number of troubling aspects of the program:

  • The cost of EZ tax credits and deductions has increased by 35% per year on average since its inception.
  • 70% of EZ tax credits to go corporations with assets of more than $1 billion.
  • The EZ hiring credit does not require the creation of new jobs (many recipients simply relocate jobs).

Only one study has been released in recent years in defense of the EZ program.  A 2009 study released by USC’s Marshall School of Business reported favorably on the economic effects of the program.  (This study is not available online.)  It was rebutted by Robert Tannenwald, then a Senior Fellow at the Center on Budget and Policy Priorities, who stated that the study’s findings “fly in the face of empirical evidence and economic theory.”

Whacking the EZ program would save the state $343 million this year.  That figure increases to $600 million annually in just two years’ time.   Elimination of a program that has negligible impact should be an easy decision for the state legislature.  These funds would be better spent in an economic development program with a proven track record.

Posted in Economic Recovery, Enterprise Zones, Jobs, Sprawl, Subsidies, Taxes | 1 Comment »

Evergreen Solar Turns Out the Lights

January 24, 2011

Massachusetts Governor Deval Patrick and Evergreen Solar's CEO, Richard M. Feldt (Boston Globe 2008)

Evergreen Solar announced this month that it would shutter its solar wafer and cell production plant in Devens, Massachusetts despite the generous $58 million it received in subsidies from the state.  Eight hundred workers will lose their jobs by the end of March this year.  The company is moving its manufacturing operations to China, where it will enjoy higher levels of government subsidies in the form of low-interest loans and factory wages averaging less than $300 a month.

When you compare a $300 monthly salary with an average Massachusetts factory worker salary of $5,400 a month, it’s little wonder that the subsidy awarded by Massachusetts makes little difference in the company’s long term business strategy – especially given the fact that Evergreen will be able to take most of the money and run.  Of the $58 million award, $13 million was provided through an infrastructure subsidy, $21 million in the form of direct grants, and the remainder was provided in tax credits.  Massachusetts officials stated that the state stands to recoup only $3 million of its $21 million grant, even though Evergreen constructed its factory just two years ago.

In its rush to bag a green trophy business, Massachusetts neglected to attach job creation requirements to the majority of the subsidy.  Only $20 million of the total award contractually required that jobs be created at all.  (For more on green job quality and job creation, including the Evergreen Solar deal, see Good Jobs First’s 2009 publication “High Road or Low Road:  Job Quality in the New Green Economy.”)

It’s never fun to say “I told you so” when the subject is economic development subsidies because it is so often the case that workers will be losing their jobs, so we’ll focus instead on the takeaways:

  1. Job creation subsidies provided to companies that have a history of outsourcing manufacturing jobs are a dangerous bet.
  2. When a company can retain nearly 90 percent of its development subsidy after operating for just two years, it’s time for stricter clawback requirements.
  3. Attempts to combat global market forces and federal trade policy with state tax subsidies are ineffective and wasteful.

After Massachusetts’s experiences with Raytheon and General Electric, one might think they would have learned these lessons by now.

Posted in Clawbacks, Green Jobs, Job Quality Standards, Jobs, Subsidies | 3 Comments »

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