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Supersizing New Jersey’s Subsidies

April 8, 2014

What a waste

Economic development incentives are making headlines again in New Jersey.   Following a massive legislative overhaul of the state’s business subsidy programs last year, Good Jobs First predicted that the state would quickly lose control of spending through the expanded programs.  It took less than a year for the state Economic Development Authority (EDA) to prove us right.

The (Bergen) Record revealed this weekend that under the new subsidy structure the EDA has awarded twice the amount of business incentives as it did during the first quarter of last year:

“The grants so far, awarded in the form of tax credits, totaled $355 million. That’s about $89 million a month, compared with about $36 million a month awarded under the state’s main incentive programs in the first nine months of 2013, authority data show. The state made about six awards a month under the revamped programs, nearly double the number in the first nine months of 2013.” (source)

Prior to the state’s business subsidies undergoing scrutiny as a result of the ongoing David Samson/Christie-Gate scandal, and even before the structural overhaul that has allowed the current subsidy surge, New Jersey was already facing criticism for its excessive spending on business incentives.  During its first two and a half years, the Christie Administration awarded nearly $2 billion in tax incentives and grants.

All this spending has done little to help the state’s economy.   New Jersey’s employment recovery rate lags behind the rest of the nation and reports that small business owners are still having trouble accessing Hurricane Sandy recovery funds are persistent.  Unfortunately for residents, the Christie Administration has already demonstrated that doubling the state’s already ineffective business incentive spending isn’t likely to have much of an impact.  Supersizing subsidy spending is no recipe for prosperity in the Garden State.

Accountability Updates in Oregon

March 20, 2014

intel sign

Two new reports released this week by watchdog groups in Oregon show mixed results for accountability of the state’s economic development subsidies.

OSPIRG released Revealing Tax Subsidies 2014, an update to its previous evaluation of how well the state is complying with its three year old transparency law.  While the state has improved its disclosure since OSPIRG’s last assessment, especially for large controversial programs, the group found that the state is still failing to report key information for 14 of the 19 subsidies covered by the law.  In particular, many of these under-disclosed programs are missing information about the economic outcomes (e.g. jobs, wages, or investment) ostensibly generated by these subsidies.

Lacking such information, it is impossible to know whether the colossal corporate tax subsidies documented this week by the Institute on Taxation and Economic Policy and Citizens for Tax Justice are actually doing the state any good.  The Oregon Center for Public Policy announced yesterday that at least 24 (and probably many more) of the state’s most profitable corporations included in that report have paid no state income tax in recent years.  Oregon has a minimum corporate tax, but companies are able to dodge their tax responsibility with economic development subsidy tax credits.

Read the full OSPIRG report here and see OCPP’s reporting on corporate tax dodging here.  The ITEP/CTJ national study is available here.

New Jersey’s Economic Development Incentives Face Scrutiny with Christie Administration

March 5, 2014

Christie troubleAs the Christie Administration faces intensifying scrutiny over the Governor’s relationships with his political appointees, the state’s economic development incentive awards have also come into question.  This week The New York Times revealed that David Samson, Chairman of the Port Authority and the central figure of “Bridge-gate,” also played a critical role in expanding the scope of New Jersey’s subsidies through his law firm Wolff & Samson.  In addition to lobbying for tax breaks for Honeywell, the firm also served as counsel for the state’s bond deal on the controversial Panasonic relocation, and represented the infamous Xanadu (now American Dream) project when it sought a new set of subsidies from the state.

New Jersey Policy Perspective revealed a year ago that the volume and value of special tax breaks given to companies mushroomed under Gov. Christie’s leadership, rising to a record $2.1 billion in the first three years of his term.  But the subsidy blowout hasn’t demonstrated a positive effect on New Jersey’s employment rate, according to Jon Whiten at NJPP.  Compared to the national average, the state has recovered half as many jobs following the recession.  We may now be getting a better understanding of how these subsidies were used, if not for job creation.

Read the full article “In Job, Appointee Profits and Christie Gains Power” at The New York Times website.

New Jersey’s Big Money Clearing House

February 25, 2014

-money-houseLast week the Huffington Post revealed another chapter of the still evolving Christie-Gate saga (now including economic development subsidies!).  The New Jersey Governor’s mansion, used extensively by the Christie Administration for fundraisers and state business, is maintained by the Drumthwacket Foundation – a non-profit of modest means until the current administration.  That is no longer the case, as Christina Wilke exposed last week.  Donations to the Drumthwacket Foundation have skyrocketed in recent years, many of them made by businesses and individuals seeking economic development incentives, high profile appointments, and government contracts.

Chief among these donors are John Strangfeld, the chairman of insurance giant Prudential, and his wife, Mary Kay Strangfeld – now also chairman and vice chairman, respectively, of the Drumthwacket Foundation.  A year after the Strangfelds assumed leadership of the foundation, Prudential received a jaw-dropping $250 million tax subsidy deal from the state Economic Development Authority that didn’t even require the company to create any new jobs.  (Prudential is massively subsidized in other states as well – see our new Subsidy Tracker 2.0 database for more information on awards to the company’s subsidiaries across the nation.)

Head on over to the Huffington Post for more details on the Strangfeld/Prudential deal and the rest of the story – it deserves to be read in its entirety.

Kansas’s PEAK Subsidy Fails Performance Audit

October 3, 2013

bummer for the sunflower stateA Kansas state legislative audit of the controversial Promoting Employment Across Kansas (PEAK) subsidy program found that it is inadequately managed and that previously approved deals exceed the program’s spending cap.

Clawback readers may recall that PEAK is no stranger to controversy – it is Kansas’s most used subsidy in the bitter jobs war with Missouri that continues to ravage the Kansas City metropolitan economy. PEAK diverts the state personal income tax withholdings of employees as a subsidy to those workers’ employers.  It was enacted in 2009 to compete with Missouri’s similarly structured Quality Jobs tax credit, and has unfortunately inspired copycat programs in other states.  (For more information, see Good Jobs First’s 2012 report on personal income tax diversion subsidies, Paying Taxes to the Boss.)

Despite its poor program disclosure, in 2012 the Kansas City Business Journal was able to determine that PEAK was subsidizing short border-hopping company moves primarily in the counties around Kansas City.  At that time, 44 of 55 participating businesses were located in either Johnson or Wyandotte Counties. The list of subsidized businesses included the headquarters of movie theater company AMC Entertainment, which was sold by Bain Capital to a Chinese company shortly after its PEAK award was approved.

The audit provides clear confirmation of PEAK fueling the border war.  Legislative auditors found that all but a handful of PEAK awards were given to companies relocating into JohnsonCounty.  Of the 1,550 jobs represented by companies in JohnsonCounty, all but 110 came directly from Missouri.

More disturbingly, the audit revealed that in general, “officials have prioritized getting companies into the program rather than monitoring and measuring program results.”  Specifically, auditors found that:

  • Assessing the benefits of the PEAK program is difficult because the Department of Commerce has not compiled meaningful information on the program.
  • The department’s data were incomplete because many companies had not submitted the required quarterly and annual reports.
  • The data were also incomplete because the department had not processed companies’ quarterly reports that were filed.
  • The department had not sufficiently verified the self-reported data it compiled in its information system.

The state revenue loss due to the PEAK program has grown from $2.7 million in 2010 to an estimated $12.5 million in 2012.  Among the most damning findings of the audit is the fact that the Department of Commerce has exceeded the statutory financial cap that limits awards made through the program to $6 million annually.  Commerce authorized $7.5 million in PEAK credits for fiscal year 2013.  This has ignited an embarrassingly amateur debate between the department and the legislative audit office over whether the cap is cumulative or annual.

Although disappointing, these findings shouldn’t come as a surprise to those who beat the jobs war drums in Kansas.  Their rush to engage with Missouri’s equally irresponsible fiscal behavior has produced an all too familiar result.

New Jersey Subsidy Overhaul Scraps Cost Controls and Accountability

September 19, 2013

Fallout from Hurricane Sandy and this month’s tragic boardwalk fire are not the only costs that New Jersey taxpayers will face in the coming years – Governor Chris Christie has signed off on a massive overhaul of the state’s business subsidy system that will cost the state plenty.

The Economic Opportunity Act of 2013 consolidates New Jersey’s biggest subsidy programs into two programs that will likely cost more than the largest five currently do.  Gone are the Business Employment Incentive Program (BEIP), the Urban Transit Hub Tax Credit, and the Business Retention and Relocation Assistance Grant (BRRAG) tax credit.  The state will now award job subsidies to companies through the Economic Redevelopment Growth Grant and the Grow New Jersey program.  Supporters of the Act argue that streamlining and simplifying New Jersey’s subsidy system will enhance the business climate of the state, but the legislation is seriously deficient in the matter of accountability.

This is not to say that the state’s previous subsidies were without problems.  In its nearly two decades of use, BEIP awards have cost the state over $1.5 billion.  At one point, the New Jersey Economic Development Authority was even issuing bonds in order to meet its BEIP debt obligations to subsidized companies.

Recently the Christie Administration has accelerated its subsidy spending, amounting to more than $2 billion awarded to companies in the last 3 years alone through a combination of programs.  Over half of that amount was spent through the once-credible Urban Transit Hub Tax Credit program, a subsidy designed to spur development near transit stations.  With the support of Gov. Christie, the pool of credits available for the program was expanded and quickly exhausted, with many of the awards going to companies making short in-state moves.

The two remaining subsidy programs are deeply flawed.  The Economic Redevelopment and Growth Grant (ERG) program, enacted in 2008, diverts more types of tax revenue away from public coffers than any other tax increment financing program in the nation.  One of the first awards made through this program was a bailout for the struggling Revel Casino in Atlantic City – a project so financially toxic that Morgan Stanley walked away from its nearly $1 billion investment in the development.  (Revel has since declared and emerged from bankruptcy.)

Ironically enough, the other surviving subsidy, Grow New Jersey, was enacted to appease suburban and rural areas that had lost jobs through headquarters relocations subsidized by the out-of-control Urban Transit Hub Tax Credit program.  Since the first application was approved in April 2012, the state has awarded an average of $22.2 million per month to New Jersey businesses.

Unsurprisingly, in their new iterations, Grow New Jersey and ERG lack aggregate cost controls.  There is no annual or program-wide cap for use of either subsidy, virtually ensuring that New Jersey’s economic development spending spree will continue unchecked.  The potential costs to the state are immeasurable; fiscal analysis of the bill conducted by the Office of Legislative Services concluded that “the bill will produce an indeterminate multi-year State revenue loss” but it “cannot project the direction or magnitude of the bill’s net fiscal impact on the State and local governments.” There is a   $350 million maximum subsidy per company but business eligibility criteria have been loosened.

Aside from the potentially astronomical costs to the tax-paying public, the Economic Opportunity Act of 2013 introduces a host of other accountability problems to the state’s subsidy system.  Chief criticisms include the inclusion of retailers as eligible recipients, the removal of the state’s long-standing prevailing wage requirement for subsidized facilities, the elimination of the requirement that subsidized businesses pay a portion of health care benefit premiums, the allowance for businesses to count part time employees toward job creation requirements, and the high probability that both subsidy programs will accelerate suburban sprawl in the state.

In spite of the Christie Administration’s unprecedented spending on business subsidies over the past three years, New Jersey’s economic recovery lags behind most of the nation.  At last count, the state unemployment rate was 8.7 percent, earning it a ranking of 43rd in the country.  More unchecked spending on business subsidies is surely no remedy for the state’s employment problem.  The definition of insanity is doing the same thing over and over again and expecting different results, an adage unfortunately lost on Gov. Christie and New Jersey’s lawmakers.

California Enterprise Zones Tax Credit Overhaul Enacted

July 1, 2013

CA EZ 2Last week brought a satisfying conclusion to Governor Jerry Brown’s two year effort to bring an end to California’s controversial Enterprise Zones (EZ).  Assembly Bill 93 passed the Senate with a required two-thirds vote and awaits the governor’s signature.  While falling short of Gov. Brown’s original intent to completely eliminate the $700 million per year program, the bill will implement critical reforms to EZ hiring tax credits and de-fund the most wasteful aspects of the subsidy.

The EZ program has been criticized in the past for failing to actually create jobs, its spiraling out-of-control costs to the state, directing the vast majority of its financial benefits to extremely wealthy companies, subsidizing low wage employers and job sprawl, and assisting a company that replaced its entire unionized work force with new workers.  Last month it was discovered that two strip clubs were receiving hiring tax credits for their employees.  Throughout its 27 year history, the program has never been transparent to taxpayers and recent revelations about which companies are getting tax breaks have unleashed a wave of opposition from interest groups and the public alike.

Among the reforms to EZ hiring tax credits enacted by AB 93 are:

  • A requirement that a business actually grow new positions to qualify for tax credits
  • A wage standard of 1.5 times the minimum wage for new jobs
  • Targeted hiring of ex-offenders, unemployed, veterans, and people receiving income assistance (credits are limited to these employees)
  • Public transparency requirements

In order to secure reforms to the hiring tax credits, the bill’s proponents enacted two new business tax credits, both of which would be funded with the state’s savings resulting from reduction of hiring credit activity.  A new credit against the state sales and use tax could be claimed by biotech and manufacturing companies for the purchase of business equipment.  Unfortunately, this credit will have no statewide or annual cap, although business purchases that exceed $200 million annually per company are ineligible.  The state estimates its cost at $400 million a year.

The second subsidy program enacted with AB 93 would take the form of a competitive discretionary fund.  Tax credits would be awarded to major job creation-focused projects approved by a newly established California Competes Tax Credit Committee, which would control $200 million worth of tax credits per year.

Only time will tell if California has traded one boondoggle subsidy for another, but it is encouraging that the new programs will be held to higher standards of accountability and transparency.  Almost anything will be an improvement over the EZs, and for the time being at least, California appears to have learned its lesson.

Economic Development Among Consenting Adults

June 14, 2013

Lalo Alcaraz (c) 2013

California has unwittingly joined New York and Pennsylvania in the distinction of subsidizing strip clubs. Is there a bi-coastal consensus for, ahem, full disclosure?

Late last month, as a part of California Governor Jerry Brown’s campaign to end the wasteful and ineffective Enterprise Zone (EZ) program, the Sacramento area EZ businesses list was made public.  This disclosure of companies benefiting from EZ hiring tax credits was the first time that taxpayers in California have ever had access to information about which companies receive economic development subsidies through the program and how much those tax breaks are worth.

In addition to showing that the state provides subsidies to highly profitable corporations and a casino, the list revealed that two strip clubs in the town of Rancho Cordova have been claiming EZ tax credits since at least 2010.  Gold Club Centerfolds is receiving tax breaks worth up to $37,440 apiece for nine employees, and Déjà Vu Showgirls is receiving the same deal for 13 employees.

It is unknown how many other “adult” businesses in the state are getting such tax breaks because the identities of EZ businesses are usually hidden from public scrutiny based on (clearly misplaced) taxpayer confidentiality policies.

As we blogged last week, the California EZ program is also extremely expensive, with an annual loss of state revenue now more than $700 million headed towards $1 billion.

California is not the first state to embarrass itself by subsidizing sexually-oriented businesses.  New York City provides substantial tax breaks to thousands of businesses through its Industrial and Commercial Incentive Program (ICIP).  In 2010, the New York Daily News revealed that at least three strip clubs were receiving subsidies through ICIP.  The scandal led many organizations, including Good Jobs New York, to call for an overhaul of the misguided program (NYC’s costliest).

Similarly, Pennsylvania’s Keystone Opportunity Zone program (KOZ is the state’s name for Enterprise Zones) became embroiled in considerable controversy when an “adult entertainment business” in LycomingCounty landed in a KOZ in 2005.  The business was later forced to relocate after an utterly predictable land use conflict with the nearby Little League World Series Complex, and the KOZ rules were modified to prevent strip clubs from receiving tax breaks.  Unfortunately, this eligibility rule is literally one of the only restrictions on uses of KOZ subsidies and the identities of participating businesses remain hidden from the public.

The common element these three costly programs share is secrecy: none publicly discloses recipients of the tax breaks.  Hiding government expenditures is a guaranteed recipe for waste and abuse.   Public outrage is justified when the veil of taxpayer confidentiality is lifted to reveal a subsidized strip club or other controversial enterprise.  Whether or not such uses of economic development funds are appropriate should be decided in broad daylight; without subsidy transparency, continuing scandals are inevitable.

(Comic compliments of Lalo Alcaraz, (C) 2013)

California Enterprise Zones On the Chopping Block (Again)

June 7, 2013

CA EZsGovernor Jerry Brown has again proposed elimination of California’s much-maligned Enterprise Zone (EZ) program in order to help balance the state’s precarious budget and redirect the foregone business tax revenues to better uses.   (Gov. Brown’s previous attempt to cut the program in 2011 during a severe revenue shortfall was thwarted by business groups and localities seeking to retain the business tax breaks; the state instead eliminated municipal redevelopment agencies.)

In the past, the state has hidden the names of companies getting the EZ tax breaks of up to $37,000 per employee.  Multiple disclosure requests by Good Jobs First and other accountability-minded organizations have been denied by California’s Franchise Tax Board, which claimed tax confidentiality.   For the first time, however, recipient data has just been released by the Sacramento area Enterprise Zone administrator.

The Sacramento Bee revealed that over 6,000 employment vouchers—essentially the bounty documents for EZ tax credits—have been claimed by county businesses since 2010.  FedEx alone benefited from nearly 1,400 vouchers.  Other notable recipients include Verizon, Wells Fargo, and Walmart.  However, the most notorious enterprise zone claimants are a casino and two strip clubs in Rancho Cordova.

The EZ program is no stranger to controversy.  Policy makers have been reluctant to cut or even reform the program, even in the face of evidence that it has had zero net effect on job creation in the state.  The lost revenue currently costs the state approximately $750 million a year and is projected to grow to over $1 billion annually in coming years.  Seventy percent of those tax dollars go to companies with assets valued over $1 billion.  Even more troubling, companies can retroactively claim EZ credits for employees hired up to five years in the past—even if the person is no longer working at the company—meaning that there is literally no incentive for new job creation in order to receive the subsidy.

The state also allows companies to claim EZ credits for new hires, rather than on net new positions created.  Companies don’t need to be creative to abuse the poorly designed system.  VWR, formerly located in Brisbane, laid off 75 unionized workers and moved across the state to Visalia, where it located its new facility in an Enterprise Zone and receives tax credits for the (non-union) replacement hires.  In Anaheim, stadium concessions contractor Anaheim Arena Management recently announced it would lay off 500 workers, the replacements for which would be eligible for EZ vouchers under current program rules.

Clearly it is time for California to rethink its costly EZ program.  A program that fails to create jobs, subsidizes wealthy and abusive businesses, and incentivizes job churn cannot be called economic development.  Whether California elects to reform the program to actually create jobs or eliminates it altogether, it is past time the state made this use of economic development dollars deliver for taxpayers.

More Subsidy Disclosure Coming in Oregon

March 15, 2013

winThis week our friends at OSPIRG scored another major win for subsidy transparency and accountability. OSPIRG, which played a central role in getting the state to adopt tax credit disclosure in 2011, is now bringing transparency to another key subsidy, the Strategic Investment Program (SIP).  SIP exempts many of Oregon’s largest and richest companies (especially Intel) from property taxes, based on agreements that those companies will be creating jobs.

Business Oregon, the state’s economic development arm, recently denied an open records request by OSPIRG to provide details about the state’s SIP deals.  OSPIRG then appealed to the state Department of Justice, which decided in favor of transparency and ordered Business Oregon to release records of the deals by next week.  The economic development agency is expected to comply.

While Good Jobs First has successfully obtained some types of SIP subsidy details in the past, the public has never had access to information about what exactly companies are promising in return for the special tax breaks.  Citing the program’s $322 million biennial cost, Celeste Meiffren of OSPIRG stated that “disclosure of information about SIP and all other economic development tax expenditures is important because taxpayers need to be able to track their return on investment.”

Way to go, OSPIRG!


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