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New Report: Putting Municipal Pension Costs in Context: Chicago

April 4, 2014

Have secretive TIF accounts played a significant role in the underfunding of Chicago pension funds?

A new report out today, Putting Municipal Pension Costs in Context: Chicago, focuses on how Tax Increment Financing or TIF seems to be undermining the city’s budget and has been for the last decade. At a moment when politicians are talking about cutting retirement benefits for civil servants like Teachers, Firefighters, and Policemen, we think it’s useful to remind the public about what’s been dubbed Chicago’s Shadow Budget, none other than TIF.

There’s been no shortage of troubling issues surrounding TIF. We’ve blogged about them a number of times on this blog.

Nearly one out of every ten property tax dollars collected in Chicago doesn’t end up in the city’s general fund or with other taxing jurisdictions that provide public services. Instead, those revenues are siphoned off into what were once secret TIF accounts controlled almost exclusively by the Mayor.

While this report does not specifically call for the abolition of TIF in Chicago or oppose taking other measures to raise the needed revenues to pay for critical public services, we believe that as a matter of honest accounting and fair budgeting, TIF requires careful consideration.

TIF_Costs_Growth

TIF costs have grown significantly in recent years. They have for years exceeded the City’s annual pension liability. Our analysis shows that property tax diversions into TIF have exceeded pension costs in every year since 2007. For example, the city’s pension costs were about $386 million in 2012, while TIF diverted $457 million in property tax revenues in that same year.

TIF_Rev_vs_PensionCosts

When newly elected Mayor Rahm Emanuel took office, he convened a TIF review process in order to fix this so-called Shadow Budget. Although the City made TIF far more transparent as a result, the review did not make TIF any less corrosive towards Chicago’s budget. Recent new rounds of proposed subsidies for things like basketball stadiums and hotels raise serious doubts about whether TIF reform has actually materialized.

Aides to Mayor Emanuel have acknowledged that about $1.7 billion sits in TIF accounts, though $1.5 billion is obligated to various projects through 2017. But if the city is willing to consider breaking pension commitments, why should TIF spending not receive similar scrutiny?

Indeed, in California, Governor Jerry Brown didn’t rule out TIF spending to shore up budgets. Much like in Chicago, TIF in California was siphoning off an enormous amount of property tax revenue: 12 percent overall. When efforts to reform California TIFs failed, the state dissolved the authority of localities to have TIF districts and began the process of unwinding the existing debt obligations.

In the long run, local jurisdictions in California will see a 10 to 15 percent increase in property tax revenues over what they would have had with TIF still in effect.

Over the past decade or so, observers have noted that the City of Chicago had a revenue problem, but rarely have they noted the corrosive nature of TIF spending. According to a 2010 report on pensions issued under the previous Mayor of Chicago, pension funds began running into issues after the year 2000. It was during this period that the city began making what the report dubbed “inadequate contributions” to pensions. Is it a coincidence that property tax revenues lost to TIF more than doubled between 2000 and 2003 and quadrupled by 2007 to exceed half a billion dollars a year?

It’s hard to ignore the evidence that TIF impacted pensions: TIF costs grew, general fund revenues declined, and the city addressed its budget gap in part by making inadequate contributions to public pensions.

Cutting back on TIF in Chicago can and should play a role in shoring up the city’s financial situation.

Coverage of the report can be found at The Chicago Sun-Times & at PandoDaily.

Good Jobs First is a non-profit, non-partisan research center focusing on economic development accountability. It is based in Washington, DC.

Connecticut’s Open Data Website Leads Nation in Adopting Economic Development Transparency Best Practices

April 1, 2014
Screenshot taken from Connecticut's new Open Data website

Screenshot taken from Connecticut’s new Open Data website

Those looking for a model on how to disclose economic development deals should start their search in Connecticut. No joke: Connecticut is cutting edge when it comes to taxpayer transparency on economic development.

Yesterday, Governor Dannel Malloy launched a new website called Data.CT.gov which aggregates numerous datasets that were previously unavailable or difficult to find. Included in this portal are many economic development programs we have doggedly watched and evaluated for transparency and accountability. Our January 2014 study ranked Connecticut 14th on job subsidy transparency: the states’ new website is a clear improvement that would have boosted their ranking into the top ten nationally had it been in use when we ranked all 50 states.

The Governor’s new transparency efforts came to fruition through two executive orders: one creating the website and the other instructing the state’s economic development agency to compile a searchable electronic database of subsidy information.

What makes the Connecticut website such a great model?

  • Clean Data: Often state agencies put up data in a haphazard fashion. Misspellings, data irregularities, and so forth make the data less useable. Worse, sometimes agencies put up data in static, unsearchable PDFs, not databases which contain the same information. When Good Jobs First imports data into our 50-state Subsidy Tracker database, this sort of messy data requires a great deal of clean-up. It’s clear that Connecticut has taken the time to ensure the data isn’t messy.
  • Relevant Data: The Connecticut portal also includes extremely important data that other states frequently forget to include. These fields include things such as clawback amounts, contract date timelines, job benchmarks, the result of a jobs audit, the amount of a subsidy awarded, the amount of a subsidy disbursed in each year, and the facility address. Including these data fields meets many of Good Jobs First’s best practices recommendations. In fact, the only data that really seems to have been omitted from the database is information about the wages and benefits of subsidized jobs (see here).
  • Data Tools: Another open data best practice is to allow users to easily search through the data. The database includes built-in mapping tools, filters, and charts. As the screenshot above illustrates, taxpayers can now easily see on a map all film tax credit recipients that were issued tax credit amounts greater than $1 million.
  • Downloadable Data: Connecticut doesn’t hamstring users like it used to with a single big PDF. Now the data is available in a variety of easy to download formats including XML, CSV, and, of course, Excel spreadsheets.
  • More Data: Frequently states spend a great deal of time disclosing data about a few major programs, but forget to disclose information about other economic development programs. This database includes tax credits, grants, loans, and other economic development tools. For more discussion about tax credit disclosure, see our previous blog on the topic. Connecticut’s data also includes previously undisclosed data about programs. For instance, it includes street addresses for film tax credit recipients.
  • Potential taxpayer savings: In the long run, the database will also save Connecticut taxpayers money. Frequently, Freedom of Information Act (FOIA) requests cost the government great resources in responding. But the new website will include frequently requested FOIA data. In addition to staff time saved, the enhanced ability for more citizens to know how their tax dollars are being spent will prevent waste, fraud, and abuse and enhance accountability.

We encourage you to go on the website and give it whirl: https://data.ct.gov/Business/Tax-Credit-Portfolio-Point-Map/megq-7hbv

Truth in Taxation, Chicago TIF style

July 12, 2013

In a landmark victory for taxpayer transparency, Cook County Clerk David Orr has announced that starting this year, the County’s property tax bills will show how much each property owner is paying into any of the 435 tax increment financing (TIF) districts now active in the County.

This is big news: Cook County is the second most populous county in the United States (after Los Angeles County) with 5.2 million residents. The County’s 435 TIF districts diverted $723 million away from schools and other public services last year. The County includes the City of Chicago which alone has diverted $5.5 billion into TIFs since 1986, and where parents and teachers are now demanding that the City declare a “TIF Surplus” and cough up some of the hundreds of millions of dollars former Mayor Daley squirreled away via secret TIF-revenue transfers.

For more about TIFs in Cook County and Chicago, we recommend taking a look at the County Clerk’s discussion on Youtube:

Don’t Mess with Texas?

June 26, 2013

Texas’ three-decade old anti-littering slogan seems to capture the essence of being a Texan. With such a strongly worded slogan adorning road signs throughout the state, it is unsurprising then that the state is also an ardent enforcer of its economic development agreements. Communities throughout Texas are known to claw back subsidies when jobs or wages do not meet the standards agreed upon. Even the Texas Enterprise Fund, controversial as it might be, tells the public how much it has taken back from companies that do not comply. But recent events in Austin, Texas are beginning to make us question whether Texas is living up to its “Don’t Mess with Texas” reputation when it comes to enforcement of economic development agreements.

An Austin developer building a luxury Marriott hotel failed to follow the terms of the agreement by meeting wage standards. The City of Austin initially recommended enforcing the terms of the agreement, but now it appears that the city may reverse course and let the developer keep the subsidies without meeting the agreed upon wage requirements. The Austin city council will vote on the matter later this week.

We at Good Jobs First think it is imperative for the City of Austin, and cities throughout the U.S., to enforce the terms of its economic development contracts, not just because not doing so would diminish the taxpayer bang for the buck, but also as a matter of civic pride. Texas’ reputation as a place where economic development agreements are taken seriously is rare: don’t ruin your brand.

$2.6 Billion Spent on Cleaning Up DC Rivers Must Address Local Job Creation

June 7, 2013

SinkorSwim_WebBoxOver the next decade, DC Water will use a regressive Impervious Area Charge (IAC) to fund $2.6 billion in needed water infrastructure investments. Middle- and low-income residents and neighborhoods will carry the highest burden of the DC Water fee increase that will pay for these improvements.

Despite the fact that the funding burden of these projects falls heavily on the most vulnerable residents, DC Water has not implemented a local hiring agreement, even though putting residents to work on the project may be the best way to reduce the harm of a regressive fee. These are among the findings of Sink or Swim? Who will pay and who will benefit from DC Water’s $2.6 billion Clean Rivers Project?, a study published this week by Good Jobs First.

More coverage of the report can be found over at the Washington Post and the Washington City Paper’s Housing Complex Blog.

Cities rarely spend so much — $2.6 billion — on infrastructure projects. A strong Community Benefits Agreement could make this public infrastructure investment provide a jobs stimulus benefit to District residents without spending an additional dollar. A proposed Community Benefits Agreement (CBA), like the District’s amended First Source Law, would establish a minimum percentage of work hours that must be performed by District residents, increasing to 50% over the next decade.

The report was commissioned by the Washington Interfaith Network (WIN) and The Laborers’ International Union of North America (LIUNA).

Among the major findings:

  • The impact of the IAC – measured as a share of 2013 property taxes – will be four- to five times greater for homeowners in poor neighborhoods than for those in affluent neighborhoods.
  • Small businesses, especially those east of the river, will feel a heavy burden from IAC fees. Office buildings on K Street will feel little impact.
  • There is no indication that District residents will benefit in proportion to their burden. Contractors on major DC Water projects currently employ more North Carolinians than residents from Wards 7 & 8 combined. Over half the contractor workforce lives outside Washington, D.C. and its immediate surroundings.
  • Continued failure to hire local residents will result in a massive transfer of wealth out of the District. We estimate that over the next thirty years, D.C. ratepayers will be billed $4.2 billion in IACs, including $1.1 billion from Wards 7 and 8 alone.

District residents will pay for these infrastructure investments through a regressive fee for the next thirty years. Low- and middle-income residents will be hit the hardest. These are neighborhoods that have historically been excluded from opportunities in construction careers; to not leverage $2.6 billion in public spending for District construction careers would represent a tremendous missed opportunity.

The Ongoing Economic Development Privatization Fiasco in Wisconsin

May 7, 2013

Wisconsin Governor Scott Walker must decide what to do with the scandal-ridden Wisconsin Economic Development Corporation (WEDC). Few options remain: ignore it, fix it, or declare it a failure.

The privatized economic development agency was created in 2011. Governor Walker proudly proclaimed that shuttering the state’s Department of Commerce and replacing it with a privatized entity would do wonders for job creation in Wisconsin. Good Jobs First wrote a report documenting the tainted track record of privatized economic development agencies throughout the United States. We warned that these quasi-government agencies frequently lead to unaccountable, opaque organizations spending too much taxpayer dough without jobs materializing. With the Governor’s rosy jobs pledges falling short and the WEDC embroiled in scandal, it appears that the agency is destined to be yet another case study highlighting what can go wrong when a public agency becomes privatized.

Last week another scathing audit by the non-partisan Wisconsin Legislative Audit Bureau found a slew of disturbing practices. This follows on the back of other issues previously reported on our blog. The issues read like a laundry list of everything agencies tasked with managing the public purse ought not to do:

  • Millions in taxpayer money went unaccounted for.
  • The law was broken.
  • Large amounts of taxpayer money were awarded to ineligible projects.
  • Questionable and inexplicable purchases appeared, including sports tickets and gift cards (a similar incident brought down disgraced Baltimore Mayor Sheila Dixon).
  • The agency turned a blind eye to recipients of public subsidies, even though the law required them to report publicly on their progress.
  • Staffers at the organization accepted some $55,000 in gifts during a six month period in 2011.
  • The agency failed to disclose to the public known conflicts of interest from an IT consultant awarded a no-bid contract.
  • The WEDC even went so far as to hire an auditor while that same company was negotiating a subsidy deal on behalf of a client with the agency.

These findings just scratch the surface of what was uncovered. To dig into more of the juicy details, read the Audit Bureau’s full report here (summarized here).

Members of Wisconsin legislature, from both sides of the aisle, are calling for immediate changes (a rarity in Wisconsin politics these days). Sen. Robert Cowles, R-Green Bay, has stated that, “this audit shows there is a significant disconnect between our expectations of WEDC and the reality of their performance with regard to transparency and accountability.” The Senate Minority Leader sounded like Cassandra foretelling the fall of Troy: “This is what we were saying from the beginning… there needs to be more accountability… more reporting… When you create a pseudo-government corporation, you want to make sure that you’re having the benefits of both, not the downsides of both.”

Despite the outrage by members of the legislature, the agency has embarked upon a public relations campaign to defend itself. The new CEO of the WEDC continues to claim that it has corrected its old ways and that the agency had not made “intentional violations” of state statutes. Whether the new CEO has a firm grasp on the agency is questionable: he has been on the job only a short time. All three of his predecessors have resigned amid scandal: one was found to owe back taxes to the state; another took a more lucrative job at his old company just 24 hours after accepting the WEDC position; and the first head of the agency resigned after federal investigators found mishandling of HUD money.

Governor Walker has called for an emergency meeting of the WEDC to discuss the problems at the agency. Later this week, the legislature is set to vote on the WEDC’s budget. Will Governor Walker insist that the agency take the audit seriously and implement sensible reforms like those we called for in our 2011 report? Will the Governor ignore the troubling findings altogether? Or will he disband the privatized agency and reinstate the Department of Commerce as the flagship economic development organization in Wisconsin?

State Chamber of Commerce Favors Clawbacks, Job Quality Standards, Enforcement

March 11, 2013

Image_Maryland_Money

Last Friday, at the Maryland Senate’s Budget and Taxation Committee hearing, representatives from the Maryland Chamber of Commerce endorsed cornerstone Good Jobs First reforms. This includes attaching strings to taxpayer-funded economic development deals such as money-back clawbacks when companies receiving taxpayer money fall short. The Maryland Chamber even implied that these reforms should apply not only to economic development subsidy deals, but also public-private partnerships (sometimes called P3’s) such as the concessions operations at Baltimore-Washington International Thurgood Marshall Airport (BWI).

In our two recent 50-state report card studies, Money for Something and Money-back Guarantees for Taxpayers, we documented the growth of these reforms across the states. It has become common practice for state economic development agencies to incorporate clawbacks and job quality standards into deals, though many states still don’t do enough or apply standards unevenly. But as the Maryland Chamber said, it’s a big problem when these agreements aren’t being adequately enforced to protect taxpayer money.

Below is a transcribed passage of the audio from the Maryland Senate’s Budget and Taxation Committee hearing. We think it serves to show the strong support for reforms like job quality standards, clawbacks and enforcement of clawbacks, even from powerful business interests. This portion of the hearing occurs around 1:05 in the recording.

Senator Richard S. Madaleno, Jr. (D-18th District): While the vice chairman raised many of the issues that I wanted to raise, I just wanted to be clear that you are saying Mr. Palmer, you are saying that there are times when in a contractual relationship between the government and a business we can put strings…

Matthew Palmer, Senior Vice President of Government Affairs at the Maryland Chamber of Commerce: Absolutely.

Senator Madaleno: This is how we’re going to treat your workers.

Mr. Palmer: Right.

Senator Madaleno: And in the case when they don’t and they violate that we can have clawback? You support that structure?

Mr. Palmer: Absolutely. And I think that’s important. As [the ABC representative] talked about with these P3’s, the flexibility of whether it’s [the Department of Business and Economic Development (DBED)] or other places actually putting that into contracts, you know, putting those strings as you said, with those companies and being able to, when they don’t meet those, claw that money back. Say OK, you didn’t meet your needs. I think that is absolutely appropriate and they should be held to it. I think that’s the problem. And unfortunately, it seems to me, in some of these instances [as we have heard from the testimonies of  workers at BWI airport, Baltimore’s Inner Harbor and Hyatt], some of those companies were not held to those standards. So I think that’s a big problem.

After Audit Reveals More Trouble Calls to Disband Wisconsin Economic Development Corporation

December 18, 2012

A new audit at the scandal-plagued Wisconsin Economic Development Corporation (WEDC) has many calling for the agency to be dissolved.523px-Capitol_Madison,_WI

Mike Ivey, a prominent columnist at the Wisconsin Capital Times, suggests that the state could have avoided this mess if it had followed the advice of Good Jobs First. He writes: “The agency designed by Gov. Scott Walker to replace the old Commerce Department was simply over its head, short-staffed and filled with political appointees with no experience in handling large amounts of public money. But Wisconsin could have avoided a lot of those problems altogether if it had heeded the advice of Good Jobs First, a Washington, D.C.-based watchdog group that warned of the pitfalls of public-private partnerships like WEDC two years ago.”

This warning came in our January 2011 report Public-Private Power Grab. We had written this at a time when several governors, including Walker, were publicly considering privatizing their economic development agencies. In reviewing how things turned for states that had previously taken that step, we found issues of misuse of taxpayer funds, excessive executive bonuses, conflicts of interest in subsidy awards, questionable claims about job creation and entrenched resistance to accountability.

Wisconsin went ahead with the creation of the privatized WEDC. It now turns out that the WEDC failed to adequately account for some $56 million in loans made to companies. It also was chided by the federal government for mishandling $10 million in federal grant money. The CEO and CFO of the agency have already resigned. Watchdog groups, like WISPIRG, have found the WEDC sliding backwards on transparency issues as well.

The WEDC turns out to be another example of the pitfalls privatizing economic development.

Taxation without Employment: The Case for the District’s Strong Local Hiring Rules

December 4, 2012

DCJobsPlate

Washington, DC —Though D.C. taxpayers are supporting billions of dollars in development, out-of-state residents are reaping the benefits by capturing the lion’s share of construction employment, Good Jobs First concluded in Taxation without Employment: The Case for the District’s Strong Local Hiring Rules, released December 4.

City leaders could reduce unemployment in the District by strengthening enforcement of First Source hiring rules, the study authors concluded. First Source is a jobs stimulus law that mandates certain percentages for participation by District residents on construction projects receiving city funds. The study is available online at: www.goodjobsfirst.org/taxationwoutemployment

“The failure of area contractors to employ District residents is troubling,” said Thomas Cafcas, researcher at Good Jobs First and author of the report. “Too much money has been spent on public works, taxpayer-subsidized real estate development, and job training in the District of Columbia without adequate checks to make sure those public investments maximize job creation for the city.”

Just 2.9 percent of all District workers are employed in the construction industry, a much lower percentage than residents of Baltimore, Boston, New York City, and Philadelphia. As a result, District residents access family-sustaining construction jobs at a lower rate than their peers throughout the Northeast, diminishing one important pathway through which low-income workers enter the middle class.

If District residents got their fair share of area construction jobs, study authors calculated 11,500 more District residents would be on construction sites, and DC’s coffers would benefit from tax revenue from an estimated $386 million in additional wages.

“This study clearly indicates that the District needs local hiring requirements,” said DC Councilmember Kenyan McDuffie (D-Ward 5), Chair of the Council’s Committee on Jobs and Workforce Development and advocate for creating employment opportunities for DC residents. “We have more than 30,000 unemployed men and women in the District, including 4,500 Ward 5 residents seeking work. Based on my conversations with constituents, I believe that many are ready to pick up a shovel and get to work – they just need a chance to prove themselves.”

Nearly one year ago today, Mayor Vincent Gray and the DC City Council strengthened the District’s First Source hiring rules.

Data show contractors on a variety of projects have made significant gains in hiring residents, but only when local hiring is made a priority. For example, Good Jobs First found that residents accounted for 64 percent of new hires and 42 percent of hours worked on one project where local hiring requirements were strongly enforced. On another project where local hiring rules had not been applied, residents accounted for as few as 10 percent of new hires.

Other key findings:

  • Data suggest that there are thousands of DC residents that could potentially benefit from greater access to construction jobs, including the working poor and unemployed residents.
  • In 2010, the District spent $112 million on job training for over 62,000 residents – nearly twice the unemployed population – but saw no change in unemployment rolls the following year. Failure to leverage training money with First Source job opportunities needlessly wastes taxpayer money.
  • A job on a single construction project can have lasting positive professional consequences for DC workers: construction work is often found through informal word-of-mouth referral networks.

Wisconsin Leaves Taxpayers in the Dark

October 18, 2012

A new report released by WISPIRG details the failure of the state of Wisconsin to properly disclose whether its lucrative corporate subsidies are providing the promised benefits. Among WISPIRG’s findings:

  • Just 2 out of 251 entries listed in the state’s subsidy database detailed the projected and actual outcomes for the 2009-2010 reporting period
  • $8.2 million of those subsidies had no reported benefits to Wisconsin taxpayers
  • The newly created public-private partnership, the Wisconsin Economic Development Corporation (WEDC), couldn’t account for how much the privatized state agency has recaptured from recipients failing to meet performance requirements. In their response to WISPIRG, the WEDC claimed that it lacked the staff resources to compile that information.

This isn’t the first time WISPIRG has weighed in on subsidy accountability. In 2007, the group successfully led an effort to improve the state’s subsidy reporting. The resulting Public Act 125 requires the state to disclose corporate subsidy data in a searchable database. Prior to the creation of WEDC, that information was published by the Department of Commerce. The WEDC has not posted Act 125 data on its new website. Instead, that site has a hard-to-find link to the now defunct Commerce agency’s website. The old database is obviously outdated compared to standard practices in other states such as Maryland.

WISPIRG recommends the state do a better job implementing reforms that would ensure taxpayers know which companies are getting a subsidy and whether the state did anything to verify job creation claims. “Taxpayers shouldn’t have to be auditors to find out if the economic development subsidies we fund are delivering bang for the buck,” said Alysha Burt, WISPIRG Program Associate and co-author of the report.  “Even state auditors couldn’t quantify the outcomes of these programs because the information isn’t there.  For all we know, millions of our tax dollars could be funding junkets to the Caribbean.” The WEDC could start by putting a better Act 125 database on its website and featuring it prominently on the main page.

All of this comes on the heels of a deeply disturbing letter sent to the WEDC by the U.S. Department of Housing and Urban Development accusing the state of mishandling federal economic development funds. Shortly thereafter, the head of the WEDC resigned. And a June 2012 report by the state auditing agency, the Legislative Audit Bureau, found that state agencies were regularly failing to submit required compliance reports. Worse, the audit found that the newly created WEDC is required to disclose less information to the public than the old Department of Commerce did.

As our January 2011 report showed, the risks of privatizing a state economic development agency can lead to less transparency and accountability for taxpayers. In many respects, Wisconsin appears to be making the same blunders as other states that have gone down the path of privatization: resistance to accountability, questionable claims about the effectiveness of the privatized agency and misuse of taxpayer funds. Better data could ease those concerns.

And there are also conflict of interest issues. The new private-public agency has past recipients of lucrative subsidies deciding how the agency should operate. Companies represented on the board of directors include Logistics Health and FluGen. Logistics Health received at least $3.25 million in tax credits and loans, while FluGen collected at least $2.25 million. Logistics Health didn’t meet its projected job creation thresholds. According to the Act 125 database, FluGen didn’t even have job creation requirements.

We hope that WISPIRG’s report will serve as a wake-up call to taxpayers and legislators in Wisconsin and elsewhere. Without adequately disclosing subsidies, their purported benefits and outcomes, taxpayers will be left wondering why they have fewer services and/or higher taxes.


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