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Cook County, IL Succeeds at Truth in Taxation!

July 11, 2014

Screen Shot 2014-07-11 at 3.07.30 PM

One year ago today, Cook County Clerk David Orr announced plans to print TIF revenue diversions on county property tax bills. We previously blogged about this effort, eagerly awaiting this TIF transparency enhancement.

Wait no longer! The Cook County Clerk’s office made good on its promise of taxpayer transparency and has issued property tax bills containing information about TIF for each individual property owner. For that we congratulate them on bringing needed sunlight to TIF in Chicago and other municipalities in Cook County.

We hope jurisdictions across the country take notice of Cook County, Illinois. Taxpayers have a right to know how their taxes get spent. With so much property tax revenue in Chicago never ending up in the city’s general revenue fund, printing TIF costs on tax bills enables citizens to make better judgements about the value of TIF projects and how their taxes get spent. We applaud such efforts.

For more Good Jobs First research on TIF revenue diversions in Chicago, see our 2014 report.

For more about how Cook County printed TIF on property tax bills, see the County Clerk’s website and watch the Youtube Video below:

Virginia Governor Vetoes Bill That Would Ban Pay-To-Play on Subsidies

May 30, 2014

This week, Virginia Governor Terry McAuliffe vetoed a bill that would have banned corporations seeking Governor’s Opportunity Fund (GOF) subsidies from making contributions or gifts to the elected official awarding those subsidies: in other words, the Governor himself. The bill had unanimous two-chamber support among both Republicans and Democrats, and members of both parties criticized the Governor’s action.

Governor McAuliffe’s primary objection cited in the veto to the bill was that state legislators ought to be held to the same standards. The statute and guidelines state that GOF subsidies are awarded primarily at the discretion of the Governor, though the General Assembly and the Attorney General have a modest oversight role. One co-sponsor of the bill stated that he hopes to re-introduce the bill again next session, though it’s unclear whether the bill will stay in its current form.

It’s a strange moment in Virginia politics. The bill arose out of concern related to the previous Governor’s gift scandal. Just after leaving office in January, former Governor Bob McDonnell was indicted, something that had never happened before in the state.

Is such legislation needed in Virginia?

Good Jobs First previously highlighted an apparent pay-to-play issue in Virginia when McDonnell awarded Northrop Grumman $3 million in GOF subsidies after receiving major campaign contributions from the company.

While banning contributions to politicians from companies seeking subsidies is one way to encourage stronger ethics in government, another approach could be to ban companies from receiving subsidies if they have given or subsequently give contributions to officials awarding or enforcing subsidy contracts. Both would deter pay-to-play practices. Excluding subsidies to campaign contributors would be far easier to implement by shifting implementation away from elected officials and onto agencies awarding subsidies. Just as failing to create jobs can result in recapture or rescission of subsidies, a subsidy contract can undergo a clawback if the agency finds that a company has given to key public officials.

Apparent pay-to-play subsidies are not a problem isolated to Virginia. For example:

  • Texas: As we blogged previously, several newspapers have suggested that economic development subsidies controlled by Texas Governor Rick Perry are tied to fund-raising.
  • Wisconsin: Investigative Reporter Mike Ivey reported this week that the Wisconsin Economic Development Corporation, a privatized economic development agency, has awarded more than 60 percent of $975 million in subsidies to companies that have contributed to Governor Scott Walker or the Republican Governor’s Association.

For decades, state and cities have taken strong stances against allowing gifts and campaign contributions to contractors. Why not ensure the same level of integrity when it comes to economic development spending?

Rhode Island Considers Defaulting on Bonds for Notorious 38 Studios Deal

May 22, 2014

The aftermath of Rhode Island’s biggest economic development scandal isn’t over yet. In 2010 the state’s privatized economic development agency loaned 38 Studios—a video game company founded by former major league pitcher Curt Schilling—some $75 million in subsidies which the state borrowed to provide. The firm soon failed, apparently leaving taxpayers with an obligation that has risen to $89 million (with interest), including a $12.3 million payment due next year.

Those payments are now in question. Rhode Island’s House Speaker Nicholas Mattiello has scheduled meetings with Moody’s and Standard & Poor’s to discuss the consequences of failing to pay. While these bonds are not backed by the full faith and credit of Rhode Island, a previous consultant to the state made dire warnings about failure to pay, claiming that the move would degrade Rhode Island to junk bond status.

Mattiello became Speaker two months ago after the FBI raided the office of his predecessor Gordon Fox, who had played a significant role in approving the loan to 38 Studios. According to recent news reports, Fox’s lawyer moved to quash a subpoena for documents related to 38 Studios, citing his client’s Fifth Amendment right against self-incrimination. No charges have been filed pursuant to the raid.

Fox also had connections to a Providence lawyer named Michael Corso, who was involved with the 38 Studios deal.  Leaked documents show that Corso was paid $300,000 by 38 Studios to interact with state agencies and officials. Additional revelations show Corso was paid $485 an hour by 38 Studios to evaluate potential incentives for the company. Corso failed to register as a lobbyist on behalf of 38 Studios. This revelation launched an additional investigation this May by State Police into potential lobbying violations.

Corso is also a tax-credit broker. His company, Preservation Credit Fund, had a contract with 38 Studios to allow it to sell tax credits secured by the company. According to Corso’s LinkedIn page, “Preservation Credit Fund works closely with developers and advisors to maximize tax credit benefits, advise on tax credit issues and provide syndication services.” Corso has been dubbed the state’s leading film tax credit broker and has even claimed to be the primary draftsperson of Rhode Island’s Historic Preservation Tax Credit.

In another strange development, the state recently hired First Southwest, a financial adviser it is simultaneously suing for “fraud, negligence, and legal malpractice” in connection with the 38 Studios loan. According to the state’s lawsuit and reported by the Providence Journal, First Southwest was paid $120,000 to pitch the 38 Studios’ loan subsidy to the privatized economic development agency’s board of directors and bond rating agencies.  The lawsuit accuses First Southwest of withholding vital information about the deal, primarily that the company was under-capitalized, thus making the loan appear less risky than it was. The company denies these allegations. New emails made public this week reveal internal discussions amongst 38 Studios executives about downplaying the under-capitalization issue.

It is a little-known fact that states and cities sometimes cover debt obligations for failed or troubled economic development transactions (including tax increment financing districts), even though they are not technically obligated to do so. But the fear of paying usurious interest rates on future deals causes them to reluctantly pay. Good Jobs First has observed that in the Great Recession, some development agencies apparently became very lax in their deal-vetting standards, as politicians were desperate to appear aggressive on jobs.  For performance-based subsidies, at least taxpayers won’t suffer from such deals; but when public debt is floated on insufficient collateral, as in the Studio 38 deal, taxpayers stand to suffer no matter what Rhode Island officials decide to do.

It’s a Teachable Moment about celebrity entrepreneurs, tax-credit consultants, and anxious politicians.

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.


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