Author Archive

Good Jobs First: Open for Business!

April 1, 2015

cash-flowIn our quest for revenue diversification, Good Jobs First is pleased to announce that we are Open for Business! Advertisers: don’t be misled by our wonky, ethical façade: we’re ready to go head-to-head with associations and public media bulking up on pay to play!

Naming Rights: Subsidy Tracker 3.0, the hottest spot on our website, is available for the right price! Reach tens of thousands of unique visitors a year: non-profit, for-profit, public sector, tons of journalists. A super nameplate for a technology company in the government IT space. Our Smart Growth for Working Families page is just waiting for the right transit-vehicle or construction/engineering sponsor—even a law firm. And our email list, with its incredible open rates: great visibility—no monkeying around!

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Individual States/Megadeals: Is your company one of those pulling down nine or ten figures and hobbling a state’s budget for decades?  Show your pride and sponsor that state’s page at Accountable USA! We’re thinking of a certain aerospace company in a rainy place… A microchip company next door… A metals company near a famous hydro-power source… A medical lab close to orange groves… A failing retailer that left a very tall building… C’mon folks, you know who you are! We’ll also accept clever historical references (Con Agra: Nebraska is still available! Fidelity Investments: we have Massachusetts for you! Sorry, Rhode Island: 38 Studios struck out.) Who’s in your wallet?

State and Local Agencies: Your economic development agency can sponsor an Accountable USA page—featuring your “report card” accountability grades. Or perhaps you’d prefer to sponsor a pop-up that covers up that grade—let’s talk! We can’t promise anything of course, but who knows what our next report will find? Hey, maybe we’ll divide the country up so there can be six winners! Just think about it.

War Among States Special: Planning to relocate closer to the boss’s exurban home or his favorite golf course? Realize you can get paid for creating “new” jobs by just jumping a state line and merely changing people’s commuting patterns? Why not sponsor the losing state’s page in a show of tough love, to show you really do care about its future without you—even link to a prospectus about your abandoned facility to help the state market it! Show me America’s bread basket!

Association Specials: The American Legislative Exchange Council (ALEC) issued a paper on “The Unseen Costs of Tax Cronyism” even though some of its corporate leaders are with big subsidy recipients. Of course, we have no favorites in this association space: we’d love to hear from the governors (hey, it’s only been 22 years since they last debated the economic war among the states), state legislatures, counties, cities, development officials, development financeers, and their sponsors! Ah, the power of ideas!

Invisible Sponsorships: For site location consultants wishing to remain in the shadows, we’re offering fingerprint-free sponsorships of [recruitment records exempt from FOIA]. You can’t bash whatcha can’t see.

Happy April Fools’ Day!

DC Subsidy Transparency Leads to Campaign Finance Reform

March 27, 2015

On the heels of a terrific NPR-station exposé, the District of Columbia has become the first large U.S. jurisdiction to enact campaign finance reform thanks to job subsidies becoming transparent.

moneybags

In 2011, the D.C Fiscal Policy Institute convinced the DC Council to require an annual Unified Economic Development Budget (UEDB, a key Good Jobs First reform). Better than most UEDB’s that report only program costs, DC’s UEDB was how DC began online recipient disclosure for all subsidy transactions worth more than $75,000 in any fiscal year. It was a landmark moment in economic development transparency: District subsidies are now posted online in a single place for all to see.

When the data came online in 2012, WAMU reporters Julie Patel and Patrick Madden began investigating rumors that big campaign contributors were also getting big subsidies. Their 2013 series, “Deals for Developers, Cash for Campaigns,” mashed up campaign finance reports with subsidy deals. The results shocked many: over a decade, 10 big developers had given more than $2.5 million in campaign contributions to political candidates and then received nearly a third of the District’s $1.7 billion in subsidies examined. Despite strict campaign finance laws capping such donations, developers skirted the law by forming multiple LLCs and donating to candidates from each of them—the “LLC loophole.” Madden and Patel built a timeline that found such campaign donations were also timed noticeably close to subsidy award, suggesting an influence connection.

Timing of Campaign Contributions & Awarding of Subsidies (credit: WAMU)

 

So thanks to economic development transparency, the District learned it had a massive campaign finance loophole. Council members were outraged and eventually passed a bill in 2013 to close the LLC loophole. The new law went into effect in January 2015 and LLC bundling is no longer legal. Before the loophole took effect, numerous developers rushed to make significant contributions. Unfortunately, political consultants are already suggesting the law be defeated by trusted campaign staffers to run Political Action Committees (or PACs) which can take unlimited campaign contributions after the Citizens United decision.

While subsidy transparency can reveal influence and loopholes and spur officials to act, ethics in government need more than local campaign finance reforms. Mashing up subsidy disclosure data and campaign finance records can change the public discourse and allow citizens to demand greater ethics from their elected representatives.

Chicago Mayor’s Proposed Tax-Free Zones No Policy Panacea

March 26, 2015

As early voting begins in the Chicago mayoral runoff election, incumbent Rahm Emanuel has proposed tax-free zones allowing businesses exemptions on property, income, and sales taxes in impoverished neighborhoods. The idea is neither new nor promising. In fact, Illinois already has six Enterprise Zones in Chicago and they have very mixed track records.

For example, Pepsi Cola General Bottlers, Inc. received Enterprise Zone subsidies, but automated its business processes and shed 14 positions after applying for the subsidies. The Sherwin Williams Company’s Chicago facility had 12 fewer jobs than when it applied for Enterprise Zone subsidies. And although the Solo Cup Operating Corporation has gained 24 jobs since applying, according to public documents, the company did not make use of Enterprise Zone State Utility Tax Exemptions for which it was eligible. In other words, they hired without needing subsidies.

Research on the effectiveness of enterprise zones makes it clear these anecdotes are not atypical. As the Minnesota State Legislature found in a review, “the economic effects of enterprise zones remain unclear. Most studies find no significant increase in employment, while a few do.” Moreover, it concluded that enterprise zones are most likely to be successful in already thriving areas, not blighted ones. Most importantly, the review suggested that subsidies should never let the quality of public services drop as it would easily wipe any positive effects of the policy. However, many of Chicago’s poorest neighborhoods have been made less desirable by Emanuel’s closure of 50 public schools. Emanuel has proposed shifting dollars from other subsidies, including the heavily criticized TIF program, to pay for his rendition of enterprise zones.

For the average company, state and local taxes amount to less than two percent of their overall cost structure. The business basics—the 98 percent of corporate cost structures that are not state and local taxes—almost always dictate why companies expand or relocate where they do, factors such as access to a qualified workforce, proximity to suppliers and customers, energy costs, availability of high-quality infrastructure and logistics.

Tax Breaks Don't Move the Needle

Tax Breaks Don’t Move the Needle

But while tax breaks can do little to move the needle on corporate location decisions, the opportunity costs can be enormous. Indeed, as we documented last year, subsidies in Chicago appear to have significantly harmed public budgets. Since 1985, some $5.5 billion in property tax revenues have been diverted into TIF accounts and one out of every ten property tax dollars now ends up in TIF districts instead of funding schools and other public goods that benefit all of Chicago’s employers by investing in the labor force and infrastructure as well as keeping up with the city’s bills.

It’s also important to consider that enterprise zones may do little to target job creation to communities of need. Without adequate community benefits like local hiring policies included in enterprise zone policies, companies may not hire from within a neighborhood hungry for jobs enabling inclusive revitalization and a pathway to the middle class.

Report: District of Columbia Job Subsidy Practices In Need of Improvement; Lag Behind Nearby Jurisdictions

February 11, 2015

 

Washington, DC—Despite the District of Columbia embracing four leading best practices, other basic economic development standards and safeguards remain absent.

WebBox_ABetterDealfortheDistrict_FINAL_Feb6Broadly, the District has four major shortfalls:

  • failure to set job creation and job quality standards,
  • lax reporting on project outcomes,
  • failure to enforce existing standards, and
  • the need for an online transparency database.

The report is available at:

http://www.goodjobsfirst.org/ABetterDealForTheDistrict

Despite such shortcomings, experience shows that the District can rapidly change course. For example, recent enhancements raised D.C.’s ranking on job subsidy transparency from dead last to 26th among the states in a 2014 Good Jobs First national report card study.

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Audit of Texas Subsidies Reveals Lax Oversight, Enters Gubernatorial Debate

October 8, 2014

A new audit of the controversial Texas Enterprise Fund is casting deep doubts on economic development practices in Texas and has become a key issue the current gubernatorial race.

Over the course of Governor Rick Perry’s term in office, over a half-billion dollars in subsidies have been awarded to over 100 companies. New revelations from the recent audit raise questions as to whether recipients were adequately vetted and monitored.

moneybagsAmong the major findings:

  • Nearly half of the money awarded, some $223 million, went to 11 recipients that failed to file an application or make specific job creation promises.
  • Texas Attorney General Greg Abbott, a candidate for Governor, denied public access to application records on TEF subsidy recipients. Oddly, the audit revealed that some applications which the Attorney General’s office claimed were exempt from freedom of information laws never actually existed.
  • Because of the failure to adequately document the process of awarding subsidies, the Auditor concluded that, “It was not always possible to determine how the [Governor’s] Office made awarding decisions.”
  • The Auditor specifically criticized the practice of “self-reported information that recipients submitted” to determine compliance.
  • A January 2013 report to the legislature gave a misleading impression about subsidies by reporting promised job creation from TEF recipients. The actual rate of job creation, 73 percent, was omitted. Such oversights led the Auditor to conclude that “The Office also did not consistently provide decision makers with complete and accurate information.” Worse, the report ignored requirements to inform the legislature about the median wages of subsidized jobs and the number of jobs providing health care benefits to employees.
  • TEF subsidy agreements frequently failed to adequately define full-time job creation, despite requiring it from subsidy recipients. And some subsidy recipients weren’t required to meet job-creation benchmarks before receiving grants.
  • The Governor’s Office fell short on recapturing some $3.8 million in subsidies from 23 recipients whose contracts were terminated and could have collected some $14.5 million through clawbacks from firms failing to meet job creation goals.
  • State law requires that both the Texas Speaker of the House and the Lieutenant Governor be notified about changes in subsidy contracts. But the audit reveals lapses in notifying these parties about changes in subsidy contracts.

Tesla, We Have Questions

September 4, 2014

For Immediate Release September 4, 2014

Contacts: Bob Fulkerson bfulkerson@planevada.org 775-348-7557

Greg LeRoy goodjobs@goodjobsfirst.org 202-232-1616 x 211

Bob Fulkerson of the Progressive Leadership Alliance of Nevada and Greg LeRoy of Good Jobs First issued the following statement regarding reports that Tesla plans to announce it has chosen Nevada for its “gigafactory,” or massive electric-car battery factory.

This is a huge event in Nevada history. If the taxpayer subsidy package for the facility is $500 million or more, as Tesla has demanded, it would be the biggest subsidy package in Nevada history by a factor of more than five. (There is only one recorded eight-figure deal in Nevada history and none over $89 million.)

The announcement only raises more questions:

  1. Was the five-state auction all just a charade to extract bigger subsidies from the state Tesla had already chosen? (Tesla broke ground in an industrial park in Reno, Nevada in July.)
  2. If it was a charade, does that mean Tesla doesn’t need any Nevada subsidies because the business basics drove the project to Reno (which has good access to key material inputs and is also close to Tesla’s assembly facility in Fremont, California)?
  3. When will the full details of the proposed Nevada subsidy package be released to the public? How many days will Nevada taxpayers have to weigh the costs versus the benefits before the legislature votes on the deal?
  4. Will Tesla agree to the Good Jobs First/MoveOn petition demand and allow all five states’ commerce agencies to immediately release their Tesla project files so that taxpayers can see how seriously Tesla considered the other states and how much in subsidies each state offered?
  5. Exactly how does Tesla’s claim of 6,500 new jobs break down? How many would be temporary construction jobs? How many would be permanently directly employed by Tesla? How many would be associated with unnamed suppliers? (Tesla and Panasonic’s joint July 31 press release says half the space will be occupied by suppliers.) Are any of the 6,500 projected jobs indirect or so-called “ripple effect” jobs?
  6. How good will the Tesla jobs be? What will be the median wage for non-managerial production workers? What will the benefit package consist of?
  7. Will Nevada taxpayers be protected by “clawback” language that would require Tesla to refund some or all of the subsidies (and/or lose future subsidies) if the deal fails to deliver all of the promised jobs?
  8. How many of the engineering and other highly-paid jobs at the plant will be filled by people who will move to the Reno area from out of state?

Until these questions are answered, Nevada taxpayers will remain in the dark. Without answers, no one will be able to judge if Nevada elected officials are overspending for a trophy deal.

Ask Tesla’s Elon Musk to Open-Source His Subsidy Demands

September 3, 2014

Good Jobs First has launched a petition through MoveOn asking Tesla CEO Elon Musk to open-source his ≥$500 million subsidy demands.

Sign the petition here.

Tesla Motors is demanding at least $500 million in taxpayer subsidies, whipsawing AZ, CA, NV, NM and TX siting a huge battery factory.

If it’s really confident that such massive subsidies are justified, Tesla should release the five states from non-disclosure agreements and allow taxpayers to see the files.

Elon Musk: open-source your subsidy-application files and let taxpayers weigh costs and benefits!

 

Sign the petition here.

 

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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.


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