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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

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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.

Striking Chicago Teachers Highlight TIF

September 14, 2012

This past week, the Chicago Teachers Union (CTU) strike has been making national headlines. But what major media outlets have overlooked is the role of tax increment financing (TIF) in worsening the fiscal situation for the Chicago Public School (CPS) system. The strikers, however, are making an issue of it. As Good Jobs First has documented time and again, TIF and other subsidies frequently divert property taxes away from school districts.

In Chicago, as well as Illinois generally which has about 1,000 active TIF Districts diverting over $1 billion each year, the problem is particularly severe: 10 percent of Chicago property tax revenues are diverted into TIF coffers. The CTU estimates that at the end of 2011, Chicago had $831 million in unallocated TIF funds sitting in bank accounts. Nearly half that money would have otherwise gone to schools. That number is also far bigger than the $700 million budget shortfall CPS had for the 2011-2012 school year which remains relatively unchanged for 2013. Instead, TIF monies are frequently utilized as subsidies for corporations.

Yesterday, thousands of teachers picketed a Hyatt hotel which had received $5.2 million in TIF subsidies chanting “give it back.” Speakers gave impassioned arguments against the use of TIF. The choice was not a coincidence: Penny Pritzker, a billionaire whose family owns the Hyatt chain, is also an appointee to the Chicago Board of Education.

Protestors contend that the TIF money used on the hotel would have been better spent on improving the education system. As one protestor commented, “I think it’s really important to bring awareness to the fact that, according to what I found out, $5.2 million has been given to developers [to build the Hyatt hotel]… That’s money that could have gone to classrooms, and computers, so many other things.”

Ultimately, all Illinoisans should also care about TIF in Chicago and elsewhere. The burden of school funding lost because of TIF property tax diversions is likely being made up for by all Illinois taxpayers.

Pritzker’s role on the board of education and Hyatt’s TIF funding are not the only reasons that labor is unhappy with Hyatt. A Unite Here campaign called Hyatt Hurts has been calling attention to what it alleges are unfair labor practices at the company and calling for a boycott.

We hope investigative journalists everywhere take notice: TIF has caused serious budgetary harm in Chicago and deserves more serious scrutiny in every school district.

PIRG Releases Report on TIF in Chicago as 3 Major Companies Return $34 million to Taxpayers

January 31, 2012

Chicago has long endured damage to its budget from Tax Increment Financing (TIF) chicanery. But with Mayor Rahm Emanuel pledging to take on TIF reform, change may be afoot. A new report released today by the Illinois Public Interest Research Group (PIRG) demands better transparency and accountability for TIF in Chicago. This includes incorporating TIF into the city’s budget process, linking spending to economic development plans instead of political patronage, requiring better outcomes, measuring outcomes, utilizing clawbacks for failure to meet benchmarks, and ending TIF districts once the economic development goal has been achieved. Much of what PIRG is asking echoes suggestions made by a panel appointed by Mayor Emanuel that studied the city’s TIF problems. Many of these recommendations have not yet been implemented.

In response to PIRG and other criticisms, Mayor Emanuel has pledged an improved transparency portal, better than the one we discussed last May, which was already a vast improvement.

And yesterday, to our surprise, recipients of major TIF subsidies have decided to return $34 million to the city. These recipients include the Chicago Mercantile Exchange (CME), CNA Group and Bank of America. CME’s subsidies were enabled by a controversial new state law. It’s not clear exactly why these recipients are choosing this particular moment in time to return subsidies, but reports indicate that shortfalls on job creation pledges and negative publicity may have played a role.

With 10 percent of Chicago’s revenues tripped up in TIF spending, it is clear that Chicago needs more transparency and accountability on TIF.

Mapping Job Subsidies: Nearly 2,000 New Deals Ready for Mapping

January 31, 2012

As states increasingly bring economic development deals into the sunlight, they are increasingly also doing so in ways that allow users to map the geographic distributions of those subsidies. Of the 116,000 entries in our Subsidy Tracker database, nearly 33,000 deals in 16 states can now be mapped to an exact address, while about 55,000 deals can be mapped to the nearest city. With new data online and ready for mapping, especially unpublished data just obtained from the state of Massachusetts, we encourage our followers to take our data and make the most of it.

As those who follow Good Jobs First know, since 2000 we have issued several studies mapping the geographic distribution of company-specific economic development subsidy deals—and then analyzing them for their pro-sprawl bias.

We are proud of the methodology we pioneered in creating these studies and have freely given away our data and advice to others seeking to replicate the work. These studies were tedious: we obtained lists of subsidy deals using state Freedom of Information laws and then spent months either obtaining street addresses or cleaning up the addresses provided.

Improved state disclosure systems combined with our Subsidy Tracker tool have trimmed many of the difficulties from that process allowing citizens and journalists to analyze deals for a wide variety of issues: poverty, race, tax-base wealth, population density, whether the worksite is served by public transportation, whether jobs are being created in communities hardest hit by plant closings and mass layoffs, etc.

As more states put subsidy data online in a downloadable and mapping-friendly format, we will continue to grow Subsidy Tracker and mash up geographic data in new ways.

Most Texas Enterprise Fund Job Grantees Failed to Deliver in 2010

November 9, 2011

Source: Texans for Public Justice, 2011.

A new Texans for Public Justice report (available here) finds that most of Governor Rick Perry’s Texas Enterprise Fund (TEF) projects failed to deliver on their 2010 job promises. The study analyzes compliance reports filed by 65 companies that received $350 million to create Texas jobs in 2010.

“Governor Perry’s jobs’ stimulus program is a classic example of government waste, fraud and abuse,” said Texans for Public Justice Director Craig McDonald. “The Enterprise Fund has an alarming rate of defaulting on the Governor’s jobs promises.”

A summary that Governor Perry’s office published in August suggests that $440 million in taxpayer TEF grants have created 59,600 Texas jobs. Perry claimed in an October presidential debate that TEF has produced 54,600 jobs. Putting aside five TEF projects that TPJ asserts are fraudulent job claims and a sixth project that appears to be undergoing an audit, TPJ found evidence that TEF had created 22,349 jobs by the end of 2010. That number amounts to 37 percent of the job claims made by the Governor’s Office.

Analyzing the 65 TEF projects, the new report found that:

  • 24 projects (37 percent) failed to deliver on their original 2010 job promises;
  • 17 projects (26 percent) complied with their 2010 job commitments;
  • 11 failing projects were terminated prematurely (17 percent);
  • 7 projects are troubled (11 percent), usually because they defaulted on 2010 job pledges but covered the shortfall with job credits earned by exceeding their job targets in past years;
  • 5  projects (8 percent) were found by TPJ to fraudulently claim that they created more jobs than they actually did (this category includes most of TEF’s largest grants); and
  • One project claimed “new” jobs that had hiring dates predating its TEF contract.

Connecticut Economic Development Subsidies Are Costly and Poorly Monitored

October 24, 2011

Connecticut’s major economic development expenditures are high in cost, poorly monitored and may be undermining the public goods that actually constitute the state’s competitive advantage for jobs.  These are the findings of a new Good Jobs First report released today.

The report entitled, Connecticut Economic Development Subsidies: Costly and Blunt, found that corporate income tax credits can have high cost-per-jobs figures (one cost taxpayers $169,667 per job) and that some companies getting subsidies don’t meet job creation promises. The report recommends that the state’s existing programs be thoroughly evaluated and that the state adopt better online transparency of costs and benefits before considering new spending.

Among the findings, we found:

  • Two-thirds of the state’s economic development dollars ($173 million in FY 2011) are spent outside the purview of the Department of Economic and Community Development (DECD) which, although it needs improvement, has more rigorous oversight standards than the other controlling agencies.
  • Some of the most expensive subsidies (such as research and development tax credits, the electronic data processing equipment property credit, and the fixed capital investment tax credit) are structured as uncapped, as-of-right subsidies and their eligibility requirements prevent the state from attaining the biggest bang for the buck.
  • Even for those programs that do officially have clawbacks, their application is unknown. An analysis of DECD’s 2010 annual report reveals that 31 business assistance contracts (out of the 70 contracts total) which underwent a DECD audit failed to meet their job creation targets. Combined, these companies were awarded nearly $86 million in subsidies. Unfortunately, DECD has not disclosed whether these companies, all failing state job audits, repaid subsidies. Taxpayers have a right to know whether a clawback occurred, and if so, how much money was recaptured.
  • Tax credits can have high cost-per-job figures and result in job losses. One subsidy cost taxpayers $169,667 per job created. The top ten most expensive subsidy packages cost taxpayers an average of $98,672 per job. Worse, in 2005 Connecticut’s Finance, Revenue and Bonding Committee commissioned a study which found that 14 out of the 24 studied tax credit programs led to net job losses.  For instance, the fixed capital investment credit created a net loss of 226 jobs.
  • DECD does not disclose the wages and benefits paid by each company utilizing subsidies. Annual reports, however, show that some companies received subsidies for promising to create low-wage jobs causing hidden taxpayer costs for employees which must rely on the public safety net system.
  • Most job creation promises made by companies receiving subsidies are not creating new jobs in Connecticut. Eighty percent of the job promises relate to retaining jobs from existing Connecticut businesses threatening to leave the state or shut down. Studies on job creation tax credits show that 70% or more of the credits awarded to recipients paid companies for jobs that would have been created anyways.
  • Many “new” Connecticut jobs are actually relocating a short distance from adjoining states. For instance, Starwood Hotels received $75 million to move less than 20 miles down the road into Connecticut from Harrison, New York. Some affected workers simply commute from out-of-state and therefore don’t pay Connecticut state income taxes, local property taxes, or state and local sales taxes. Shifting jobs in the same metropolitan area doesn’t grow regional economies.

Two New Investigative Articles Refute Texas Gov. Rick Perry’s Job Creation Claims

October 11, 2011

Those following Presidential politics are familiar with Rick Perry’s apparent pay-to-play subsidy dealings in Texas. Two new investigative pieces demolish his job creation claims.

The New Republic’s Alec MacGillis visited the sites of two subsidized companies and discovered Perry’s job creation figures to be extremely misleading. The state of Texas claimed that the Texas Energy Center created 600 jobs as a result of aid from the Texas Enterprise Fund some years back, but MacGillis discovered the only remnant of the company to be a small vacant office space inside a local economic development agency. Governor Rick Perry claimed that another facility, the Texas A&M Institute for Genomic Medicine, which received $50 million in subsidies from the Emerging Technologies Fund, would produce 5,000 jobs. MacGillis toured the subsidized facility and discovered that it employs just 10 employees total.

The Wall Street Journal’s Mark Maremont took a deeper look into how Texas subsidy contracts allowed for such rampant misrepresentation of job creation numbers. He found that the initial economic impact analysis on the Institute for Genomic Medicine subsidy was conducted by Perryman Group, the former employer of Governor Perry’s wife. She left the job in 2001 after Perry succeeded George W. Bush as Governor of Texas. The Perryman Group’s study estimated that the project would create 31,000 jobs and add $2.7 billion to the Texas economy. Maremont discovered that the 2005 grant agreement allows the company to count in its job creation figures any “positions with employers in the biotechnology and pharmaceutical industries.”

Texas Gov. Rick Perry’s Subsidy Slush Funds Highlight Apparent Pay-To-Play Problem

August 26, 2011

Now that Texas Gov. Rick Perry has entered the 2012 presidential race, several newspapers have compiled compelling evidence suggesting Perry is an aggressive “pay-to-play” politician, doling out government appointments, contracts, and economic development subsidies in exchange for campaign cash.

The New York Times confirmed Texans for Public Justice’s previous findings (See TPJ’s Rick Perry Primer): “A review of Mr. Perry’s years in office reveals that one of his most potent fund-raising tools is the very government he heads. Over three terms in office, Mr. Perry’s administration has doled out grants, tax breaks, contracts and appointments to hundreds of his most generous supporters and their businesses.” The Times highlighted two programs, the Texas Enterprise Fund and the Emerging Technology Fund, which we at Good Jobs First have criticized in three recent reports. This apparent cronyism has not paid off for the state: the Texas Enterprise Fund has been called the “Phantom Jobs Fund” because of its failure to create jobs.

A recent Wall Street Journal op-ed called Perry’s use of Texas economic development funds akin to reverse Robin Hood: “taking from the average taxpayer and giving to someone [with connections].” Tea-party-backed politicians in Texas have called Perry’s use of the funds, “fundamentally immoral and arrogant.” We find it surprising that nobody has yet pointed out that the Emerging Technology Fund can actually take an equity stake in companies it subsidizes. Government ownership of private enterprise would seem counter-intuitive for a self-proclaimed free-marketeer.

We know that Texas is an egregious example of subsidies gone awry, but it isn’t alone. Northrop Grumman executives contributed to Virginia Gov. Bob McDonnell’s inaugural committee, for example, before landing $3 million from Virginia’s Governor’s Opportunity Fund in addition to other subsidies.

With many states still hiding basic information from taxpayers about who gets subsidies, it is time for all states to beef up their transparency systems and come clean. The corrupting potential of campaign cash needs to be incorporated into economic development safeguards just as it has for contracting in a handful of cities and states.


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