Archive for the ‘Corporate relocations’ Category

Report: Sprawling Job Piracy among Cities and Suburbs Can Be Ended

July 10, 2014

Denver Illustration191px

Washington, DC – The most common form of job piracy-among neighboring localities in the same metro area-can be ended, as agreements in the Denver and Dayton metro areas have proved for decades. The agreements prohibit active recruitment within the metro area, and they require communication and transparency between affected development officials if a company signals it might move.

Those are the main conclusions of a new study released today by Good Jobs First. “Ending Job Piracy, Building Regional Prosperity,” is online at www.goodjobsfirst.org.

The study finds that even regions like the Twin Cities, with revenue-sharing systems intended to deter job piracy, have rampant job piracy because they lack the procedural safeguards Denver and Dayton have. Multi-state metro areas like Kansas City suffer the problem on steroids because state subsidies fuel the problem.

Career economic development professional staff-not elected officials-are best suited to institute anti-piracy systems, although politicians and the public generally should be educated about the value of such agreements. Information-sharing about companies considering relocation is also key. And states need to amend incentive codes to stop requiring local subsidies to match state awards, to deny state monies for intra-state relocations, and to deny eligibility for such relocations to locally administered tax increment financing (TIF) districts. These changes will deter job piracy and promote regionalism, the study concludes.

“The anti-piracy agreements we describe focus on economic development professionals communicating openly with each other in a transparent system,” said Leigh McIlvaine, GJF research analyst and lead author of the study. “When local officials cooperate for the benefit of the metro area, they can better focus on attracting investment and jobs that are truly new.”

“We know from previous studies that intra-regional job piracy fuels job sprawl, harming older areas, communities of color and transit-dependent workers,” said GJF executive director Greg LeRoy. “By favoring retention, anti-piracy agreements help stabilize employment in areas that need help the most, and areas that provide more commuters the choice of transit.”

Good Jobs First is a non-partisan, non-profit group promoting accountable development and smart growth for working families. Founded in 1998, it is based in Washington, DC.

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Kansas’s PEAK Subsidy Fails Performance Audit

October 3, 2013

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

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

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

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

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

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

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

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

New Jersey Subsidy Overhaul Scraps Cost Controls and Accountability

September 19, 2013

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

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

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

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

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

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

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

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

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

California Enterprise Zones On the Chopping Block (Again)

June 7, 2013

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

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

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

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

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

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

ED Officials Agree with Us!

February 18, 2013

A stunning survey issued today by the International Economic Development Council (IEDC) proves that state and local economic development officials overwhelmingly agree with most accountability activists.

That is, hundreds of people who deal with site location consultants, tax-dodging lawyers, and footloose companies every day think there need to be some serious rule changes.

This is a very mainstream sample: IEDC is the nation’s largest professional association of economic development officials: it has about 4,500 members (the vast majority in the U.S., despite its name) and the survey was conducted in January, with a reported 350 respondents. (As well, IEDC has corporate members, including site location consultants; no cross-tabs of responses by type of member are provided.)

Look at what they said (words in quotes come from IEDC’s January 18 summary, which does not reproduce the survey instrument and is member-password restricted):

98.6 percent said “incentives should be structured in such a way that the community receives a tangible return on investment (e.g., employment, capital investment).”

(On that issue, see our Money for Something.)

“96 percent believe that part or all of the granted incentives should be returned if a company does not meet agreed-upon projections [i.e., clawbacks].”

(On that, see our Money-Back Guarantees for Taxpayers.)

67 percent “do not think it is ethical for location consultants to be compensated as a percentage of the incentive package they negotiate…”

(On that, see Chapter 2, Chapter 3 and Chapter 9 of my 2005 book.)

61 percent “believe location consultants’ compensation in a deal should be public information…”

In an open-ended comment section, “[p]erhaps the most frequent comment was that incentives practices are ‘out of control’…”

To be sure, despite these frustrations—and even though 57 percent said the frequency of incentive use is “too many,” the development officials responding generally don’t favor getting rid of subsidies. Instead they asked for help not getting snookered:

78 percent “responded that they approve of the practice of using financial incentives to influence business location decisions.”

But more than “80 percent responded that they or their peers or colleagues would benefit from more training in analyzing incentives deals.” Their most commonly requested new skills were how to calculate Return on Investment (ROI), fiscal impact, and the value of non-cash incentives.

“83 percent responded it would be helpful to have a set of guidelines or best practices for negotiating incentives packages.”

(On that point, see this publication of ours and this one, too.)

Without seeing the survey instrument, I am struck at how the responses all seem to overlook site location business basics: labor, occupancy, logistics, proximity to suppliers and customers, etc. That is, they apparently ignore the more than 98 percent of a typical company’s cost structure that is not state or local taxes and therefore cannot be influenced by subsidies. Clearly, some respondents believe that companies bluff and others said things like (quoted comment): “public monies are needed to provide public services and we shouldn’t be coerced into subsidizing large companies that don’t need the assistance.”

The development staffers also made it clear that politicians are no help. Many said there is a “‘general need in our industry for sharper benefit/cost analysis skills.’ Yet ‘a lot of times, elected officials don’t really care about the details of these numbers.’”

The IEDC survey has a second part, on the uses of subsidies, to be released soon. Clearly, this is a raw issue for Council members, especially those in smaller localities: last April IEDC published a guide on how to deal with site location consultants.

As someone who began training public officials on these issues in the late 1980s, I have seen a sea change in attitudes. Most feel trapped in a game whose rules they would never have written, and this IEDC survey attaches numbers to my takeaways.

So when will elected officials finally heed this consensus and start fixing the rules? If two-thirds of development officials agree it is unethical for site location consultants to pull down commissions on subsidies they negotiate, which state will step up and become the first to register and regulate these secretive, powerful players as lobbyists and thereby deny them success fees, a.k.a. commissions?

Nike Runs Away with New Oregon Tax Giveaway

December 20, 2012

NikeTown, OR, USAOregon Gov. John Kitzhaber must have missed this month’s major New York Times investigative series on business subsidies.  Less than a week after the nation’s paper of record reported that such subsidies are a “zero sum game,” Gov. Kitzhaber called the Oregon legislature into a one-day special session to pass the Economic Impact Investment Act, a corporate tax giveaway custom-tailored for Beaverton-based sportswear retailer Nike, Inc.  The rushed deal and special session were announced last Monday, just four days before the legislature was to consider the bill, and a publicly available version of the proposed legislation was not made available until Tuesday.

HB 4200, which passed the legislature handily on Friday and was signed by Gov. Kitzhaber this week, allows Nike to determine its tax responsibility to the state through the controversial Single Sales Factor (SSF) apportionment method for the next 30 years, whether or not Oregon enacts tax reform during that period.  Nike had expressed interest in expanding in Oregon, but the company reportedly expressed to the Governor that it needed “tax certainty” to commit to growing in the state.  (Make sure to see the Oregon Center for Public Policy’s excellent take on what would constitute true “certainty” when it comes to taxes.)

In its original form, the legislation would have allowed the state to grant guaranteed SSF tax breaks through the Economic Impact Investment Act for a ten-year period, and those deals would have lasted for up to 40 years.  The few accountability amendments passed during the one-day session shortened the amount of time the governor has to strike these tax deals to one year, while also reducing the period during which the tax break lasts to 30 years.

While the bill requires that Nike and any other company vying for the special tax deal invest $150 million and create 500 new jobs, it is silent on wages and other job quality standards.  Significantly, the new law fails to set a meaningful term during which qualifying jobs must be retained by Nike or any other company approved for the sweetheart deal.  It appears that the last 20 years’ worth of basic accountability reforms – now standard practice for most states – are unknown to Oregon’s lawmakers.

The lack of accountability provisions are not the only controversial aspect of the new giveaway.  The Oregonian reported this week that despite the extraordinarily compressed period the legislature was given to consider the bill, the state has been secretly negotiating the deal, termed “Project Impact,” since last July.  You can read the state’s non-disclosure agreement with a company called EMK (presumably a site location consulting firm contracted by Nike to pressure the state) here.

Oregonians are not the only constituency to express concerns about the new law.  Intel, Oregon’s other major corporate employer, was reportedly involved in several heated exchanges with Nike over a particular provision of the original legislation that would have prohibited it from benefiting from the same deal based on the fact that it is already receiving considerable subsidies through Oregon’s Strategic Investment Program.  Unsurprisingly, that provision was removed from the bill.

Oregon, unfortunately, has no such guarantees that economic conditions and fiscal obligations will remain exactly the same in the decades to come.  There are no promises the state can make that protect its residents from change, and this new giveaway means that Oregon cannot rely equally on all businesses and individuals to contribute fairly in the future.

Will Aircraft Industry Follow Autos with Subsidies and Weakened Unions?

August 9, 2012

Guest post by Kenneth Thomas

The growth of subsidized competition that undermined the auto industry and the United Auto Workers may now be happening in the aircraft industry. First came the 2009 announcement that Boeing would build a second assembly line for the 787 Dreamliner in South Carolina rather than Washington state due, at least in part, as company officials publicly stated, to unhappiness with its dealings with the International Association of Machinists. Then, on July 2, it was announced that Airbus would begin assembling its A-320 airliner in Mobile, Alabama. In both cases, the facilities received substantial subsidies to build non-union facilities. This is especially ironic in the case of Airbus, since its European facilities are, of course, unionized.

The South Carolina package for Boeing is thought to be worth over $900 million  to open a new assembly line for the Dreamliner. That project is expected to create 3800 non-union jobs in the state. It was also the subject of a huge labor dispute after Boeing CEO Jim Albaugh said that the decision had been motivated by strikes at its facilities in Washington (http://motherjones.com/kevin-drum/2011/09/quote-day-boeing-vs-nlrb, h/t Matt Yglesias). This was a no-no: the National Labor Relations Act protects workers who exercise their rights to form a union or to strike from retaliation by the company. This prompted a National Labor Relations Board complaint from the Machinists union, which was eventually dropped when the company agreed to locate production of the new 737 MAX in Renton, Washington, and signed on to a four-year contract extension (http://seattletimes.nwsource.com/html/businesstechnology/2016901106_boeingiam01.html, h/t Talking Points Memo).

Airbus’ new $600 million facility in Alabama is projected to create 1000 jobs, also non-union. Initial reports put subsidies to the company at $158.5 million from the state and various local governments (thanks to @varnergreg for pointing out this article). Remember, though, that initial reports are more likely to underestimate subsidies than overestimate them, as in the case of Electrolux in Memphis. However, if this is remotely near accurate, Alabama got a much better deal for Airbus than did Washington state for the Boeing 787 Dreamliner, giving tax breaks equal to an almost $2 billion cash grant, which was 220% of the investment and $1.65 million per job (according to my calculations for Investment Incentives and the Global Competition for Capital), more than 10 times the per job cost in Alabama.

Unfortunately, these developments could repeat the example of the subsidization of new automotive facilities that hastened the decline of Detroit’s Big Three and weakened the UAW. According to economic geographer James Rubenstein (1992, Table 1.1), from 1979 to 1991 there was a 1 to 1 correspondence in the opening and closing of new automobile and truck assembly plants in the U.S. and Canada: 20 new ones were built, 20 old ones were closed. Every one of the new facilities received subsidies from state and local (or federal and provincial, in Canada) governments. Given that the automobile industry was in a position of overcapacity for much of that period, it is no surprise that new production simply displaced older production.

Will the same thing now happen in the aircraft industry? Globally, Airbus has been putting market share above profits since the early 2000s. With its current move to Alabama, CEO Fabrice Brégier said the company hoped to grow its U.S. market share for single-aisle planes (the A-320 competes mainly with the Boeing 737) from 17% to 50% over the next 20 years. If Airbus is successful, it would be bad for the 80,000+ employees in Boeing’s Commercial Airplanes group.

Of course, there is growing global demand for airliners, especially in Asia. But China has already developed its own competitor in the single-aisle market and Airbus is building A-320s in Tianjin, China, making it unclear how much of the global growth can translate into increased U.S. employment.

As was the case with automakers, the competition for facilities allowed Boeing and Airbus to extract rents through the site selection process and getting non-union labor as well as subsidies. By repeating this process for projects large and small, state and local governments deprive themselves of as much as $70 billion per year in revenue, enough to hire all state and local employees laid off since the recession began in December 2007. At the same time, over the long haul, the process in the auto industry replaced well-paid unionized workers with less well-paid, non-union workers.  The prospect that this evolution could be repeated in the aircraft industry is a pretty depressing one, when all is said and done.

(This post is a revision of an earlier version at Middle Class Political Economist, Alabama’s Airbus Subsidy Eerily Reminiscent of Auto “Transplants”.)

Shell “Cracks” Pennsylvania’s Tax Code

July 3, 2012

Pennsylvania Governor Tom Corbett’s controversial plan to award an estimated $1.7 billion in corporate tax credits to Royal Dutch Shell became law with the passage of the state’s budget late Saturday night.  The 25-year deal—one of the largest subsidy packages ever awarded to an individual company in the United States—is for an ethane refinery that Shell plans to build north of Pittsburgh in Beaver County. Known as a “cracker,” the facility will break down ethane into other petrochemical products.

The legislation did not name Shell but limited the new credit of 5 cents for each gallon of ethane purchased for processing to crackers that create at least 2,500 jobs and make a capital investment of $1 billion, which is what Shell plans to do.

It is no secret that the Corbett Administration cooked up the new credit in order to land the Shell project, which the company also shopped to Ohio and West Virginiain search of the best subsidy deal. The $1.7 billion price tag of Gov. Corbett’s package shocked Pennsylvania residents and made national news.  Astonishingly, the final signed law contains no annual or cumulative cap on the total value of credits that ethane refineries can claim, meaning the cost may be even larger than Gov. Corbett’s original proposal.

Because the Shell cracker will be located inside a virtually tax-free Keystone Opportunity Zone, the immediate value of its state tax credits will be derived from the cash value of selling them to other firms for an estimated 15 years.  The state changed an existing KOZ boundary to accommodate Shell’s project, despite the fact that the township never requested that the boundary be expanded.

The Corbett Administration, Shell and the American Chemistry Council trade association sought to justify the sweet deal with a contentious claim that the project would create a total of 20,000 new jobs, a figure composed of direct, indirect, induced, and temporary jobs such as construction positions.  The jobs figure was repeated by industry parties and notably, Administration officials, who were later forced to quietly revise the laughably rosy jobs estimate to half that amount, after admitting under pressure that no independent job creation analysis had been performed.  The Administration’s revised 10,000 new jobs figure remains no less preposterous, given that the ACC estimates just 400 to 600 permanent jobs will result from the new refinery.  (For more information about calculating “ripple effects” of job creation, see this report by the U.S. Economic Development Administration.)

Any legitimate economic analysis would have difficulty showing how the state could recoup a quarter of a century of huge giveaways to Shell.  Pollution concerns notwithstanding, the state needs to consider the potentially short life span of an industry based on depletion of limited resources such as natural gas.  Fortunately for Gov. Corbett, he will be out of office long before a final accounting of the deal can be made.

Colorado Governor Doesn’t Buy Sales Tax Giveaway

May 10, 2012

Westernaires and Color Guard in Downtown Denver opening the National Western Stock Show

Advocates of accountability and fiscal responsibility in Colorado recently achieved a major victory when Governor John Hickenlooper vetoed a controversial economic development bill.  SB 124 was designed to amend the state’s existing Regional Tourism Act, which allows Colorado’s Economic Development Commission to award portions of sales tax revenue as a subsidy to projects deemed important enough to attract out-of-state tourism dollars.  If signed by the Governor, it would have increased the number of allowable projects this year from two to six.

The bill was made all the more contentious by the fact that the Economic Development Commission is currently in possession of an application for the existing Regional Tourism subsidy from Gaylord Entertainment Co., which is constructing a massive hotel-convention center complex in Aurora, Colorado.  The complex, located close to Denver International Airport, has been criticized for its potential to leech convention center business from Denver.  Confirming these fears, the announcement by the Western Stock Show–a Denver institution for over a century–of its intent to relocate to Aurora gave the issue a public symbol in the media.  The Gaylord complex is already approved for a tax increment financing (TIF) subsidy by the city of Aurora and has applied for an additional $170 million in sales tax TIF subsidies through the state’s Regional Tourism Act.

Concerns over intra-regional competition for jobs and tax revenues was not lost on Gov. Hickenlooper, who in his veto letter stated: “the [Regional Tourism Act] does not contemplate…projects that are likely to serve only the interests of a particular community.”  The Governor’s decision also reflected his concern that politicizing subsidy-awarding process would reduce the program’s effectiveness and accountability.  “This [veto] will help ensure the state sales tax increment revenue is used appropriately, and that the EDC is awarding projects that will in fact drive tourism and economic development…we want to ensure that the RTA process remains competitive, resulting in the most ‘unique’ and ‘extraordinary’ projects being approved,” he wrote.

TIF subsidies derived from property tax are used liberally in Colorado by local governments, but the use of sales tax revenues as a subsidy has been restricted thus far.  Recent years have brought multiple ill-informed efforts to deregulate and loosen rules on the TIF-ing of sales tax.  Many of these proposed tax giveaways have been beaten back by a coalition of groups led by the Colorado Fiscal Policy Institute, which successfully defeated a number of wasteful business tax credit and subsidy bills this session.

Congratulations to our allies on their hard-earned victory!

Diebold Pushes Ohio Down the “PIT”

April 24, 2012

The recent announcement that Diebold, Inc. would be laying off hundreds of employees from its Ohio headquarters despite having received massive job retention subsidies designed by the state specifically for its benefit came as little surprise.  (We’ve seen it before with Sears, Dell, Boeing, ad naseum.)  The same day, Good Jobs First released “Paying Taxes to the Boss” a report in which we describe the disquieting economic development practice of states allowing employees’ personal income taxes (PIT) to be leveraged as corporate job subsidies.

Among the 22 programs we analyzed in our report is Ohio’s Job Retention Tax Credit (JRTC), which underwent controversial changes last year under the Kasich administration.  At that time, both American Greetings and Diebold were considering relocating their corporate headquarters out of the state.  In response to this job blackmail, Ohio legislators tweaked the JRTC rules to make the credit refundable for companies with a written offer of subsidies from another state.

In the end, Diebold signed a $55 million subsidy agreement (including $30 million in JRTCs) with the state in exchange for a promise to retain 1,500 workers and construct a new headquarters facility.  The catch?  Diebold employed 1,900 people in Ohio at the time the subsidy agreement was finalized.  One year ago our prescient friends at Plunderbund correctly predicted what would come next – the state would be subsidizing Diebold while the company slashed its workforce.  Last Thursday the company announced its intent to move 200 jobs to India, bringing its total state employment down to approximately 1,550 workers.

Diebold’s reasoning for seeking job subsidies from other states is a perfect example of how PIT-based programs accelerate the race to the bottom.  The company claimed it was unable to compete after its chief rival, NCR Corp. relocated to Georgia with the assistance of the state’s Mega Project Tax Credit, yet another PIT subsidy spending program.  (For descriptions of Georgia’s many personal income tax diversion subsidies, see “Paying Taxes to the Boss.”)

The use of workers’ personal income taxes as corporate giveaways fuels already rampant interstate job piracy.  PIT diversions negate the benefits that economic development projects should have on diminishing state tax revenues.  At this rate, it’s not even helping retain jobs in Ohio.  The Diebold situation is proof of that.  Lawmakers should not need more evidence that this is failed economic development policy.

Unfortunately, its failure to generate real economic development hasn’t stopped more states from adopting this foolhardy practice.  Last year Oregon created the Business Retention and Expansion Program, a subsidy that will allow recipient businesses to receive the taxes of workers as forgiveable loans.


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