Archive for the ‘Federal Job Subsidies’ Category

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 The old database is obviously outdated compared to standard practices in other states such as Maryland.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.

New Year Brings New Recovery Board Chair

January 4, 2012

By Andrew Seifter, Good Jobs First

President Obama has appointed Kathleen S. Tighe, Inspector General of the Department of Education, as the new chair of the Recovery Accountability and Transparency Board.  Tighe replaces Earl Devaney, who held the post since the Recovery Act was enacted in February 2009, but announced last month that he was retiring.

As an existing member of the Recovery Board (which consists of cabinet agency Inspectors General), Tighe has demonstrated a strong record of cracking down on fraud and misuse of government funds, so she is a logical, if conventional, choice to replace Devaney.  In a press release announcing her appointment, the Recovery Board highlighted several instances in which Tighe helped win settlements or convictions against fraudulent companies or individuals, including a former City University of New York employee who was convicted for trying to “scam more than $1.5 million in Re­covery Act grant funds.”  According to Tighe’s November 2011 Report to Congress, the case involved a former employee at the University’s Research Foundation who had presented two fraudulent Grant Award Notifications that were discovered by an official who had recently participated in a Recovery Act grant fraud awareness training provided by Tighe’s office.

Tighe also continues to serve as a member of the Government Accountability and Transparency (GAT) Board, suggesting that she will remain a critical player in ongoing efforts to transfer the accountability measures of the Recovery Act to all federal spending.  The GAT Board has been active of late, issuing three key recommendations to the President in December.

As I surmised from reading Devaney’s resignation letter and his final Recovery.gov “Chairman’s Corner” column, one of the GAT Board recommendations is for a uniform ID system for all federal spending projects.  The Board wisely suggests that in pursuing this goal the government incorporate standardization efforts already underway at the Federal Acquisition Regulatory Council and the Treasury Department.  The other recommendations are somewhat broader: adopt a “cohesive, centralized accountability framework” to track spending, and reevaluate the methods the government employs to collect and display data.

The GAT Board mentioned one benefit of data standardization, in particular, that got our attention at Good Jobs First: it would “foster a common understanding of data between the Federal Government and the states, which are the largest recipients of Federal funds.”  We’d consider that a huge step forward for spending transparency, based on our experience tracking the Recovery Act.  Although the Stimulus has pushed the states toward improved disclosure, all too often certain information about both spending and outcomes (such as job impact) has been lost in translation as money moved from the federal government to state agencies that then passed it on to local recipients.

We also strongly support the GAT Board in urging the government to “stay on the cutting edge” by constantly exploring ways to make use of advances in technology such as geospatial services.  We’ve seen for ourselves that the possibilities in this regard are far greater than they were years, even months ago.  As the state of technology continues to improve, the bar for transparency must continue to rise.

Many of the GAT Board’s observations and recommendations are a direct result of the Recovery Act, and not just because it provided a powerful model for tracking billions of dollars of government funds.  The Recovery Act also moved the conversation forward by highlighting the limitations of the current system.

For example, the Recovery Act has pressed federal agencies to improve their internal reporting procedures and address problems with existing protocols.  As Recovery Board member and Department of Commerce IG Todd J. Zinser said in November 30 testimony to the House Science, Space and Technology Subcommittee on Oversight and Investigations, the Commerce Department met Recovery Act reporting requirements, but only by “performing many manual procedures to compensate for grant and contract system inadequacies.”  Zinser’s remarks bring to mind Recovery.gov Director Mike Wood’s comment last spring that a Deputy Secretary at the Department of Housing and Urban Development told him that HUD “changed their whole management structure … based on how they ran their Recovery program.”

Large, Profitable Corporations Get Huge Federal Tax Breaks

November 4, 2011

The most consistently profitable companies in the Fortune 500 only pay about half the statutory federal income tax rate—a fourth pay less than 10 percent. Some even get refunds from Uncle Sam—30 companies have enjoyed a negative income tax rate the past three years despite making $160 billion in pre-tax profits.

It’s the definitive study that punctures calls for a cut in the federal income tax rate on corporations, provided yesterday by Citizens for Tax Justice and the Institute on Taxation and Economic Policy (CTJ and ITEP) in “Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010.”

Looking at shareholder filings for those Fortune 500 companies that reported profits in each of the three years, CTJ and ITEP found that 280 companies paid an average effective rate of just 18.5 percent and for the last two years only 17.3 percent, less than half the statutory rate of 35 percent.

The study catalogs the underlying causes, many of which have eroded progress in the federal tax code made in the 1986 reform act that plugged many loopholes: accelerated depreciation, stock options, industry-specific tax credits, and offshore tax sheltering.

Bottom line, it’s why federal corporate income taxes have plummeted as a share of GDP from almost 4 percent in the 1960s to just over 1 percent today. And a key reason, CTJ director Bob McIntyre argues, why any corporate tax reform should not be “revenue neutral” but should instead plug loopholes and restore balance.

For those of us who follow companies that aggressively seek state and local economic development subsidies, including avid users of Subsidy Tracker, there are familiar names among the low-tax rate/high-tax break crowd, like Boeing, Walmart, and Goldman Sachs.

Indeed, CTJ and ITEP will soon release a follow-on study looking at state taxes paid by the Fortune 500. Although publicly traded companies only report such taxes in one aggregate 50-state number, the finding will show how tax exemptions and credits cut the actual tax rate companies pay (along with loopholes like Passive Investment Companies and failed giveaways like Single Sales Factor).

For a primer on how companies dodge state income taxes, see chapter 4 of The Great American Jobs Scam, and for a summary of how corporate tax dodging has shifted the burden for public services onto working families, see chapter 8.

Finally, the study also punctures the argument that the U.S. has to lower its corporate tax rates because of lower rates offshore. Of those companies among the 280 with significant foreign profits, they paid foreign tax rates almost a third higher than their domestic rates. It argues that “closing the loopholes will have real benefits, including a fairer tax system, reduced federal budget deficits, and more resources to pay for improving our roads, bridges and schools — things that really are important for economic development here in the United States.”

Amen.

No Job Subsidies for Companies That Discriminate Against the Unemployed

September 2, 2011

Should taxpayers subsidize companies that refuse to even interview unemployed workers? Of course not!

Yet despite the fact that tax breaks are invariably justified in the name of reducing unemployment—not to mention the fact that more Americans have been unemployed for longer periods of time in this Great Recession than any downturn since the 1930’s—it’s legal for companies getting subsidies from states, cities or Uncle Sam to turn away applicants just because they are currently unemployed.

This callous treatment of the unemployed is outrageous but true: as the National Employment Law Project (NELP) documented recently (confirming news reports), dozens of companies and some of the nation’s most prominent job-search websites are routinely posting job ads that explicitly say applicants “must be currently employed.”

NELP rightly emphasizes how many job seekers there are for every job opening. We would add that, given higher rates of unemployment among people of color and younger workers, excluding unemployed applicants can only worsen discriminatory patterns.

If major economic development subsidies were reformed to prohibit this practice, it would greatly benefit millions of unemployed Americans. That’s because federally funded programs such as Industrial Revenue Bonds, Workforce Investment Act grants, and Community Development Block Grants are ubiquitous—as are state-enabled subsidies such as property tax abatements and investment tax credits.

Another federal remedy has also been proposed: House and Senate versions of the Fair Employment Opportunity Act of 2011 (already with 35 House co-sponsors) would prohibit companies and employment agencies from refusing to consider applicants solely because they are unemployed. In a recent radio talk show, President Obama endorsed the legislation.

As Good Jobs First documented in 2008 in Uncle Sam’s Rusty Toolkit (co-published with NELP and others) five of the most common federal job subsidies lack many of the taxpayer safeguards that are becoming increasingly common at the state and local level, such as online disclosure of company-specific costs and benefits, money-back guarantee clawbacks, Job Quality Standards, location efficiency and green building standards.

To that list for both the states and the feds, we would add: no discrimination against applicants just because they are unemployed!

The Recovery Act: The Transparency Gift that Keeps on Giving

February 18, 2011

Largely lost in the partisan bickering over the stimulus has been the law’s enormous positive impact on improving government transparency. The American Recovery and Reinvestment Act of 2009 (ARRA) is not just the most transparent federal spending bill in U.S. history—the changes it pioneered will endure even after the stimulus winds down.

By now, many curious Americans have explored spending and job-creation on ARRA projects in their communities at recovery.gov. About 35 percent of ARRA funding is revealed there: every grant, loan and contract. And the reporting extends beyond the primary recipient one level down to sub-recipients. But few people noticed that the Office of Management and Budget applied that extended reporting to the main federal disclosure website USAspending.gov (created thanks to a bill championed by then-Senator Obama).

Even fewer people noticed that the quality of ARRA data improved greatly in October 2010: we can now trace the money as it changes hands three times, instead of two, to sub-sub-recipients. For people concerned about companies tied to political contributions, offshoring of jobs, violations of workplace laws, etc., this deeper data is a potential gold mine for accountability.

In a little-noticed provision, the Recovery Act also required privately-held companies that do a large share of their business with the federal government to reveal the compensation of their five highest-paid executives. We blogged about this when the first round of data came out, revealing executive pay at the high-profile “Beltway Bandit” consulting firm Booz Allen Hamilton.

The Recovery Act has also enabled a side-by-side analysis of transportation spending—comparing job creation from highway-building versus public transportation—that was simply not possible before: apples-to-apples data did not exist. However, in early 2010 Smart Growth America, the United States Public Interest Research Group and the Center for Neighborhood Technology issued “What We Learned from the Stimulus,” finding that transit construction creates 84 percent more work-months than does highway-building. That reinforced our own 2003 finding, in “The Jobs Are Back in Town” that smart growth creates more work for Building Trades union members than does sprawl.

ARRA data and the mapping functions at recovery.gov have also encouraged more people to think about the geographic distribution of government spending (one of our pet peeves here at Good Jobs First). For example, the Voices of California Coalition examined ARRA spending by local jurisdiction and found many hard-hit communities getting little if any dollars and jobs.

In New York City, Community Voices Heard coupled ARRA jobs data along with data from the local public housing authority and its own door-to-door survey work to prove that, despite HUD Section 3 rules intended to ensure that public housing residents get job opportunities when their residences are rehabilitated, very few ARRA-funded jobs went to New York City Housing Authority residents. See “Bad Arithmetic.”

In Texas, the Center for Public Policy Priorities reported on that state’s performance on weatherization spending and Policy Matters Ohio mapped where clean energy jobs were created, finding they were “well targeted to areas of economic distress.”

Finally, we here at Good Jobs First have closely monitored how state governments have mirrored Uncle Sam’s ARRA transparency boost, publishing two “report card” studies on state government Recovery Act websites. Every single state put up such a website—even though they had no legal obligation to do so!

Of course, the states did have more obligations than anyone else to provide ARRA jobs data, since so much of the money flows through state agencies, making them primary recipients. So it was no exaggeration to call ARRA “a giant crash course on disclosure for state governments.” And lo and behold, in December 2010 when we revisited the issue of how well state governments disclose their own spending for job creation, we found the number of states naming names online had jumped from 24 to 37.

Volkswagen’s Tennessee Subsidy Deal: Are Taxpayers Being Taken for a Ride?

July 24, 2008

Tennessee officials are still celebrating Volkswagen’s announcement last week that it will build a new assembly plant in Chattanooga, describing it as a big step toward their state becoming the nation’s number one auto producer. The state has apparently at least gained the more dubious status of providing the biggest subsidies to date for a foreign-owned carmaker–a package reportedly worth at least a half billion dollars.

According to reporting by Chattanooga Times Free Press reporters Andy Sher and Dave Flessner, the state and Chattanooga-area local governments have pledged the following to land the $1 billion investment and related 2,000 jobs:

1,350 acres of land worth $81 million.

At least $30 million for worker training improvements, and a $6 million technical training center.

$43 million in road and highway improvements, and $3.5 million for rail connections.

$200 million in job tax credits over 20 years.

Between $150 million to $350 million in property tax breaks over 30 years, depending on how well Volkswagen meets job and investment targets. However, VW will pay the education portion of property taxes, about $5.5 million yearly.

Other subsidies of unspecified value, including machinery sales tax exemptions, and low cost loans and energy credits from the federal Tennessee Valley Authority.

Michigan and Alabama were reportedly Tennessee’s main competitors for the VW plant, although the strong United Autoworkers presence in Michigan seems to have made that state a distant third.

Putting the cart before the horse, Tennessee’s economic development commissioner said the University of Tennessee would do a cost-benefit analysis of the VW deal later this year, after its costs are fully known. That this evaluation will be very critical may be doubted since a previous UT study of the Nissan headquarters deal (which cost Tennessee state and local governments $197 million) reportedly attributed to it an unlikely economic benefit of half billion dollars a year.

Tennessee Governor Phil Bredesen, a Democrat and former Nashville Mayor with a history of getting big subsidies for computer giant Dell, Nissan and a football stadium is unembarrassed by the deal’s cost:“I don’t know whether it’s fair that a Mercedes Benz costs $90,000, I just know if I want one that’s what I’ve got to pay.”

Whether a half billion dollars, or $250,000 per job, is in fact the real going rate for an auto plant is less clear, however. The exact importance of subsidies in a company’s location decision remains locked in “a black box”, but is generally limited. In fact, VW spokespeople acknowledged the attraction of the incentives but stressed the particular importance of those for worker skills and site preparation, which form a comparatively small part of the mammoth package.

Successive interstate competitions for big auto assembly plants–which began in the Midwest in the 1970s and have occurred repeatedly in the South over the past decade–have often led to overspending as states try to outbid each other, and then to a sense of fiscal hangover when the competition is over.

Although the euphoria and industrial recruitment folklore surrounding the deal—Senator Lamar Alexander serenading VW executives with a rendition of “Chattanooga Choo-Choo”– seem to have at least delayed that hangover’s onset. The euphoria has also muted concerns about whether, how and when Tennessee will recoup its “investment,” but those concerns are real.

For example, Tennessee officials promise that new auto supplier firms —which may themselves get subsidies to locate near VW– will help offset the deal’s costs. But Business Week has suggested that numerous such firms already located in Alabama and elsewhere in the South could serve the plant with existing capacity. And Alabama is already scheming to land suppliers for the new plant. Continued intense competition like this between Tennessee and other states, and between VW and its competitors, may eventually make the state’s huge subsidy deal seem more like a costly gamble.

The Man Without a Plan, Uncle Sam

May 22, 2008

The man without a plan? That would be Uncle Sam!

 

It has been 20 years since cities started adopting clawbacks, often in the wake of plant closings, and they are everywhere today.

 

It has been 14 years since the living wage movement took off and today Job Quality Standards are found in most states’ development code and many cities’ and counties= contracts.

 

It has been 13 years since Minnesota enacted what was then a terrific disclosure law and half the states now disclose to varying degrees.

 

It has been 10 years since the Los Angeles Alliance for a New Economy won its first Community Benefits Agreements, that model has spread across the nation.

 

We are way past any dogma that these reforms are going to somehow “poison the business climate.”

 

Yet look at the pathetic state of the federal government=s main economic development agencies and programs:

HUD is in shambles, not just because of Secretary Jackson’s departure under an ethics cloud, but because its funding has been repeatedly cut and its staff demoralized so that it has grown irrelevant on the big issues of the day.

 

Did HUD avert the subprime scandal? Is HUD weatherizing millions of homes to curb global warming and help people deal with soaring energy prices?

 

Community Development Block Grants C HUD’s biggest urban aid program C lack basic safeguards, and they don’t require Community Benefits.

 

It is because of cutbacks in programs like Block Grants that city officials claim they must mortgage our future C that they must create TIF districts that impoverish our tax base and our schools for 15, 23, even 35 years.

 

The Department of Labor’s Workforce Investment Act also spreads money everywhere, but it lacks a firm Job Quality Standards requirement (although some local WIBs have attached them).

 

The same structural accountability problems exist with major Department of Commerce programs.

 

And as one newspaper exposé revealed, even the Agriculture Department spends billions for economic development, much of it fueling sprawl or favoring big businesses over small ones or subsidizing projects in wealthy areas that don=t need help.

 

There is one tiny office of the Environmental Protection Agency doing some terrific work on smart growth, but it is just one tiny office.

 

It is a big issue that Uncle Sam Has No Plan. According to estimates made in the mid-1990s, the federal government spends two and a half times more on “corporate welfare” than do all 50 states combined — about $125 billion per year C versus $50 billion for all the states.

 

As in the states, most of those federal dollars are uncollected taxes: tax credits, tax exemptions, bonus depreciation, and so forth. But we still don’t have specific details about who got what.

In my next blog: how Uncle Sam’s incomplete disclosure systems reveals only the tip of the iceberg.

 

 

 

 


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