Archive for the ‘Financial Crisis’ Category

Occupying Subsidized Space

October 31, 2011

Photo by Good Jobs New York

The ability of Occupy Wall Street protesters to remain in Zuccotti Park in Lower Manhattan for weeks while Occupy groups in other cities are being evicted from their encampments is, ironically, based on the fact that the park is private rather than public property.

But it’s a special category of private property. The park was created more than 40 years ago as part of a deal in which U.S. Steel, which was building an adjacent office tower now called One Liberty Plaza, was allowed to put additional floors on the structure in exchange for providing an open space for the public. The space is not subject to the same rules, including curfews, that apply to city parks.

The zoning variance is not the only factor that complicates the status of Zuccotti Park.

Brookfield Properties, the current owner of One Liberty Plaza and the park, benefits directly and indirectly from a host of taxpayer-funded subsidies. The New York Daily News reported on some of the direct grants received by Brookfield after 9/11, and further details on the full extent of subsidies are in the chart below and in our Database of Deals.

Brookfield, one of America’s largest commercial real estate companies and its premier tenants, took advantage of city and state economic development programs. Millions of dollars in economic development grants earmarked for rebuilding after the attacks of September 11, 2001 went to Brookfield and some of its tenants at One Liberty Plaza (NASDAQ and the Royal Bank of Canada among them). Some tenants also received discretionary tax breaks from the New York City Industrial Development Agency.

A breakdown of the $176 million given to Brookfield Properties, its subsidiaries and tenants in Lower Manhattan is here.

The subsidy figures don’t tell the whole story. There are other economic development programs that Lower Manhattan firms benefit from, but how much is earmarked for a particular firm isn’t publicly known.

Among the many reasons why the Occupy Wall Street protesters should be allowed to remain in Zuccotti Park is that they are occupying taxpayer-subsidized space.

Thanks to Elizabeth Bird and Dan Steinberg for their assistance.

NYC Living Wage Debate Boils Over, Into the Streets and before City Council

May 17, 2011

It’s budget season in New York City, when community groups and labor unions usually take to the streets to protest proposed budgets and this year proposals including teacher layoffs and social service cuts was a serious call to action. But marchers also had an added demand: a living wage at subsidized companies.  May 12 was planned as a day of action; it also was the day the New York City Council Committee on Contracts held a public hearing on the proposed “Fair Wages for New Yorkers Act”. The bill would require firms that receive certain economic development subsidies to pay a “Living Wage” of $10.00 an hour or $11.50 an hour if no benefits are provided.

Mayor Michael Bloomberg opposes the bill and the Speaker of the City Council Christine Quinn is undecided but the momentum is building with 30 co-sponsors (out of 51 members). The bill excludes many small businesses and only covers some subsidy programs. (more…)

New Jersey’s $1 Billion Subsidy Spree

May 4, 2011

Xanadu, an "offense to the eyes."

According to a new report released last week by New Jersey Policy Perspective (NJPP), a nonpartisan policy research center based in Trenton, Gov. Christie’s administration has awarded $822 million in economic development subsidies in its first 15 months in office.  A Surge in Subsidies documents the recent torrent of tax credit and grants awarded by the Economic Development Authority at a time when the state is slashing budget items for education, health, and social services.

NJPP examined just four of the state’s many economic development subsidy programs.  The controversial Business Employment Incentive Program redirects the personal income tax withholding of employees to participating businesses.  The recently enacted Economic Redevelopment and Growth Grant (ERG) program has been used to approve awards totaling an astounding $351 million in diverted tax increments to New Jersey companies since February of 2010.  Once laudable for its geographic targeting, the Urban Transit Hub Tax Credit is now used so extensively that it is poised to become a major revenue drain for the state.

Despite abundant criticism of recent deals such as the state’s decision to bail out a casino owned by Morgan Stanley ($261 million through ERG) and $101 million to relocate Panasonic’s North American headquarters just eight miles, New Jersey continues to dole out major subsidies.  Gov. Christie once called the stalled Xanadu mall project “an offense to the eyes as you drive up the turnpike.”  Now, he favors a $200 million tax break to rescue the project.

NJPP president Deborah Howlett notes that the Xanadu subsidy brings the 16-month subsidy spending total to over $1 billion, yet “all of that spending to spur job creation has had almost no effect on the unemployment rate.”

Colorado Proposal Would “STIF” Taxpayers

March 4, 2011

Buckingham Square Mall, Aurora, Colorado

The Colorado Senate is evaluating a risky new development subsidy proposal that passed in the House last week.  House Bill 1220 would, for the first time, allow the diversion of incremental state sales tax revenues to back bonds used to finance road construction for new retail projects.  Specifically, the bill would permit sales tax increment financing (STIF) to be used for projects that have been approved by the state department of transportation but lack dedicated state funding to secure federal highway matching funds.

The policy problems inherent in this bill are many.  STIF is designed to subsidize retail projects, ignoring the fact that they are not a very effective form of economic development.  Building new stores doesn’t grow the economy – it only shifts consumer spending from one place to another.  Providing subsidies to move low-wage retail jobs around a metro area is a waste of taxpayer funds.  The East-West Gateway Council of Governments (St. Louis metro region) found in its January 2011 study that the region had spent $4.6 billion subsidizing retail development between 1990 and 2007.  During that period, 5,700 new retail jobs were created in the metro area, at an apparent cost of $370,000 per job.

STIF makes a poor economic development tool for other reasons as well.  Sales tax receipts are unpredictable, especially during leaner economic periods.  Determining the value of the incremental increase in sales tax revenues is nearly impossible if assessors attempt to estimate how much retail spending is “new” and how much was merely cannibalized from nearby retail establishments.  STIF also promotes the fiscalization of land use—the unwise practice of letting tax revenue considerations control planning decisions.  California repealed STIF in 1993 to avoid this problem.  Colorado’s proposal is worse because it would only subsidize new retail developments that rely on highway access, making it biased against existing retailers in urban centers.

Another important consideration is that Colorado can’t afford to sacrifice the existing sales tax revenues that it would lose to STIF-subsidized development.  As a TABOR (Taxpayer Bill of Rights) state, Colorado cannot raise new revenues without statewide voter approval.  This is likely the reason that the development lobby is seeking this subsidy in the first place.  As a result of the economic recession and TABOR, Colorado’s fiscal crisis is so dire that the state cannot afford to fund highway transportation projects despite the fact that federal matching funds are on the table.

HB 1220 would sidestep the appropriations process for funding highway construction, shortchange the state’s sales tax revenue collection, subsidize the relocation of low-wage jobs in suburban fringe areas, and contribute to the growing list of dead malls in Colorado.

Advances in Oregon’s Trailing Disclosure

March 1, 2011

A guest blog post by Jon Bartholomew of OSPIRG

As Oregon faces a $3.5 billion budget deficit, efforts are underway to give taxpayers a fuller picture of how much state revenue is being used for corporate subsidies.  While Oregon provides checkbook-level transparency of direct state spending, it does not provide any detail of spending through the tax code. We can get big picture about each tax subsidy program from our Tax Expenditure Report (TER), but it only tells part of the picture.

Based on what it says in the newest TER, there is likely to be about $600 million in the next biennium in tax breaks for businesses for the purpose of economic development. What you haven’t been able to see in the TER or anywhere online is who got these breaks, how much they got, how many jobs they promised to deliver, and what they actually did. If we are to ensure these programs actually create the jobs they said they would, and to ensure these breaks aren’t going to undeserving businesses, we need to be able to see that data.

One of the largest and most controversial of these tax expenditures that businesses benefit from is the Business Energy Tax Credit (BETC). Just last month, the Oregon Department of Energy began posting who has received and been pre-certified for BETC credits on their website. This information should be mirrored on the state transparency site, but at least it’s available at ODoE’s site. Some improvements that still need to be made are to include the data in a downloadable spreadsheet (instead of a pdf) and to include pass-through partners (where the company that received the credit then sold the credit to another taxpayer). This is the first improvement to transparency of economic development programs in Oregon since Good Jobs First gave Oregon an “F” in their report Show us the Subsidies. The report noted that none of Oregon’s economic development tax subsidies posted data online about who received the benefit and what the taxpayers got for it.

But besides the BETC program, there are hundreds of millions of dollars that go to corporations in the name of economic development that we can’t see online. For the Enterprise Zones, the Strategic Investment Program, E-Commerce Zones, Oregon Investment Advantage and a half dozen other programs, we still need to be able to see who got the money and what they did for it. This is exactly what is behind HB 2825, a bipartisan effort to make economic development tax incentives more transparent to the public. As an editorial in the Eugene Register Guard noted, “Oregonians need a clear picture of what they’re getting from these programs, both because of their big price tag and because it’s essential that the expenditures yield actual results.” This bill had its first hearing on February 17th and has broad bipartisan support.

Transparency is certainly not the silver bullet to ensure the state spends money in the most effective ways, but it is a powerful tool for accountability.  Through transparency, active citizens can analyze how we spend, and make suggestions for improvement. The arguments about state spending shift from about rhetoric to about facts. And since sunlight is the best disinfectant, transparency will also prevent the misspending of tax dollars. While there has been a lot of improvement over the last two years, we still need to ensure ALL state spending is transparent, and we need to make it more understandable.

Jon Bartholomew is a Policy Advocate for the Oregon State Public Interest Research Group (OSPIRG). He is a member of the Transparency Oregon Advisory Commission, a board member of Open Oregon, and works on promoting government transparency in Oregon. In addition, he works on consumer protection and democracy issues for OSPIRG. Prior to working for OSPIRG, Jon worked for Common Cause as Associate Director of Media Reform.

Tough Love for California TIF

February 25, 2011

California Gov. Jerry Brown is proposing extraordinary revenue- raising plans to tackle the state’s $28 billion budget deficit.  The Brown Administration has proposed that the state dissolve the state’s community redevelopment agencies (CRAs), regional quasi-public bodies charged with administering redevelopment dollars.  Tax increment financing (TIF – the mechanism through which redevelopment is funded) is an enormous expense in California, representing $5.8 billion in diverted tax revenues a year.  The current proposal would retire current redevelopment debts with agencies’ existing funds, allowing the $1.7 billion to be applied towards the state budget.  Remaining funds would be returned to local governments and school districts.

Unlike the Enterprise Zone program, also slated for elimination by the Brown Administration, redevelopment in California actually does provide some clear benefits to the state.  TIF plays a significant role in providing affordable housing in California:  twenty percent of all TIF revenues must be set aside for affordable housing projects.  When properly harnessed, redevelopment can spur equitable revitalization.  Some of the most successful community benefits agreements in the country come from Los Angeles, where LAANE and other organizations have leveraged redevelopment funds to provide good jobs and affordable housing to underserved communities.   Madeline Janis, executive director of LAANE, Vice Chair of the Los Angeles CRA Board, and board member of Good Jobs First has argued that reform – not elimination – of CRAs is the best way to advance economic recovery in the state.

Reform would help to address the overuse of redevelopment dollars in California.  A February report by the Legislative Analyst’s Office found that CRAs in some counties have created so many projects that more than 25 percent of all property tax revenue is allocated to the agency.  One needs to look no further for examples of irresponsible use of TIF funds than San Jose and Oakland.  Both cities are scrambling to assemble and approve new subsidized professional sports stadium plans before the state can move to recapture redevelopment funds.  Cities throughout California are moving decisively to spend or otherwise encumber their accumulated redevelopment funds.

California’s $28 billion budget gap is unparalleled, but budget pressures are bringing tough love to the economic development-industrial complex around the country.  Getting back to basics is critical. Programs that pay companies to do what they would have done anyway – that fail to meet the definition of the word incentive, that don’t correct market failures – are deservedly vulnerable.  It’s only fair, given deep cuts being proposed for aid to children, seniors, students and the unemployed.

Right questions, wrong decisions on subsidies for big firms in NYC

August 5, 2010

Deloitte has an office in the city's municipal building on the same floor as the City Comptroller

At the New York City Industrial Development Agency’s public hearing last week, two proposals generated notable controversy: one to bestow millions in tax breaks on Big Four accounting firm Deloitte LLP, and another to revive a subsidy agreement from 1998, still worth millions in unused credits, for information services giant Thomson Reuters. This past Tuesday, the IDA board approved both projects, but not before a handful of board members engaged in a robust dialogue with IDA staffers, especially on the Thomson Reuters proposal.

The Deloitte proposal could have benefited from an even more vigorous discussion. For one thing, it smells like the same old game in which companies pit states and regions against each other in bidding wars for investment. As an IDA staffer explained, the agency “took seriously” a “threat” that Deloitte would leave the city for “other opportunities,” namely New Jersey. (Deloitte LLP plans to use the subsidy to help pay for moving its headquarters from one highly prized Manhattan office location—midtown—to another—Lower Manhattan.) And yet IDA staff also reassured the board that the proposal wasn’t about retention, but about growth. As EDC President Seth Pinsky stated, Deloitte will get no benefits until it increases its employment numbers within NYC. (more…)

NYC Considers Big Subsidy Packages for Thriving Firms While Cutting Vital Services for Poorest Residents

July 16, 2010

Later this month, the New York City Industrial Development Agency will consider lucrative subsidy packages for two of the world’s largest corporations: “big four” accounting firm Deloitte, LLP, and Thomson Reuters, a multimedia news and information provider. Meanwhile, despite recent reports of an improving unemployment rate, 385,000 New Yorkers are still jobless—twice as many as there were two years ago—and in the name of budget crisis, the city is slashing critical services for its poorest residents, from seniors and children to those with HIV/AIDS.

Why are these profitable firms up for tax breaks when everyone else is forced to sacrifice and there’s no guarantee these subsidies will create jobs for those who need them most?

Even in good times, there would be ample reason to question the wisdom of these deals. Let’s begin with Deloitte: The firm wants taxpayers to finance what amounts to a reshuffling of space in Lower Manhattan—a move from 2 World Financial Center, where it currently subleases space from Merrill Lynch, to 4 World Financial Center. (Bank of America acquired Merrill in 2008, and both firms have received hefty subsidies from the city and state.) Deloitte has allegedly been considering leaving the Financial Center in favor of other locations within the city. The company already received a $14 million cash grant under a program the state created to retain large businesses in Lower Manhattan after 9/11, not to mention millions in BEIP subsidies in 2008 from neighboring New Jersey. It is also likely that Deloitte received—or will receive as a result of its impending move—generous benefits from the Lower Manhattan Relocation and Employment Assistance Program, though the city withholds the names of participating businesses under a “tax secrecy” provision.

It’s also worth noting that Deloitte benefits from contracts worth tens of millions of dollars with New York City and state (not an unusual arrangement), and even has an office on the 6th floor of the city’s Municipal Building. The issue of double dipping aside, the potential for corruption should be of concern. Last fall, Pennsylvania’s Auditor General found that Deloitte was being awarded subsidies from the very entities it was auditing. While there’s no evidence that this is the case in NYC, Deloitte’s business practices in other contexts should be taken into account.

IDA is also considering a proposal to allow media giant Thomson Reuters to steer unused subsidies from a 1998 agreement toward seven new locations in Manhattan. This might not sound so bad, except that the only information the public has to evaluate this proposal, an IDA Annual Report from 2005, shows that Reuters failed to meet job targets. It also shows that the company only used $2.4 million out of $26 million in subsidies. The public deserves the latest data on the true value of the remaining subsidy, Reuters’ employment record in the city since 2005, and the impact of its 2009 merger with Thomson Media on its job figures. IDA will release project details a week prior to the July 29th public hearing, but whether these and other critical questions will be answered remains to be seen.

Adding to the issues with the Thomson Reuters deal, the Newspaper Guild of New York has filed a complaint with the National Labor Relations Board charging that the company plans to cut wages of reporters and other employees by an average of 10 percent this year without the union’s consent. Reuters denies this claim, but at the very least no subsidies should be considered until this dispute is resolved.

Both the Deloitte and Thomson Reuters deals are rife with transparency and accountability issues—not to mention Deloitte’s deep connection to the Wall Street crowd that got us into the economic crisis in the first place. This would be unacceptable even in good times. But with our most vulnerable residents set to suffer even more as the city and state retrench, New Yorkers should be especially outraged.

Struggling Chicago finds $25 million for United Airlines

September 3, 2009

Last month, the City of Chicago offered a substantial tax increment finance (TIF) subsidy of $25 million to an ailing United Airlines (UAL) if it promised to relocate its operations center to the Willis Tower (formerly the Sears Tower). Use of TIF as a relocation incentive is problematic given net new jobs are not being created and TIF is intended to help revitalize downtrodden areas, not encourage occupancy in skyscrapers.

The TIF subsidy encourages UAL to leave its current operations center next door to Chicago’s O’Hare Airport, shifting commutation patterns for 2,800 employees –employees who probably use airport facilities.  The operations center used to house UAL’s headquarters between 1961 and 2006 until the city gave tax breaks and incentives to UAL for a new office in the Loop. Why would an airline relocate its operations center 19 miles away from the world’s 4th busiest airport?

Historically, Chicago and outlying suburbs use incentives in controversial ways. In 1989, Sears, Roebuck & Co. announced that it was seeking to relocate from the Sears Tower to cut costs (see page 36 of our 2003 report, A Better Deal for Illinois). The State of Illinois feared losing $411 million in income taxes (from 5,400 jobs) and 2,200 ripple-effect jobs if they left Illinois. An affluent suburb 29 miles northwest of the Loop put together what was the largest subsidy package ever in Illinois history at $178 million. The state not only chipped in but expanded the definition of ‘blight’ in Illinois’ TIF law so that the wealthy suburb could buy 786 acres of land with TIF bonds to be repaid out of Sears’ property taxes.

Although Sears promised to make up shortfalls in the property tax revenues (and did in 1998 and 2001), missing was a clawback relating to the 5,400 jobs which the state based its incentive rationale on from the get-go. Sears never approached the original employment number, which begs the question: did it move out of necessity or to avoid paying for mass layoffs and the negative media attention?

The City of Chicago is in a pinch. Two recent winters have threatened the city’s budget to the brink of collapse and forced the mayor to lease the city’s parking meters to a private entity for 75 years. Despite city coffers in ruin, TIF funds overflow. A new report by the Chicago Coalition for the Homeless shows TIF-funded units are disproportionately sold or rented to high-income households. Recent investigations indicate that TIF dollars are awarded on dubious basis in lieu of need in a city full of questionable zoning practices. Moreover, a recent $10.4 million TIF deal fell through, leaving the city without the jobs it paid for. Despite this, the city resists passing TIF sunshine laws.

Chicago’s 158 TIF districts covering 30 percent of the city are diverting revenues that would otherwise keep schools solvent, plow streets, maintain public transit, and fix potholes. TIF has strayed from revitalizing distressed communities and is instead being used to shuffle tax base across the region. Moving jobs does not create new jobs. TIF reform is long overdue in Illinois.

NYC “Venture”ing Into Incentives For Wall Street’s Down and Out

February 27, 2009

Mayor Bloomberg announces 11 Initiatives to Support City’s Financial Services Sector

Mayor Bloomberg announces 11 Initiatives to Support City’s Financial Services Sector

If at first you don’t succeed, try, try again. That might be the motto of the New York City Economic Development Corporation which recently announced an incentive program to pump more public monies into the city’s financial sector. Exact dollar figures aren’t clear but news reports suggest the plan could pump $45 million from the city, state and federal governments along with private foundations into programs for unemployed Wall Street-types.

Among the 11 initiatives laid out last week are plans to create an “Angel Fund” to help harvest venture capital dollars in small start-up firms and a “crash course” training program starting next month for entrepreneurs to develop business strategies. These proposals seem to be moving forward to the chagrin and suspicion of some.

Public investment in small companies is nothing new, but this news struck a cord for two reasons. Our city and state budget is living history of what happens when one industry dominates the economy and hits a snag or collapses; the impact is paralyzing. Second, the return thus far on gambling with tax incentives on Wall Street hasn’t paid off on the jobs we’ve been promised.

No one expects the city to ignore the needs of those who lost their Wall Street jobs but this group is better equipped than most with its educational background and work experience to reinvent itself. Shouldn’t the city be helping unemployed New Yorkers without the Ivy League MBA? How about the laid off cook or manufacturer who wants to learn how to access capital funds or participate in a business development program?  Already the majority of funds from the city’s Economic Development Corporation go to commercial interests including its recent obsession with baseball stadiums. So we argue it’s time to stop putting all the tax-break eggs in one basket.

Last week’s proposal mimics plans put in place after the attacks of September 11, 2001; shore up the financial industry even if working families and small businesses were impacted more and expect the benefits to trickle down. Cash grants and tax-free bonds mostly went to large firms (think Goldman Sachs, American Express, Deloitte & Touche) and to build luxury housing.  These plans did wonders for developers, landlords and bond attorneys at the expense of everyone else, especially residents and firms in Chinatown.

Before another incentive program is created, EDC needs to engage with its colleagues in city government whose directive it is help small businesses, (Department of Small Businesses ServicesMayor’s Office of Industrial and Manufacturing Businesses, for example) and those outside of government like the New York Industrial Retention Network and come up with a plan that mitigates the silos of economic development subsidies to benefit the city’s numerous business sectors.


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