Archive for the ‘Subsidies’ Category

Cook County, IL Succeeds at Truth in Taxation!

July 11, 2014

Screen Shot 2014-07-11 at 3.07.30 PM

One year ago today, Cook County Clerk David Orr announced plans to print TIF revenue diversions on county property tax bills. We previously blogged about this effort, eagerly awaiting this TIF transparency enhancement.

Wait no longer! The Cook County Clerk’s office made good on its promise of taxpayer transparency and has issued property tax bills containing information about TIF for each individual property owner. For that we congratulate them on bringing needed sunlight to TIF in Chicago and other municipalities in Cook County.

We hope jurisdictions across the country take notice of Cook County, Illinois. Taxpayers have a right to know how their taxes get spent. With so much property tax revenue in Chicago never ending up in the city’s general revenue fund, printing TIF costs on tax bills enables citizens to make better judgements about the value of TIF projects and how their taxes get spent. We applaud such efforts.

For more Good Jobs First research on TIF revenue diversions in Chicago, see our 2014 report.

For more about how Cook County printed TIF on property tax bills, see the County Clerk’s website and watch the Youtube Video below:

Missouri Seeks Cease-Fire in Kansas City Border War

July 2, 2014

borderwar01-1200xx900-506-0-85A bill signed this week by Missouri Governor Jay Nixon has the potential to solve one aspect of the wasteful jobs border war currently ravaging the Kansas City metropolitan economy: the use of state subsidies to fuel intra-regional business relocations.  Senate Bill 635 would prohibit the state’s business subsidies from being awarded to businesses relocating within the two-state metro area from Kansas to Missouri.  However, the law will only go into effect if Kansas enacts a companion law limiting its own use of state business incentives in the Kansas City metro within the next two years.

The legislation was sponsored by state Sen. Ryan Silvey (R-Kansas City), who called the practice of subsidizing companies to hop the border “senseless.”  The bill also had the support of the Kansas City Chamber of Commerce, which stated that it was one of its “highest legislative priorities.”  One of the most vocal supporters of the effort to end the border war is a coalition of metropolitan business leaders, who in 2011 submitted an open letter to governors in both states demanding a cease-fire on the use of subsidies for intra-regional relocations.  And in June, while awaiting Gov. Nixon’s signature on SB635, the business coalition again appealed to both leaders in an open letter:

“For the last several years, both states have followed a destructive practice of encouraging a cross border job shuffle. This has cost taxpayers hundreds of millions of dollars and it has generated little or no new economic activity. Neither state is a winner in this game as one state loses tax revenue while the other state forgives it.”

For its part, Kansas has signaled little interest in supporting a companion bill, citing the need of local suburban jurisdictions to pursue their own economic development agendas.  This is an ironic position to take, given the extent to which state subsidies have interfered in metropolitan economic dynamics in the region.  The best way to allow localities to pursue their own economic development agendas would be for both states to stop providing ammunition for the border war.

Subsidizing Corporate Offenders

June 5, 2014

moneybagsontherunIt’s been clear for a long time now that, despite recurring calls to get tough on corporate crime, companies can essentially buy their way out of legal entanglements. In most cases this has come about through the U.S. Justice Department’s willingness to offer companies deferred prosecution agreements. The recent Credit Suisse guilty plea, which is not doing much to impair the bank’s operations, shows that big companies can even go about their business with a criminal conviction.

That’s not the worst of it. It turns out that many of these corporate offenders have received tax breaks and other forms of financial assistance from state and local governments around the country. This does not come as a complete surprise, but it is now possible to quantify the extent to which this unfortunate practice is taking place.

This estimate comes from mashing up two datasets. The first is the Subsidy Tracker I and my colleagues at Good Jobs First have compiled. In recent months we have enhanced the database by matching many of the individual entries to their corporate parents. For 1,294 large companies we now have summary pages that provide a full picture of the subsidies they and their subsidiaries have received.

The other data source is a list of the companies that have entered into deferred-prosecution and non-prosecution agreements with the Justice Department to settle a variety of criminal charges. (Although I refer to these firms as corporate miscreants or offenders, it must be pointed out that they were never formally convicted.)

The list appeared in the May 26, 2014 issue (print version only) of Russell Mokhiber’s excellent Corporate Crime Reporter. Mokhiber obtained it from University of Virginia Law Professor Brandon Garrett, author of a forthcoming book on corporate crime prosecution, and used it for an article showing that the bulk of those agreements are negotiated by a small number of law firms.

I took the liberty of using the list for another purpose: determining how many of the companies also appear in Subsidy Tracker. The results are striking: more than half of the miscreants (146 of 269, or 54 percent) have received state and local subsidies. These include cases in which the awards went to the firm’s parent or a “sibling” firm.

Even more remarkable are the dollar amounts involved. The total value of the awards comes to more than $25 billion. A large portion of that total ($13 billion) comes from a single company — Boeing, which is not only the largest recipient of subsidies among corporate miscreants but is also the largest recipient among all firms. Boeing made the Justice Department list by virtue of a 2006 non-prosecution agreement under which it paid $615 million to settle criminal and civil charges that it improperly used competitors’ information to procure contracts for launch services worth billions of dollars from the U.S. Air Force and NASA.

To be fair, I should point out that not all the subsidies came after that case was announced. In the period since 2006, Boeing has received “only” about $9.8 billion.

The other biggest subsidy recipients on the list are as follows:

  • Fiat (parent of Chrysler): $2.1 billion
  • Royal Dutch Shell (parent of Shell Nigeria): $2.0 billion
  • Toyota: $1.1 billion
  • Google: $751 million
  • JPMorgan Chase: $653 million
  • Daimler: $545 million
  • Sears: $536 million

Altogether, there are 26 parents on the DOJ list that have received $100 million or more in subsidies. As with Boeing’s $13 billion figure, the amounts for many of the companies include subsidies received before as well as after their settlement.

These results suggest two conclusions. The first is that state and local governments might want to pay more attention to the legal record of the companies to which they award large subsidy packages. A company that ran afoul of federal law might not be punctilious about living up to its job-creation commitments.

More broadly, the ability of companies caught up in criminal cases to go on getting subsidies suggests that there is insufficient stigma attached to involvement in such cases. If companies know that they can not only avoid serious punishment but still qualify for rewards such as tax breaks and cash grants, they are more likely to give in to temptations such as fraud, bribery, tax evasion, price-fixing and the like. Without real deterrents, the corporate crime wave will continue.

Reposted from the Dirt Diggers Digest.

Virginia Governor Vetoes Bill That Would Ban Pay-To-Play on Subsidies

May 30, 2014

This week, Virginia Governor Terry McAuliffe vetoed a bill that would have banned corporations seeking Governor’s Opportunity Fund (GOF) subsidies from making contributions or gifts to the elected official awarding those subsidies: in other words, the Governor himself. The bill had unanimous two-chamber support among both Republicans and Democrats, and members of both parties criticized the Governor’s action.

Governor McAuliffe’s primary objection cited in the veto to the bill was that state legislators ought to be held to the same standards. The statute and guidelines state that GOF subsidies are awarded primarily at the discretion of the Governor, though the General Assembly and the Attorney General have a modest oversight role. One co-sponsor of the bill stated that he hopes to re-introduce the bill again next session, though it’s unclear whether the bill will stay in its current form.

It’s a strange moment in Virginia politics. The bill arose out of concern related to the previous Governor’s gift scandal. Just after leaving office in January, former Governor Bob McDonnell was indicted, something that had never happened before in the state.

Is such legislation needed in Virginia?

Good Jobs First previously highlighted an apparent pay-to-play issue in Virginia when McDonnell awarded Northrop Grumman $3 million in GOF subsidies after receiving major campaign contributions from the company.

While banning contributions to politicians from companies seeking subsidies is one way to encourage stronger ethics in government, another approach could be to ban companies from receiving subsidies if they have given or subsequently give contributions to officials awarding or enforcing subsidy contracts. Both would deter pay-to-play practices. Excluding subsidies to campaign contributors would be far easier to implement by shifting implementation away from elected officials and onto agencies awarding subsidies. Just as failing to create jobs can result in recapture or rescission of subsidies, a subsidy contract can undergo a clawback if the agency finds that a company has given to key public officials.

Apparent pay-to-play subsidies are not a problem isolated to Virginia. For example:

  • Texas: As we blogged previously, several newspapers have suggested that economic development subsidies controlled by Texas Governor Rick Perry are tied to fund-raising.
  • Wisconsin: Investigative Reporter Mike Ivey reported this week that the Wisconsin Economic Development Corporation, a privatized economic development agency, has awarded more than 60 percent of $975 million in subsidies to companies that have contributed to Governor Scott Walker or the Republican Governor’s Association.

For decades, state and cities have taken strong stances against allowing gifts and campaign contributions to contractors. Why not ensure the same level of integrity when it comes to economic development spending?

New ProgressOhio Report: JobsOhio Unaccountable and Ineffective

May 29, 2014

ProgressOhioLogo_transp1

ProgressOhio released a report today questioning the accountability and effectiveness of JobsOhio, the privatized economic development agency created by Gov. John Kasich in 2011.  The organization found that JobsOhio “exaggerated its impact, funneled state money to companies that did not create or retain the promised jobs, and has a pattern of helping companies with ties to its politically potent governing board.”

The report was released in conjunction with a discussion hosted by the American Constitution Society.    ProgressOhio Executive Director Brian Rothenberg told the event audience that “JobsOhio is secret because it is private. But we still get glimpses of the toxic mix of public money and private gain.”

Read the full report here.

The Latest from Subsidy Tracker

May 28, 2014

detectiveEarlier this year, my colleagues and I at Good Jobs First introduced a major overhaul of our Subsidy Tracker database. The big change in Tracker 2.0 was the addition of parent company information for entries representing three-quarters of the total dollar value of the dataset. This allowed us to document for the first time the outsized share of subsidy awards received by big business.

In the past three months we have been enhancing the enhancements. We have increased from 965 to 1,294 the number of matched parent companies, which together are linked to more than 31,000 individual awards with a total value of more than $113 billion. Our parent coverage now extends to the full Fortune 1000 as well as the Fortune Global 500, the Forbes list of the largest privately held companies, the Private Equity International list of the top 50 private equity firms (and their portfolio companies) and the Uniworld list of the 300 largest foreign firms doing business in the United States.

Each parent company has its own summary page, which can be accessed through a drop-down menu at the top of the Tracker search form. These pages include cumulative totals for the subsidies received by the company and all its units and subsidiaries; the states in which it has received the most awards; and a list of all the individual awards that went into those totals. Those lists are sortable and downloadable, and they include links to pages with details on the individual entries.

Since the release of 2.0 we have added a variety of new features to the parent summary pages, including indications of the time period covered by the data and the following identifying information: the company’s ownership structure, the location of its headquarters and its primary industry group. (See below for a summary of what these identifiers show.) We have also begun to add other key info sources on the companies, beginning with links (where available) to the firms’ CTJ-ITEP Tax Dodgers pages and to our Corporate Rap Sheets.

Along with the parent pages, we’ve created summary pages for each of the states and the District of Columbia. They show cumulative totals, the parent companies with the most awards and a sortable and downloadable list of all the listings for the state. The top states in terms of cumulative disclosed subsidy awards are New York ($21 billion), Washington ($13 billion) and Michigan ($10 billion).

We have not neglected the task of gathering new data. Led by my colleague Kasia Tarczynska, our effort to find new online and unpublished data has during these past three months resulted in 13,000 new listings, bringing our total to 258,000. Kasia is getting ready to implement a plan for systematically filing FOIA requests for missing data with state and key local agencies.

NEW CUMULATIVE SUMMARY DATA FOR SUBSIDY TRACKER PARENT COMPANIES

Top Parent Companies:

  • Boeing: $13.2 billion
  • Alcoa: $5.6 billion
  • Intel: $3.9 billion
  • General Motors: $3.6 billion
  • Ford Motor: $2.5 billion

Top Industry Groups:

  • Aerospace & military contracting: $14.3 billion
  • Motor vehicles: $13.9 billion
  • Steel & other metals: $8.2 billion
  • Semiconductors: $5.7 billion
  • Oil & gas: $5.3 billion

Top States Based on the Location of Parent Company Headquarters:

  • Illinois: $16.2 billion
  • New York: $13.6 billion
  • Michigan: $8.4 billion
  • California: $8.0 billion
  • Texas: $4.5 billion

Foreign Countries Whose Companies have Received the Most Subsidies for their U.S. Affiliates:

  • Japan: $5.3 billion
  • Germany: $2.4 billion
  • Netherlands: $2.2 billion
  • Italy: $2.1 billion
  • Canada: $1.8 billion

Subsidy Tracker 2.0 has a wealth of new information. Check it out today.

Rhode Island Considers Defaulting on Bonds for Notorious 38 Studios Deal

May 22, 2014

The aftermath of Rhode Island’s biggest economic development scandal isn’t over yet. In 2010 the state’s privatized economic development agency loaned 38 Studios—a video game company founded by former major league pitcher Curt Schilling—some $75 million in subsidies which the state borrowed to provide. The firm soon failed, apparently leaving taxpayers with an obligation that has risen to $89 million (with interest), including a $12.3 million payment due next year.

Those payments are now in question. Rhode Island’s House Speaker Nicholas Mattiello has scheduled meetings with Moody’s and Standard & Poor’s to discuss the consequences of failing to pay. While these bonds are not backed by the full faith and credit of Rhode Island, a previous consultant to the state made dire warnings about failure to pay, claiming that the move would degrade Rhode Island to junk bond status.

Mattiello became Speaker two months ago after the FBI raided the office of his predecessor Gordon Fox, who had played a significant role in approving the loan to 38 Studios. According to recent news reports, Fox’s lawyer moved to quash a subpoena for documents related to 38 Studios, citing his client’s Fifth Amendment right against self-incrimination. No charges have been filed pursuant to the raid.

Fox also had connections to a Providence lawyer named Michael Corso, who was involved with the 38 Studios deal.  Leaked documents show that Corso was paid $300,000 by 38 Studios to interact with state agencies and officials. Additional revelations show Corso was paid $485 an hour by 38 Studios to evaluate potential incentives for the company. Corso failed to register as a lobbyist on behalf of 38 Studios. This revelation launched an additional investigation this May by State Police into potential lobbying violations.

Corso is also a tax-credit broker. His company, Preservation Credit Fund, had a contract with 38 Studios to allow it to sell tax credits secured by the company. According to Corso’s LinkedIn page, “Preservation Credit Fund works closely with developers and advisors to maximize tax credit benefits, advise on tax credit issues and provide syndication services.” Corso has been dubbed the state’s leading film tax credit broker and has even claimed to be the primary draftsperson of Rhode Island’s Historic Preservation Tax Credit.

In another strange development, the state recently hired First Southwest, a financial adviser it is simultaneously suing for “fraud, negligence, and legal malpractice” in connection with the 38 Studios loan. According to the state’s lawsuit and reported by the Providence Journal, First Southwest was paid $120,000 to pitch the 38 Studios’ loan subsidy to the privatized economic development agency’s board of directors and bond rating agencies.  The lawsuit accuses First Southwest of withholding vital information about the deal, primarily that the company was under-capitalized, thus making the loan appear less risky than it was. The company denies these allegations. New emails made public this week reveal internal discussions amongst 38 Studios executives about downplaying the under-capitalization issue.

It is a little-known fact that states and cities sometimes cover debt obligations for failed or troubled economic development transactions (including tax increment financing districts), even though they are not technically obligated to do so. But the fear of paying usurious interest rates on future deals causes them to reluctantly pay. Good Jobs First has observed that in the Great Recession, some development agencies apparently became very lax in their deal-vetting standards, as politicians were desperate to appear aggressive on jobs.  For performance-based subsidies, at least taxpayers won’t suffer from such deals; but when public debt is floated on insufficient collateral, as in the Studio 38 deal, taxpayers stand to suffer no matter what Rhode Island officials decide to do.

It’s a Teachable Moment about celebrity entrepreneurs, tax-credit consultants, and anxious politicians.

Supersizing New Jersey’s Subsidies

April 8, 2014

What a waste

Economic development incentives are making headlines again in New Jersey.   Following a massive legislative overhaul of the state’s business subsidy programs last year, Good Jobs First predicted that the state would quickly lose control of spending through the expanded programs.  It took less than a year for the state Economic Development Authority (EDA) to prove us right.

The (Bergen) Record revealed this weekend that under the new subsidy structure the EDA has awarded twice the amount of business incentives as it did during the first quarter of last year:

“The grants so far, awarded in the form of tax credits, totaled $355 million. That’s about $89 million a month, compared with about $36 million a month awarded under the state’s main incentive programs in the first nine months of 2013, authority data show. The state made about six awards a month under the revamped programs, nearly double the number in the first nine months of 2013.” (source)

Prior to the state’s business subsidies undergoing scrutiny as a result of the ongoing David Samson/Christie-Gate scandal, and even before the structural overhaul that has allowed the current subsidy surge, New Jersey was already facing criticism for its excessive spending on business incentives.  During its first two and a half years, the Christie Administration awarded nearly $2 billion in tax incentives and grants.

All this spending has done little to help the state’s economy.   New Jersey’s employment recovery rate lags behind the rest of the nation and reports that small business owners are still having trouble accessing Hurricane Sandy recovery funds are persistent.  Unfortunately for residents, the Christie Administration has already demonstrated that doubling the state’s already ineffective business incentive spending isn’t likely to have much of an impact.  Supersizing subsidy spending is no recipe for prosperity in the Garden State.

New Report: Putting Municipal Pension Costs in Context: Chicago

April 4, 2014

Have secretive TIF accounts played a significant role in the underfunding of Chicago pension funds?

A new report out today, Putting Municipal Pension Costs in Context: Chicago, focuses on how Tax Increment Financing or TIF seems to be undermining the city’s budget and has been for the last decade. At a moment when politicians are talking about cutting retirement benefits for civil servants like Teachers, Firefighters, and Policemen, we think it’s useful to remind the public about what’s been dubbed Chicago’s Shadow Budget, none other than TIF.

There’s been no shortage of troubling issues surrounding TIF. We’ve blogged about them a number of times on this blog.

Nearly one out of every ten property tax dollars collected in Chicago doesn’t end up in the city’s general fund or with other taxing jurisdictions that provide public services. Instead, those revenues are siphoned off into what were once secret TIF accounts controlled almost exclusively by the Mayor.

While this report does not specifically call for the abolition of TIF in Chicago or oppose taking other measures to raise the needed revenues to pay for critical public services, we believe that as a matter of honest accounting and fair budgeting, TIF requires careful consideration.

TIF_Costs_Growth

TIF costs have grown significantly in recent years. They have for years exceeded the City’s annual pension liability. Our analysis shows that property tax diversions into TIF have exceeded pension costs in every year since 2007. For example, the city’s pension costs were about $386 million in 2012, while TIF diverted $457 million in property tax revenues in that same year.

TIF_Rev_vs_PensionCosts

When newly elected Mayor Rahm Emanuel took office, he convened a TIF review process in order to fix this so-called Shadow Budget. Although the City made TIF far more transparent as a result, the review did not make TIF any less corrosive towards Chicago’s budget. Recent new rounds of proposed subsidies for things like basketball stadiums and hotels raise serious doubts about whether TIF reform has actually materialized.

Aides to Mayor Emanuel have acknowledged that about $1.7 billion sits in TIF accounts, though $1.5 billion is obligated to various projects through 2017. But if the city is willing to consider breaking pension commitments, why should TIF spending not receive similar scrutiny?

Indeed, in California, Governor Jerry Brown didn’t rule out TIF spending to shore up budgets. Much like in Chicago, TIF in California was siphoning off an enormous amount of property tax revenue: 12 percent overall. When efforts to reform California TIFs failed, the state dissolved the authority of localities to have TIF districts and began the process of unwinding the existing debt obligations.

In the long run, local jurisdictions in California will see a 10 to 15 percent increase in property tax revenues over what they would have had with TIF still in effect.

Over the past decade or so, observers have noted that the City of Chicago had a revenue problem, but rarely have they noted the corrosive nature of TIF spending. According to a 2010 report on pensions issued under the previous Mayor of Chicago, pension funds began running into issues after the year 2000. It was during this period that the city began making what the report dubbed “inadequate contributions” to pensions. Is it a coincidence that property tax revenues lost to TIF more than doubled between 2000 and 2003 and quadrupled by 2007 to exceed half a billion dollars a year?

It’s hard to ignore the evidence that TIF impacted pensions: TIF costs grew, general fund revenues declined, and the city addressed its budget gap in part by making inadequate contributions to public pensions.

Cutting back on TIF in Chicago can and should play a role in shoring up the city’s financial situation.

Coverage of the report can be found at The Chicago Sun-Times & at PandoDaily.

Good Jobs First is a non-profit, non-partisan research center focusing on economic development accountability. It is based in Washington, DC.

Connecticut’s Open Data Website Leads Nation in Adopting Economic Development Transparency Best Practices

April 1, 2014
Screenshot taken from Connecticut's new Open Data website

Screenshot taken from Connecticut’s new Open Data website

Those looking for a model on how to disclose economic development deals should start their search in Connecticut. No joke: Connecticut is cutting edge when it comes to taxpayer transparency on economic development.

Yesterday, Governor Dannel Malloy launched a new website called Data.CT.gov which aggregates numerous datasets that were previously unavailable or difficult to find. Included in this portal are many economic development programs we have doggedly watched and evaluated for transparency and accountability. Our January 2014 study ranked Connecticut 14th on job subsidy transparency: the states’ new website is a clear improvement that would have boosted their ranking into the top ten nationally had it been in use when we ranked all 50 states.

The Governor’s new transparency efforts came to fruition through two executive orders: one creating the website and the other instructing the state’s economic development agency to compile a searchable electronic database of subsidy information.

What makes the Connecticut website such a great model?

  • Clean Data: Often state agencies put up data in a haphazard fashion. Misspellings, data irregularities, and so forth make the data less useable. Worse, sometimes agencies put up data in static, unsearchable PDFs, not databases which contain the same information. When Good Jobs First imports data into our 50-state Subsidy Tracker database, this sort of messy data requires a great deal of clean-up. It’s clear that Connecticut has taken the time to ensure the data isn’t messy.
  • Relevant Data: The Connecticut portal also includes extremely important data that other states frequently forget to include. These fields include things such as clawback amounts, contract date timelines, job benchmarks, the result of a jobs audit, the amount of a subsidy awarded, the amount of a subsidy disbursed in each year, and the facility address. Including these data fields meets many of Good Jobs First’s best practices recommendations. In fact, the only data that really seems to have been omitted from the database is information about the wages and benefits of subsidized jobs (see here).
  • Data Tools: Another open data best practice is to allow users to easily search through the data. The database includes built-in mapping tools, filters, and charts. As the screenshot above illustrates, taxpayers can now easily see on a map all film tax credit recipients that were issued tax credit amounts greater than $1 million.
  • Downloadable Data: Connecticut doesn’t hamstring users like it used to with a single big PDF. Now the data is available in a variety of easy to download formats including XML, CSV, and, of course, Excel spreadsheets.
  • More Data: Frequently states spend a great deal of time disclosing data about a few major programs, but forget to disclose information about other economic development programs. This database includes tax credits, grants, loans, and other economic development tools. For more discussion about tax credit disclosure, see our previous blog on the topic. Connecticut’s data also includes previously undisclosed data about programs. For instance, it includes street addresses for film tax credit recipients.
  • Potential taxpayer savings: In the long run, the database will also save Connecticut taxpayers money. Frequently, Freedom of Information Act (FOIA) requests cost the government great resources in responding. But the new website will include frequently requested FOIA data. In addition to staff time saved, the enhanced ability for more citizens to know how their tax dollars are being spent will prevent waste, fraud, and abuse and enhance accountability.

We encourage you to go on the website and give it whirl: https://data.ct.gov/Business/Tax-Credit-Portfolio-Point-Map/megq-7hbv


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