Archive for the ‘Taxes’ Category

Cook County, IL Succeeds at Truth in Taxation!

July 11, 2014

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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:

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.

$2.6 Billion Spent on Cleaning Up DC Rivers Must Address Local Job Creation

June 7, 2013

SinkorSwim_WebBoxOver the next decade, DC Water will use a regressive Impervious Area Charge (IAC) to fund $2.6 billion in needed water infrastructure investments. Middle- and low-income residents and neighborhoods will carry the highest burden of the DC Water fee increase that will pay for these improvements.

Despite the fact that the funding burden of these projects falls heavily on the most vulnerable residents, DC Water has not implemented a local hiring agreement, even though putting residents to work on the project may be the best way to reduce the harm of a regressive fee. These are among the findings of Sink or Swim? Who will pay and who will benefit from DC Water’s $2.6 billion Clean Rivers Project?, a study published this week by Good Jobs First.

More coverage of the report can be found over at the Washington Post and the Washington City Paper’s Housing Complex Blog.

Cities rarely spend so much — $2.6 billion — on infrastructure projects. A strong Community Benefits Agreement could make this public infrastructure investment provide a jobs stimulus benefit to District residents without spending an additional dollar. A proposed Community Benefits Agreement (CBA), like the District’s amended First Source Law, would establish a minimum percentage of work hours that must be performed by District residents, increasing to 50% over the next decade.

The report was commissioned by the Washington Interfaith Network (WIN) and The Laborers’ International Union of North America (LIUNA).

Among the major findings:

  • The impact of the IAC – measured as a share of 2013 property taxes – will be four- to five times greater for homeowners in poor neighborhoods than for those in affluent neighborhoods.
  • Small businesses, especially those east of the river, will feel a heavy burden from IAC fees. Office buildings on K Street will feel little impact.
  • There is no indication that District residents will benefit in proportion to their burden. Contractors on major DC Water projects currently employ more North Carolinians than residents from Wards 7 & 8 combined. Over half the contractor workforce lives outside Washington, D.C. and its immediate surroundings.
  • Continued failure to hire local residents will result in a massive transfer of wealth out of the District. We estimate that over the next thirty years, D.C. ratepayers will be billed $4.2 billion in IACs, including $1.1 billion from Wards 7 and 8 alone.

District residents will pay for these infrastructure investments through a regressive fee for the next thirty years. Low- and middle-income residents will be hit the hardest. These are neighborhoods that have historically been excluded from opportunities in construction careers; to not leverage $2.6 billion in public spending for District construction careers would represent a tremendous missed opportunity.

Who Doesn’t Pay

January 30, 2013

At Good Jobs First we tend to focus on the ways that corporations get special tax deals from state governments, so it is helpful to be reminded that wealthy individuals also pay far less than their fair share. A definitive statement of this whopaysfact has just been published by our friends at the Institute on Taxation & Economic Policy in the latest edition of their report Who Pays.

The injustice of state taxation is summed up in the main finding of the report: “virtually every state’s tax system is fundamentally unfair, taking a much greater share of middle- and low-income families than from wealthy families.”

At a time when a number of red states are talking about replacing their personal income tax (PIT) systems with higher sales taxes, ITEP points out that the over reliance on consumption taxes (along with the absence of a graduated PIT) is a big part of the regressivity problem in many states.

ITEP notes that five of most regressive states—Washington, Florida, South Dakota, Illinois and Texas—derive half to two thirds of their revenue from sales and excise taxes, compared to a national average of about one third. The least regressive systems, by the way, are those in Delaware, the District of Columbia, New York, Oregon and Vermont.

Although the report does not focus on the corporate portion of state income taxes, it points out: “More than ten states gave away big breaks to profitable corporations either through rate cuts, a change in the apportionment formula used to calculate the corporate income tax, expanded exclusions, or the reduction or elimination of personal property taxes. These states include Arizona, Alabama, Florida, Idaho, Louisiana, Michigan, Missouri, North Dakota, Pennsylvania, and Wisconsin.”

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.

Striking Chicago Teachers Highlight TIF

September 14, 2012

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

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

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

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

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

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

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

New Study: Massachusetts Business Tax Breaks Doubled

August 8, 2012

A new study released this week by the Massachusetts Budget and Policy Center reports that the annual cost of the state’s business tax breaks has doubled to $770 million this year from $342 million in 1996.  “Business Tax Breaks in Massachusetts” found that “sector specific tax breaks” (for particular industries) were largely to blame for the sizeable increase in cost.  Of the specific industry tax expenditures, two in particular demonstrated rapid and substantial growth over the study period: Single Sales Factor tax breaks for manufacturers and mutual funds companies and the state’s Film Production Tax Credit.  The authors further found that the spending through special business tax expenditures has increased by 60 percent, while during the same period total state budgetary spending has fallen by 5 percent.

The MBPC prudently concludes that the value of each of the state’s business tax breaks needs to be “weighed against other types of economic development investments the state might make using these dollars, including various on-budget expenditures, for things like public education and transportation infrastructure.”  Read the full report here.

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.

Abatements and TIF: Worse Than Ever for Schools

June 22, 2012

A study just released by the Census Bureau helps explain why property tax abatements and TIF are growing issues for people who care about public education.

For the first time in 16 years, it reports, local funding (65 percent of which comes from property taxes) provided the greatest share of school funding. That reverses a long-term trend in which state funding has become a larger share of the pie (with federal support accounting for only a small share).

But with states balancing their budgets in part by slashing aid to school boards and other local government bodies, local revenue matters more than ever.

That’s why costly long-term property tax abatements, routinely granted to large companies in the name of economic development, hurt schools more than ever. The same can be said for tax increment financing (TIF) districts, which can divert huge sums of property taxes (and sometimes others) for decades.

And that is bad news for real economic development that benefits all employers currently in a community. Schools also matter a lot for expansion and attraction. Because when an employer considers relocating to an area (and moving key personnel), the first thing those key employees want to know is: how good are the schools?  And the HR director wants to know: we will be able to hire well-educated new-hires? And they will also ask: has school quality been supporting strong home values?

Now more than ever, protecting the local property tax base from costly and unfair abatements and TIF matters for long-term economic development and a sound business climate.

See also Stateline’s coverage here.

Massachusetts Joins States with Tax Credit Transparency

June 5, 2012

Congratulations, Massachusetts!  As of this week, the Commonwealth has officially joined the ranks of states that disclose the recipients of economic development subsidies. Transparency legislation enacted in 2010 required the state Department of Revenue to begin posting this year the names of recipients of certain transferable or refundable tax credits, along with the value of those credits. Included on this list are the Film Tax Credit, the Economic Development Incentive Program, and refundable research credits aimed at the biotechnology and life science industries. The data, which include a total of 736 individual entries, can be viewed here.

This was all made possible through the efforts of groups such as MassPIRG, Common Cause Massachusetts, and One Massachusetts that spearheaded the campaign for the legislation.

Having long anticipated this advance in transparency, we at Good Jobs First wasted no time adding the new Massachusetts info to our Subsidy Tracker, which now contains more than 154,000 listings from all 50 states and the District of Columbia.


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