The report can be found on our website: A Good Deal for Mississippi?

Here’s an excerpt:

Over the past decade Nissan has created thousands of manufacturing jobs in Mississippi. While the Japanese automaker has spent considerable amounts of its own money, it has also received huge amounts of financial assistance from taxpayers at the local and state levels.

In this report we document the many varieties of economic development subsidies the company has been offered, among them corporate income tax credits, rebates of withholding taxes, site preparation and infrastructure grants, training grants, and property tax abatements. In all, the value of the state and local subsidies offered to the company in Mississippi is some $1.3 billion, considerably more than has been reported.

The Advantage Jobs payments offered to Nissan in Mississippi are part of a controversial category of subsidies in which an employer gets a rebate of a portion of the state withholding taxes deducted from the paychecks of workers. In an April 2012 Good Jobs First report entitled Paying Taxes to the Boss, we found that the 25-year, $160 million Advantage Jobs deal granted to Nissan was the largest withholding tax subsidy ever awarded.

Aside from the total amounts, the Nissan subsidies raise other issues. Mississippi legislators approved subsidies based on an overly optimistic cost-benefit analysis commissioned by the state’s development officials. Our report does not provide a full-blown alternative analysis, but it is clear to us that legislators were not given the complete picture on how much would end up going to Nissan.

Although they approved a package valued at $295 million, the real cost of the tax subsidies included in the deal made it worth hundreds of millions more. According to publicly available sources, the number of jobs created at the Nissan plant in Madison County has hovered around 4,500. With Nissan eligible for an estimated at $1.3 billion in assistance over the term of the subsidy programs, Mississippi taxpayers may end up paying around $290,000 per job.

Unfortunately, many of those jobs are not regular Nissan payroll positions. The figures from the state auditor show that around 20 percent are temps. In 2012, temporary employees started work at only about $12 an hour. Taxpayers have paid premium amounts for jobs that in many cases are far from premium. This, along with the fiscal difficulties we document in the community where the plant is located, suggests that the Nissan investments in Mississippi have provided a lot less net economic benefit than the company and public officials have claimed.

Click to see the AJC infographic

The Atlanta Journal-Constitution has just published a devastating critique of two deal-closing funds used by Georgia to subsidize companies that are expanding or relocating to the state.

Three reporters–Michael Kanell, Shannon McCaffrey and J. Scott Trubey–spent weeks at the Department of Community Affairs going over thousands of pages of documents relating to a decade of grants awarded by the Regional Economic Business Assistance (REBA) and Economic Development Growth and Expansion (EDGE) funds. The funds are allocated to local development authorities that pay for company-specific needs like new roads or sewer connections.

They found that 42 percent of subsidized companies failed to deliver the full number of promised jobs, but fewer than 4 percent of awarded grants were not distributed or were clawed back as a result of that underperformance. Overall, the paper found, nine out of ten promised jobs were created, but this figure was skewed by the fact that some companies created more jobs than they promised. Some of those firms, however, later closed down or had mass layoffs. Some companies received subsidies even though their financial situations were uncertain (AJC ran a separate article analyzing giveaways to “red flag” companies).

Despite the widespread underperformance, companies “can – and do – escape any penalty,” the article said. Georgia’s generous exemption policy allows companies to create only 80 percent of promised jobs before any penalty applies. Not long ago, the passing grade was 70 percent.

The article comes with an infographic that includes company names, number of promised and actually created jobs, and the subsidy amounts. This is the first public disclosure of REBA recipients; EDGE recipients have been disclosed on the OneGeorgia Authority website, and that data has been incorporated in our Subsidy Tracker.

In states like Georgia, where subsidy disclosure is generally non-existent or minimal, it is often only through such journalistic investigations that the public learns the truth about the state’s economic development practices. We congratulate the AJC on its great job.

The privatized economic development agency was created in 2011. Governor Walker proudly proclaimed that shuttering the state’s Department of Commerce and replacing it with a privatized entity would do wonders for job creation in Wisconsin. Good Jobs First wrote a report documenting the tainted track record of privatized economic development agencies throughout the United States. We warned that these quasi-government agencies frequently lead to unaccountable, opaque organizations spending too much taxpayer dough without jobs materializing. With the Governor’s rosy jobs pledges falling short and the WEDC embroiled in scandal, it appears that the agency is destined to be yet another case study highlighting what can go wrong when a public agency becomes privatized.

Last week another scathing audit by the non-partisan Wisconsin Legislative Audit Bureau found a slew of disturbing practices. This follows on the back of other issues previously reported on our blog. The issues read like a laundry list of everything agencies tasked with managing the public purse ought not to do:

• Millions in taxpayer money went unaccounted for.
• The law was broken.
• Large amounts of taxpayer money were awarded to ineligible projects.
• Questionable and inexplicable purchases appeared, including sports tickets and gift cards (a similar incident brought down disgraced Baltimore Mayor Sheila Dixon).
• The agency turned a blind eye to recipients of public subsidies, even though the law required them to report publicly on their progress.
• Staffers at the organization accepted some $55,000 in gifts during a six month period in 2011.
• The agency failed to disclose to the public known conflicts of interest from an IT consultant awarded a no-bid contract.
• The WEDC even went so far as to hire an auditor while that same company was negotiating a subsidy deal on behalf of a client with the agency.

These findings just scratch the surface of what was uncovered. To dig into more of the juicy details, read the Audit Bureau’s full report here (summarized here).

Members of Wisconsin legislature, from both sides of the aisle, are calling for immediate changes (a rarity in Wisconsin politics these days). Sen. Robert Cowles, R-Green Bay, has stated that, “this audit shows there is a significant disconnect between our expectations of WEDC and the reality of their performance with regard to transparency and accountability.” The Senate Minority Leader sounded like Cassandra foretelling the fall of Troy: “This is what we were saying from the beginning… there needs to be more accountability… more reporting… When you create a pseudo-government corporation, you want to make sure that you’re having the benefits of both, not the downsides of both.”

Despite the outrage by members of the legislature, the agency has embarked upon a public relations campaign to defend itself. The new CEO of the WEDC continues to claim that it has corrected its old ways and that the agency had not made “intentional violations” of state statutes. Whether the new CEO has a firm grasp on the agency is questionable: he has been on the job only a short time. All three of his predecessors have resigned amid scandal: one was found to owe back taxes to the state; another took a more lucrative job at his old company just 24 hours after accepting the WEDC position; and the first head of the agency resigned after federal investigators found mishandling of HUD money.

Governor Walker has called for an emergency meeting of the WEDC to discuss the problems at the agency. Later this week, the legislature is set to vote on the WEDC’s budget. Will Governor Walker insist that the agency take the audit seriously and implement sensible reforms like those we called for in our 2011 report? Will the Governor ignore the troubling findings altogether? Or will he disband the privatized agency and reinstate the Department of Commerce as the flagship economic development organization in Wisconsin?

Those are the main conclusions of a new study published today by Good Jobs First. “Grading Places: What Do the Business Climate Rankings Really Tell Us?” is authored by Dr. Peter Fisher, an economist who has written extensively on economic development.

“When we scrutinized the business climate methodologies, we found profound and elementary errors,” said Fisher. “We found effects presented as causes. We found factors that have no empirically proven relationship to economic growth. And we found scores that ignore major differences among state tax systems.

“Given these underlying flaws, it is no surprise that the rankings wildly contradict each other and fail to predict which states’ economies will thrive,” concluded Fisher. “Instead, we note that the factors often have to do with the advocacy agendas of the groups.”

The study was released today at a national tele-press conference and is available at http://www.goodjobsfirst.  It examines: the Small Business and Entrepreneurship Council’s U.S. Business Policy Index; the Tax Foundation’s State Business Tax Climate Index; the American Legislative Exchange Council’s Rich States, Poor States: the ALEC-Laffer Economic Competitiveness Index; and the Beacon Hill Institute’s State Competitiveness Report.  Also examined are two representative firm models: the Council on State Taxation’s Competitiveness of State and Local Business Taxes on New Investment, prepared by the accounting firm Ernst & Young, and the Tax Foundation’s Location Matters, prepared with the accounting firm KPMG.

“Our study does not try to correct these rankings or present a new rating,” said Greg LeRoy, executive director of Good Jobs First. “Indeed, that is one of our main points: the needs of different businesses and facilities vary so much—and conditions vary so much between metro areas even in the same state—that the whole concept of a state ‘business climate’ is nonsensical. For only the third time in 27 years, the pseudo-social science of ‘business climate’ ratings has been debunked. We should lay aside these useless reports and debate the real issue: how to build a tax system that is fair, modern and relevant.”

Good Jobs First is a non-profit, non-partisan resource center promoting accountability in economic development. Founded 15 years ago and headquartered in Washington, it includes Good Jobs New York.

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TO:     Journalists Covering Gov. Perry’s Job-Piracy Trip to Illinois

FR:      Greg LeRoy, Good Jobs First (and a Chicago ex-pat)

RE:      A Background Primer and Questions to Ask

Texas Gov. Rick Perry is again trying to pirate jobs from another state, and again we are getting media calls.  Here is a primer on key Texas and Illinois issues to expedite the conversations.

1. Get the Hard Texas Jobs Numbers. They reveal that interstate job piracy is a costly fool’s errand. We issued a national study on this very topic in January, and it has passages devoted to Texas on pages 4-5 and 16-20. We document that Texas under Perry in his first seven years netted a microscopic 0.03 percent (three hundredths of one percent) of its jobs base annually from corporate migrations—at great expense given to a tiny share of footloose companies.

What is Perry doing to help existing Texas firms expand and new firms to start up? (Not to mention operate safely.)  Does he know that more than 9,500 business establishments with more than 110,000 jobs moved out of Texas during his first eight years in office? Where did they go and why?

2. Master the Texas Subsidy-Industrial Complex. Learn how private dollars (TexasOne)—some of them from site location consultants who profit from corporate relocations—bankroll Perry’s job-piracy forays. Learn about the Texas Enterprise Fund, where two-thirds of subsidized companies have fallen short on jobs, and where a fourth of recipient companies have given money to Perry’s campaigns or political proxies. The Wall Street Journal [8/13/11] summed it up as “Rick Perry’s Crony Capitalism Problem.” And the New York Times wrote at length about tax consultant (and big Perry backer) G. Brint Ryan.     

Which consultants are accompanying Perry to Illinois? How much do they get paid when consulting for footloose companies? How much money have they given to Perry’s campaigns and proxies?

3. Bone up on “Single Sales Factor.” When you hear large corporations in Illinois complain about the state’s decision to raise its corporate income tax rate in 2011, take it with a big grain of salt. That’s because chances are those companies pay tax to Illinois on tiny shares of their profits—thanks to a loophole named “Single Sales Factor.”

Prior to 1999, Illinois used the traditional formula for multi-state companies to determine how much of their income to apportion to Illinois. It had three equal factors: the share of the company’s payroll, the share of its property, and the share of its sales inside Illinois.

Take a hypothetical national company headquartered in Illinois (certain construction equipment, farm machinery, pharmaceutical, corn-syrup, cell phone and food companies come to mind). Say it has 40 percent of its payroll and 40 percent of its property in the state, but only does 4 percent of its sales there (because Illinois has 4 percent of the nation’s consumers). Averaging those three factors meant that such a company used to apportion 28 percent of its domestic U.S. profits to Illinois.

But with single sales factor, the first two factors go away. Only the 4 percent sales factor matters: the company pays Illinois corporate income taxes on only 4 percent of its profits. In other words, its tax bill just plummeted 86 percent.

And for that windfall that was sold in the name of jobs, jobs, jobs, the company incurs no obligation whatsoever to retain or create any jobs. Indeed, as we documented in a 2012 study, nine Illinois corporations that lobbied for Single Sales Factor or were publicly identified at the time as major SSF beneficiaries have since laid off more than 12,000 Illinois workers.

My advice to reporters interviewing Illinois companies: ask them what share of their U.S. profits are apportioned to Illinois. I’ll be very surprised if they disclose, but for big national companies, chances are the answers are low single digits. Next: ask them the actual dollar amounts they have paid in recent years in Illinois income taxes. (Some big Illinois companies pay nothing or owe so little that they have been unable to claim the income tax credits they are due under the state’s EDGE program.)

For more, here is our 2003 study, Chapter 3 of which recounts Illinois’ enactment of Single Sales Factor.

Bottom Line: There are public policy and business reasons why the efforts of three other governors to pirate jobs from Illinois have failed (Wisconsin’s Scott Walker, Indiana’s Mitch Daniels and New Jersey’s Chris Christie). Perry’s splashy effort is likely to fail, too.

The Industrial and Commercial Incentive Program (ICIP), an as-of-right property tax break, was discontinued in 2008 yet property owners who previously qualified continue to rack up big benefits–over $650 million in exemptions for over 7,000 properties last year. Based on data obtained by Good Jobs New York, The New York World investigated the program’s 20 largest recipients, including the Rego Center Mall in Queens, which received over $9 million in benefits, and the Park Avenue headquarters of JP Morgan Chase, which received $8.2 million, reported in the article as 35% of its total property tax bill. (Previously, Good Jobs New York has identified JP Morgan as the largest beneficiary of discretionary benefits, which we also have detailed in our website.). Other malls and office towers are included in The New York World’s top 20 list of ICIP “Bargain Shoppers”.

The data obtained by GJNY reveals the addresses of recipients of the ICIP subsidy, including block and lot. Often, the owners are listed as LLCs or holding firms. The New York World investigated the top recipients to discover what tenants occupy those properties. GJNY has now incorporated the ICIP data into our searchable Database of Deals, encompassing nearly 40,000 subsidies allocated to New York City properties and businesses. Subsidy information can be searched by program name and borough on our website, and all results can be downloaded in a CSV file.

Subsidy run amok

ICIP was designed to incentivize industrial and commercial businesses throughout the city, and began granting tax exemptions and abatements in 1984, at a time the city feared a massive exit of businesses. ICIP is an as-of-right program, meaning businesses qualify for the tax break for simply being in a particular location and conducting a certain type of business. To be eligible, the building owner must make capital improvements. The value of the tax benefit is based on the portion of the assessed value that increased due to the improvements. Many properties benefit for up to 25 years.

Transparency

As the New York World article points out, the obvious critique of this program is that even though ICIP has been discontinued, it continues to cost the city in foregone tax revenue. The city provides little transparency on which properties receive the tax exemption or if jobs were created or retained at the site. The New York City Department of Finance does publish a list of qualified properties on its website in excel format. However, the available data does not provide the name of the building owner nor the value of the tax break–key components needed to ensure the city prioritizes the allocation of its resources.

Of course, the question remains whether those benefiting from ICIP truly needed it. In his 2008 policy report “Senseless Subsidies”, Manhattan Borough President Scott Stringer claimed “Retaining businesses in New York City, encouraging capital investment, and bolstering our tax base are, of course, valid public policy goals. However, tax subsidies provided under ICIP have become badly disconnected from this core policy rationale, and New York City’s taxpayers are paying the price.”

And, of particular concern to GJNY is the lack of accountability mechanisms in place for holding beneficiaries accountable for the tax benefit received. In fact, companies are expected to submit a “certificate of continuing use” to prove that the land or property continues to function under the same designated use that originally got it the subsidy. GJNY could not find this information publicly and was unable to determine if this information is actually integrated into the process of filing for an exemption.

Rebirth?

In 2009 the ICIP program was transitioned into what is now known as ICAP, the Industrial Commercial Abatement Program. However, in this transition it is unfortunate that the city didn’t incorporate land use policies, or other more strategic city planning goals into shaping this program intended to spur development. Without a more community-oriented focus to incentivizing industries, and with only the barest of transparency and no accountability, it’s clear as-of-right programs like ICIP and ICAP present a drain on the city’s resources and an unfair advantage to the top commercial and real estate players in the city.

Business Oregon, the state’s economic development arm, recently denied an open records request by OSPIRG to provide details about the state’s SIP deals.  OSPIRG then appealed to the state Department of Justice, which decided in favor of transparency and ordered Business Oregon to release records of the deals by next week.  The economic development agency is expected to comply.

While Good Jobs First has successfully obtained some types of SIP subsidy details in the past, the public has never had access to information about what exactly companies are promising in return for the special tax breaks.  Citing the program’s $322 million biennial cost, Celeste Meiffren of OSPIRG stated that “disclosure of information about SIP and all other economic development tax expenditures is important because taxpayers need to be able to track their return on investment.”

Way to go, OSPIRG!

Florida has just launched an Economic Development Incentives Portal that makes it easy to discover which companies have benefited from programs such as the Quick Action Closing Fund, the Qualified Target Industry Tax Refund and the High Impact Performance Incentive.

Online subsidy disclosure is not completely new to Florida. An agency called the Governor’s Office of Tourism, Trade and Economic Development used to post a PDF list of recipients for various programs. After Rick Scott took office as governor in 2011, that agency was put under the auspices of the new Department of Economic Opportunity, and the old disclosure site disappeared. DEO promised to restore transparency and has now made good on that promise.

The new portal, produced by DEO in partnership with Enterprise Florida, covers a dozen programs with a total of about 1,250 entries, including “every non-confidential incentive project with an executed contract since 1996 that received or is on schedule to receive payments from the state of Florida.” DEO promises to add listings for confidential projects as their exemptions from disclosure requirements expire.

Searches can be targeted according to business name, county or date range. The results show company name, industry, subsidy value, county, approval date and project status. They also include both committed and actual numbers for jobs and investment, though in many cases the performance figures are listed as not available. The portal also includes projects that are inactive or have been terminated.

Florida’s portal is an important advance for subsidy transparency. The site would be even more useful if it included street addresses for the subsidized facilities (to facilitate mapping) and allowed downloading of search results in spreadsheet form.  At my request, DEO sent such a spreadsheet for the entire database, which I used both to prepare this piece and to upload the information to Subsidy Tracker.

Mississippi, on the other hand, is resisting online disclosure. The state legislature recently killed a bill that would have required the Mississippi Development Authority to publish an annual report on the tax credits, loans and grants it provides to companies in the name of economic development.

It turns out that the agency produced such a report for internal purposes but did not make it public. A group called the Bigger Pie Forum learned about the document—the 2012 Mississippi Incentives Report—and filed a successful freedom of information act request. Bigger Pie was only able to get a hard copy, but it scanned the report and has posted it online here. The info in that report has also been added to Subsidy Tracker.

Despite the reluctance of state legislators, online subsidy disclosure has come to Mississippi. Perhaps the Magnolia State will realize the futility of resisting official transparency and join the Sunshine State, among about 45 others, in making subsidy information directly available to the public via the web.

• Less than one-third of the subsidies are subject to annual spending limits.
• Few of the Commonwealth’s special business tax subsidies have well-articulated public policy goals.
• Nearly half of all business tax subsidy programs fail to publicly disclose information important for transparency such as recipient names, program-wide cost to the state budget, or results generated by the program.

MASSPIRG  also finds that state spending on business tax subsidies has more than doubled since 1996; the Commonwealth spent an estimated $770 million in 2012 through programs such as the Economic Development Incentive Program and the Film Tax Credit.  MASSPIRG’s recommended policy options to help the state get the best results from its substantial spending on special business tax subsidies include:

• Transitioning from business tax breaks to outright grants.
• Adding mandatory public policy goals and expiration dates to new and existing subsidy programs.
• Continuing to improve disclosure of subsidies awarded through these programs.

You can read the rest of the organization’s recommendations to help the state get the biggest bang for its buck in Getting Our Money’s Worth? here.

Last Friday, at the Maryland Senate’s Budget and Taxation Committee hearing, representatives from the Maryland Chamber of Commerce endorsed cornerstone Good Jobs First reforms. This includes attaching strings to taxpayer-funded economic development deals such as money-back clawbacks when companies receiving taxpayer money fall short. The Maryland Chamber even implied that these reforms should apply not only to economic development subsidy deals, but also public-private partnerships (sometimes called P3’s) such as the concessions operations at Baltimore-Washington International Thurgood Marshall Airport (BWI).

In our two recent 50-state report card studies, Money for Something and Money-back Guarantees for Taxpayers, we documented the growth of these reforms across the states. It has become common practice for state economic development agencies to incorporate clawbacks and job quality standards into deals, though many states still don’t do enough or apply standards unevenly. But as the Maryland Chamber said, it’s a big problem when these agreements aren’t being adequately enforced to protect taxpayer money.

Below is a transcribed passage of the audio from the Maryland Senate’s Budget and Taxation Committee hearing. We think it serves to show the strong support for reforms like job quality standards, clawbacks and enforcement of clawbacks, even from powerful business interests. This portion of the hearing occurs around 1:05 in the recording.

Senator Richard S. Madaleno, Jr. (D-18th District): While the vice chairman raised many of the issues that I wanted to raise, I just wanted to be clear that you are saying Mr. Palmer, you are saying that there are times when in a contractual relationship between the government and a business we can put strings…

Matthew Palmer, Senior Vice President of Government Affairs at the Maryland Chamber of Commerce: Absolutely.

Senator Madaleno: This is how we’re going to treat your workers.

Mr. Palmer: Right.

Senator Madaleno: And in the case when they don’t and they violate that we can have clawback? You support that structure?

Mr. Palmer: Absolutely. And I think that’s important. As [the ABC representative] talked about with these P3’s, the flexibility of whether it’s [the Department of Business and Economic Development (DBED)] or other places actually putting that into contracts, you know, putting those strings as you said, with those companies and being able to, when they don’t meet those, claw that money back. Say OK, you didn’t meet your needs. I think that is absolutely appropriate and they should be held to it. I think that’s the problem. And unfortunately, it seems to me, in some of these instances [as we have heard from the testimonies of  workers at BWI airport, Baltimore’s Inner Harbor and Hyatt], some of those companies were not held to those standards. So I think that’s a big problem.