Archive for March, 2008

Subsidy-Hungry Cabela’s: Is Its Business Model Teetering?

March 31, 2008

It’s an axiom in the economic development profession that if a company really depends on subsidies to decide where to go, it’s probably not much of a company. State commerce officials distinguish between consultants and companies they deem credible and, well, others.

That’s why I ridiculed the business plan of Cabela’s in The Great American Jobs Scam. As the #1 outdoor sporting goods retailer changed from just a catalogue operation to a national mega-store chain as well (and went public to raise the money), it signaled in its IPO prospectus that it was going to rely heavily on subsidies. Indeed, 20 facilities and more than $500 million later, Cabela’s officials have said publicly they don’t open stores without subsidies.

But will Cabela’s (and Bass Pro) shopping “pilgrims” really travel 400 miles (thus justifying “high impact retail” subsidies) once the two chains saturate every major market? (Not to mention $3.50 gasoline.)

Recent news from Cabela’s suggests otherwise: a trade journal recently noted that it will open only 2 stores this year, not the 7 it had announced. “On hold are stores announced for Billings, Mont.; Greenwood, Ind.; Wheat Ridge, Colo.; and East Rutherford, N.J.” reports Waverly News.

And in Hammond, Indiana and Hoffman Estates, Illinois (both near Chicago), the Northwest Indiana Times reports that Cabela’s is laying off 40 workers at each store. “During Cabela’s fourth-quarter conference call with analysts a week ago, company officials said three of the eight stores the outdoor outfitter opened in 2007, which included the Hammond and Hoffman Estates locations, were underperforming. They had declined to name the locations,” the Times reported.

David Cay Johnston, who will speak at our May 7-8 conference, also lambasts Cabela’s in his new book Free Lunch.

Popcorn! Peanuts! Get yer $25 bag of Yankee Stadium dirt here!

March 28, 2008

In Good Jobs New York’s never ending quest to draw attention to the outlandishly subsidized new Yankee Stadium, this week brings us news of pay dirt. Honest.

The plan to demolish the House that Ruth Built (and build a new stadium for the Yankees across the street) includes auctioning off everything from urinals: $1,000, to dirt: $25 and bricks: $300 each, according to the New York Post. The Post also reports public officials are negotiating with the Yankees on how much of the auction proceeds will go to the city. Negotiate? New York City owns the stadium. Last week’s city budget news revealed a gargantuan increase (reported here and here) in the cost of replacing the 22 acres of park land (with potentially hazardous synthetic turf) near where the new stadium is being built. Any proceeds from auctioning off parts of Yankee Stadium (or Shea in Queens which is also being demolished) should go to fill the gaping hole in the New York City Department of Parks and Recreation budget, thanks in part to the Yankee project.

Last year the city reported in its benefit analysis it would get $10 million from salvaging parts of the stadium. Where the auction figures came from is unknown, but taxpayers should hope that it’s underestimated.

Speaking of underestimating…. The Yankees promised Bronx politicians they could allocate $800,000 a year for 40 years in exchange for using parkland for the stadium. This promise was used convincingly by the Yankees to push the deal through the city’s land use process. But none of money (ground broke on the new stadium in August 2006) has yet to be spent, raising the ire of South Bronx residents. This week, the Community Board met the folks in charge of the fund. According to news reports, some people still aren’t buying the process by which the fund was fashioned or why none of the money’s been allocated.

A New Way to Cloud Transparency

March 27, 2008

When the New York City Industrial Development Agency (IDA) provides tax breaks to businesses, the impact is felt in city and state coffers. But that’s not where the IDA will direct “participation payments” under a new plan in which taxpayer money will effectively be shifted away from public control.

At the Agency’s last board meeting, it approved subsidies for the “Harlem Park” office development and its tenant Major League Baseball, and also cleared the way for a new type of profit-sharing agreement. The cost/benefit analysis for this Vornado Realty-led project states that the company, “has agreed to provide a participation in the cash flows of the property to the Agency.” Per the agreement, once Vornado achieves an 18% internal rate of return on its investment, it will pay the IDA 1% of all excess cash flows. This means taxpayer money will subsidize the project and, at a certain point, Vornado may return part of it – except the money will go to the IDA to use at its discretion rather than return to taxpayers.

The amount of funding this agreement brings into the IDA may be small, but as we stated in our public hearing testimony on the Vornado subsidies, this profit-sharing proposal sets a troubling precedent of shifting tax dollars to an agency subject to limited legislative and public oversight.

Practically all of the IDA’s funding comes from project fees. According to the Agency’s most recent audited statements, fee income paid by applicants accounted for 99.6% of its operating revenues in Fiscal Year 2007. This creates an incentive for the IDA to prioritize large firms that can cough up the large fees over the need to prudently use New Yorkers’ tax dollars.

Interestingly, the IDA has recently been listing application fees as a benefit to the city (see page 1 of Vornado’s analysis for an example). But, like any revenues brought in through the new profit sharing plan, this money never makes it to the city’s coffers and instead stays within the Agency.

Chicago Nixes Second Wal-Mart: The End of Its Urban Strategy?

March 25, 2008

Apparently to preserve Mayor Richard Daley’s détente with organized labor, Chicago government has nixed a renewed effort by Wal-Mart to build a new Supercenter in the predominantly African-American Chatham neighborhood on Chicago’s South Side.

In vetoing the bid, Chicago’s planning commissioner–who must approve stores bigger than 100,000 square feet– cited the 2004 promise by the original lead developer that Wal-Mart would no longer be part of the Chatham Market retail development, which is located at a former industrial site in a Tax Increment Finance (TIF) district. Since the company has been effectively shut out of Los Angeles, Boston, and New York City, Chicago has been described as “ground zero” in Wal-Mart’s strategy for moving into untapped urban markets.

In 2004, the company’s effort to put a store in Chicago’s impoverished West Side provoked a bitter battle in Chicago City Council. Unions and community organizations including ACORN mounted a citywide effort to block the notoriously anti-union, low-wage company from operating in the city. Wal-Mart succeeded only after Mayor Daley wielded his first-ever veto against a union-backed bill that would have required “big box” stores like Wal-Mart to pay a “retail living wage” or provide compensating benefits. However, Wal-Mart’s success in getting a West Side location was not duplicated in its simultaneous bid for a South Side store in the Chatham development. Support for the proposed Wal-Mart from the Chatham neighborhood’s local alderman could not overcome organized community opposition.

In order to win zoning changes needed for the larger Chatham project, and a reported $33 million in TIF funds for environmental clean-up, Monroe Investment Partners LLC told city government Wal-Mart would no longer be part of the Southside development. But when Archon Group, a unit of investment bank Goldman Sachs, became lead developer for the Chatham site, it renewed the bid to include a Wal-Mart store.

Backers of the proposed Southside Wal-Mart claim the store would provide new grocery options for a depressed area, although there are already a Food 4 Less and Jewel-Osco located nearby. Other residents in the South Side and elsewhere in Chicago cite Wal-Mart’s anti-labor stance and conservative politics as a reason to continue to keep it out. Having spent at least $2.5 million in the aldermanic elections that followed the Mayor’s veto, Chicago unions have threatened to reintroduce the retail living wage measure if a second Wal-Mart is approved.

The experience of the existing West Side store is decidedly mixed. The store’s sales last fall were reportedly “good, not great.” Independent businesspeople near the West Side store have mixed feelings about Wal-Mart’s Jobs and Opportunity Zone Program, with some worried about being run out of business while others are happy to have a big player’s presence in an economically depressed area. At the moment, the West Side store looks like it may remain Wal-Mart’s only Chicago experiment.

Will tax breaks “Chase” Bear Stearns? [UPDATED]

March 21, 2008

The fallout of JPMorgan Chase’s take over of Bear Stearns is still unclear, but it will certainly be felt beyond the financial sector in New York City where both firms have their headquarters and where we have the added anxiety of $317 million in past corporate “retention” deals.

The inevitable layoffs associated with the plan are already being speculated about. Taxpayers should expect that city officials will hold the firms’ accountable for job promises. But don’t hold your breath.

Not surprisingly at GJNY we call these type of deals blatant corporate giveaways. But now that the subsidies are out of the bag, it’s worth noting their status. Yet, finding the answer isn’t so easy since the annual report released by the New York City Industrial Development Agency (IDA), the quasi-public entity that negotiates and oversees these deals, is notoriously inconsistent and excludes deals more than eight years old.

We resisted the temptation to throw up our hands in frustration and instead compiled figures from several years of annual reports. We’ve requested updated figures from the IDA and we’ll update this entry when we get them.

Chase Manhattan Bank (now JPMorgan Chase) – approved for $211.8 million in 1988
Jobs in 1988: 5,000
Jobs retention promise: 4,500
Jobs creation promise: 1,450
Jobs in June 2003 (latest public figures): 3,983
Jobs in December 2006: 3,506
Subsidy used as of June 2003 (latest public figures): $44.5 million

Bear Stearns – approved for $11 million in tax breaks (and other subsidies worth up to $20 million) in 1991 in as part of a plan to move workers from Manhattan to Brooklyn

UPDATE: According to IDA officials the IDA merged the 1991 and 1997 deals.  As of June 2007, the firm had 7,667 jobs not the 9,284 we listed below from the annual report. The larger figure included consultants which the IDA does not counted towards the firm’s job compliance.

Jobs in 1991: unknown
Job retention promise: 1,435
Jobs creation promise: 229
Jobs in June 1999: 6424
Subsidy used: Because this deal has expired, presumably the firm has received all benefits.

Bear Stearns – approved for $75 million in 1997
Jobs in 1997: 5,700
Jobs retention promise: 5,700
Job creation promise: 13,300
Jobs in June 2007: 9,284 7,667
Subsidy used as of June 2007: $14 million

The subsidy silliness continued into the summer of 2007 when JPMorgan Chase was approved for at least $230 million in post 9/11 resources to move to former Deutsche Bank site (across the street from the World Trade Center) site from Midtown. It’s not surprising Chase is backing out of the Downtown deal since the Deutsche site is far less appealing than Bear Stearns’ spiffy Madison Avenue digs.

Malling America

March 19, 2008

Mall subsidies have been making headlines across the country recently. Increasingly, developers ask for massive pubic subsidies when they build mega-retail outlets and, unfortunately, officials often concede.

MINNESOTA: Mall of America (MOA) is at it again. Last year, Minnesota Gov. Tim Pawlenty vetoed a $180 million subsidy package for a $1.7 billion expansion of the mall. Now MOA owners, the Triple Five Group, are asking for about $350 million to finance a parking ramp and infrastructure improvements as part of the expansion, which would more than double the mall’s size.

Rep. Michael Nelson will introduce legislation exempting MOA from the seven-county region’s fiscal disparities program, which requires all communities to share 40 percent of their commercial and industrial tax base growth. MOA’s contribution would have to be made up by other pool contributors. Downtown retailers, which have to compete with MOA, are strongly opposed to the use of tax dollars for the mall expansion.

DISTRICT OF COLUMBIA: DC USA, an urban mall in the rapidly gentrifying Columbia Heights neighborhood, opened with much fanfare by district officials and the media. The Washington Post hailed it as a “rapid renaissance” for a blighted neighborhood, but many local residents and long-term business owners questioned the fairness of the $42 million subsidy DC government awarded the project.

In a March 16th editorial, small business owners Andy Shallal and Kim Weeks of Think Local First (a DC area local business alliance) complained that local businesses were left out of neighborhood redevelopment negotiations. Only 3 percent of 500,000 square foot mall was allocated for locally owned enterprises and existing businesses will receive only $2 million in additional public assistance – pennies for independent businesses that will now have to compete with mall anchors Target, Best Buy and Bed Bath & Beyond.

ARIZONA: George Will has joined the growing chorus critiquing subsidies for malls and retail. In his bi-weekly column, the conservative editorialist blasted a $94.7 million subsidy the City of Phoenix provided to a 144-acre retail, residential and office development called CityNorth, labeling it “booster socialism” and “corporate welfare.” Last summer, on the heels of the CityNorth giveaway, Arizona Governor Janet Napolitano signed a new law banning Phoenix-area cities from providing new retail subsidies.

Now, with the assistance of Arizona’s conservative Goldwater Institute, six Phoenix-area small business owners are suing the city. Arguing that the CityNorth deal violates provisions of the State Constitution, they are seeking to block future payments to the developer.

The Revolution Will Be Weatherized

March 17, 2008

I came away from last week’s Good Jobs/Green Jobs conference in Pittsburgh with mixed emotions. In some respects, it was an inspirational landmark event. The Blue Green Alliance, a strategic partnership of the United Steelworkers and the Sierra Club, brought together about 800 people from the labor and environmental movements to discuss strategies for dealing with global warming that also create good manufacturing and construction jobs. Gone was the notion that “jobs” and “environment” had to be separated by the word “versus.”

In its place was a vision in which large numbers of USW members are called back to work to produce steel for the wind turbine towers that are already becoming a more common sight around the country (including a few we saw along the Pennsylvania Turnpike on our drive from DC). It is also a vision, articulated most impressively at the conference by Van Jones of Green for All, in which young people from low-income urban communities are trained to install solar panels and retrofit homes and commercial buildings for energy efficiency. Some of the speakers got so carried as to depict these job-creation ideas as a “Green New Deal.”

But I didn’t hear enough discussion of how we get from here to there. The conference organizers implied that the road to green-job nirvana could be achieved through pragmatic cooperation between unions and forward-thinking companies. Hence the handful of large corporations (Alcoa, BP and steel giant Arcelor Mittal) that were among the sponsors of the conference and the various corporate figures who spoke. The presence of a plenary speaker from the alternative energy division of BP—a company with an abysmal track record on refinery safety, among other things—was particularly unsettling. Remarks by conference organizer Dave Foster and others that we should be willing to “go outside our comfort zones” did not satisfy my concern, at least, that BP was using the event for greenwash.

Not all the business speakers elicited an allergic reaction. Michael Peck of the Spanish wind energy company Gamesa—which has focused its U.S. operations in Pennsylvania and granted its workers neutrality to choose the USW—was forthright in arguing the advantages of labor-management cooperation and even took a pot shot at competitor Vestas for being unorganized.

However, another corporate speaker, Joy Clarke-Holmes of Johnson Controls, unwittingly deflated some of the high-minded rhetoric of the conference. Speaking after a presentation by Dr. Joel Rogers on a Milwaukee weatherization-finance scheme, Clarke-Holmes noted she had been employed by Johnson Controls for 25 years to sell energy-saving services and said “it’s amazing to hear this now being promoted by professors.”

To be sure, the green jobs movement is more than a new market opportunity for energy service companies, but it may not be quite the panacea that some conference speakers proclaimed. It would serve us all to adopt a more level-headed approach to the issue. Let’s not forget that union-friendly companies such as Gamesa are the exception rather than the rule.

And, from the perspective of Good Jobs First, there was a bit too much eagerness among some conference presenters to embrace the idea that tax breaks should be showered on companies that promise to create green jobs. We’ll have more to say on that issue soon.

Selective Disclosure by State Government

March 13, 2008

In November, the Corporate Research Project of Good Jobs First released a report called The State of State Disclosure, which surveyed the quantity and quality of state government transparency relating to subsidies, procurement contracts and lobbying.

In it, we mentioned that numerous states have been adopting new disclosure programs relating to public spending. These initiatives provide useful information but often fail to name names relating to subsidies and contracts. I have just completed a quick update of the transparency wave and found that the newest disclosure sites also have deficiencies.

Kansas’s KanView allows for searching of the names of vendors selling goods and services to any state agency. It covers the past two fiscal years. For now, though, the new site is less complete than the existing online database of the Kansas Department of Administration, which has a deeper archive and includes the full texts of contract awards.

While KanView allows for vendor searches throughout the state government, two other recent arrivals are more limiting. South Carolina’s Spending Transparency site simply provides total annual expenditures by agency. You can also view each agency’s monthly spending during the past year and drill down for details. This is more cumbersome than the existing state procurement website, which allows for general vendor-name searches.

Oklahoma’s new Open Books site also requires you to choose a specific agency or government function in order to view a list of vendors. The state already had an online list of recipients of recent contract awards as well as a list of statewide contracts, though the latter is not easily searchable by vendor name.

In short, it is unclear that the new transparency measures provide much in the way of additional information, especially in the ability to see which companies are making the most money out of their dealings with state governments. This limitation may be a reflection of the forces that are pushing for such transparency. They are led by the likes of Grover Norquist, head of Americans for Tax Reform (whose website, by the way, has the most complete overview of legislative efforts on spending transparency).

Yes, the same Grover Norquist who was on the Daily Show the other night promoting his new book Leave Us Alone: Getting the Government’s Hands Off Our Money, Our Guns, Our Lives. For Norquist, transparency is apparently a tool in the effort to shrink government to its bare minimum. His priority seems to be highlighting the true extent of social spending rather than fully exposing those corporations that are milking the public sector through lucrative contracts.

The news is more encouraging on the subsidy disclosure front, where progressive groups are taking the lead and have brought about new transparency measures in states such as New Jersey and Wisconsin.

Note: this item is also being posted on Dirt Diggers Digest, the new blog of the Corporate Research Project of Good Jobs First.

Wisconsin Upgrades State Subsidy Disclosure

March 11, 2008

Facing pressure to improve the accountability and transparency of state subsidy deals, the Wisconsin State Legislature passed meaningful subsidy disclosure legislation (Assembly Bill 741) last week.

The bill requires eight state agencies (including the Wisconsin Department of Commerce) to disclose subsidy details for economic development grants and loans over $100,000 online and allows the agencies to claw back subsidies from recipients that don’t live up to their job creation promises. Unfortunately, the new reporting requirements do not cover tax breaks or tax credits.

Last summer, the Milwaukee Journal Sentinel examined 25 Wisconsin subsidy deals that were awarded $80 million in subsidies and found that, overall, companies fell about 40 percent short on their job creation promises. AB 741’s changes, however, are based on the recommendations of an August 2006 Joint Legislative Audit Committee report that was also critical of the state’s subsidy reporting practices.

Wisconsin scored an “F” in subsidy disclosure in our Fall 2007 report, The State of State Disclosure, which graded all 50 states on their online disclosure of subsidies, state procurement contracts and lobbying.

The Wisconsin Public Interest Research Group (WISPIRG) championed the bill through the legislature. Wisconsin Governor Jim Doyle is expected to sign the legislation.

The Mayor’s Idea of a Deal

March 3, 2008

As I posted previously, NYC is considering handing over more dough to America’s favorite – and possibly richest – pastime. Since then the plan to give tax breaks to Major League Baseball caught the attention of The New York Times. The Times story caught the attention of other reporters forcing Bloomberg to defending the MLB plan, including during his weekly call in show on Friday when he was asked why the city continues to subsidize baseball teams and big firms, like Merrill Lynch. (The Merrill Lynch deal has more holes than Swiss Cheese, but it was approved under Guiliani, not Bloomberg). The Mayor’s defense is, hey, we got a good deal at only spending $75 million (each) on Yankee and Shea (err…. Citi Field) Stadiums.What? I guess giving $150 million of someone else’s hard earned money is like chump change to the Mayor. And the Mayor neglected to mention his deals for Goldman Sachs, Pfizer, American Stock Exchange among others. But I wonder what the mayor’s defense would be if he had his facts straight? The real New York City figure is closer to $400 million – and that’s just for the Yankees. Throw in Shea Stadium and the teams are tapping into well over $1 billion in city, state and federal subsidies

All this from a man who built a business worth $4.7 billion and rejected a subsidy for his company’s new office tower in 2001 since location isn’t a “function of tax breaks.”