Archive for June, 2008

Searching for subsidies in Gotham just got easier

June 30, 2008

Today, along with Manhattan Borough President Scott Stringer’s Office, Good Jobs New York released subsidy snapshots, user-friendly maps of Manhattan firms that have received job-creation or retention subsidies. 

Subsidy snapshots are an attempt to simplify nearly 600 pages of company specific data on subsidy deals. We’re hopeful that the more information New Yorkers have on how subsidies are allocated, the more inclusive the city will be in addressing the needs of all New Yorkers. 

We chose to focus on Manhattan first because this is where some of most egregious subsidies have occurred. Also the Manhattan Borough President, who has an appointee on the Industrial Development Agency board (the subsidy issuing arm of the city), has successfully pushed for more transparency at the agency. 

We’ve learned the hard way that you can’t leave it up to City Hall to make sure subsidized firms like Merrill Lynch, Pfizer, MetLife and Bank of America keep their promises made in exchange for tax-breaks.  That’s why we’re rolling this information out to the leaders of New York City’s diverse neighborhoods via community boards, which are a critical component in accountability. We also want the snapshots to be a tool for workforce professionals looking for companies to hire or provide training or apprenticeship opportunities for their clients. 

Later this year we’ll release subsidy snapshots for Queens followed by The Bronx. And next year we tackle Brooklyn and Staten Island.




Home Depot Pays Off Bonds Linked to Cancelled Store

June 25, 2008

Home Depot is spending $2.4 million on a Wichita, Kansas store that won’t ever open. The struggling home-improvement retailer announced last month that it is closing 15 stores and canceling plans to open 50 new ones – including the Wichita location.

However, the city of Wichita had already issued $2.4 million in tax increment financing (TIF) bonds to clean up the brownfield location in a blighted area. Future increases in property tax revenues would have been used to finance the TIF bonds.

Home Depot has agreed to pay off the bonds even though its not required to do so, according to The Wichita Eagle. That’s great news for the city. Although the money came in the form of non-recourse bonds (meaning investors who purchased the bonds would have no recourse to get their money back if the building was not built and there were no increased taxes to collect), defaulting on the bonds would probably hurt Wichita’s bond rating and its ability to sell similar bonds in the future.

The housing market downturn has hit Home Depot hard as both consumers and homebuilders are reluctant to embark on new projects. The firm’s 2008 first quarter consolidated net earnings were $356 million – a drop of 60 percent from the same period last year.

All retail development is increasingly risky. The International Council of Shopping Centers predicts 5,770 store closings in 2008, an increase of 25 percent from 2007. Municipal governments usually cannot rely on the goodwill of giant retailers when deals go south. If state and local governments are going to subsidize retail (something Good Jobs First recommends only when a project is located in a neighborhood that is demonstrably underserved with basic retail such as groceries, pharmacies and clothing stores), every deal should have clawbacks so that communities are not left holding the bag.

Putting Limits on Ethanol Subsidies

June 24, 2008

Over the years, the reputation of ethanol has swung from one extreme to another. For a long time, the corn-based fuel was seen as the quintessential special interest, with promoters such as Archer Daniels Midland soliciting support in Washington via lavish spending on campaign contributions and lobbying. In recent years, ethanol and other biofuels were suddenly recast as the silver bullet in fighting global warming and reducing dependence on oil from insecure foreign sources.

Now the image of ethanol is turning negative once again. The diversion of corn output into fuel production is being depicted as a major cause of escalating food prices that in some countries have sparked civil disturbances. At the same time, various scientific studies have concluded that biofuels may actually be doing more harm than good in the effort to limit greenhouse gas emissions.

Many of ethanol’s true believers are not budging, however. This week the New York Times ran a front-page story describing how Sen. Barack Obama continues to act as a cheerleader for the fuel and maintains close ties with the ethanol industry, some of whose boosters (such as former Senate Majority Leader Tom Daschle) are playing key roles in his campaign.

Ethanol subsidies are not only a federal matter. More than a dozen states have jumped on the bandwagon, offering a variety of direct and indirect tax credits and other incentives for ethanol producers. Little is being done to turn off the spigot now that the drawbacks of biofuels are becoming more apparent.

One reason may be that some legislators have a very profound conflict of interest—they are themselves recipients of the subsidies. A recent Associated Press investigation found that in Missouri, for instance, about 20 present or former state legislators and other officials have received biofuel-related subsidies, included one who has reaped more than $200,000.

It’s time for politicians, both in Washington and in state capitals, to take a more balanced view toward ethanol. Biofuels are certainly part of the energy mix needed to counteract global warming, but only within limits. Rather than serving as an open-ended giveaway, subsidies need to be calibrated to reflect those limits.

Big Victories for Partnership for Working Families and Affiliates

June 19, 2008

Our friends at the Partnership for Working Families (PWF) and its affiliate organizations do amazing work. So it’s not surprising they are winning big victories – most recently in Pittsburgh and San Francisco, and hopefully another in San Jose this fall.

PWF affiliates work to ensure that low and middle income workers and communities share in the benefit of economic growth and development. Often, they campaign for community benefits agreements (CBAs) – legally binding contracts signed by developers and community coalitions that spell out a set of community benefits that the developer must provide as part of a development project.

In Pittsburgh: Pittsburgh United’s One Hill CBA Coalition, is close to winning the city’s first-ever community benefits agreement for the new Penguins hockey arena and 28 acres of surrounding land. The agreement, which has been tentatively approved by the Penguins, would require that all new jobs in the development pay living wages and provide health benefits. Neighborhood residents would be interviewed first for the new jobs. Also, the arena would have to prepare a LEED Certification Plan (the gold standard for green building).

In San Francisco: The San Francisco Labor Council, ACORN, and the San Francisco Organizing Project have entered into a CBA with housing developer Lennar for a massive redevelopment in the Bayview-Hunters Point neighborhood. Lennar has agreed to ensure that 32 percent of the housing units are affordable, provide neighborhood residents with $27 million in housing assistance and $8.5 million in job training services, require local hiring for project construction, and ensure labor peace in the project’s key industries. In exchange for these concessions, the organizations were strong advocates in support of the project on two city ballot initiatives – helping the initiatives pass on June 3rd. Now Lennar has a green light for the city’s largest redevelopment project since the 1906 earthquake.

In San Jose: Working Partnerships USA is organizing community, faith and labor leaders to support living wages for workers at the Mineta San Jose International Airport. In a recent report, Worker Partnerships found that over half of the surveyed airport employees weren’t trained in critical emergency procedures, such as facility evacuation. Paying a living wage would reduce turnover at the airport, increase the amount of long-term, skilled workers on site and consequently improve airport safety. Airport workers and community advocates spoke in support of a measure to require living wages for airport workers before the San Jose City Council’s Transportation and Environment Committee on June 2nd. Worker Partnerships is hopes to win an airport living wage ordinance this fall.

Take Your Poison: Hemlock Semiconductor Demands Costly New Subsidies from Michigan

June 18, 2008

With Governor Granholm’s support, both houses of Michigan’s legislature recently approved creation of a tax credit to offset the energy costs of Hemlock Semiconductor, a company seen as key to the state’s high tech future. The tax credit proposal is now attached to state energy policy legislation that is still pending.

Hemlock, a joint venture of Dow Corning and two Japanese firms, manufactures polycrystalline silicon for solar cells and for electronics, and its 30-40% annual sales growth has driven rapid growth in production capacity. Site Selection recently ranked Hemlock’s $1 billion expansion in Saginaw County—the third in three years–as one of 2007’s top ten business deals.

The 12-year tax credit, which the energy-intensive firm wants to defray Michigan’s “uncompetitive” energy costs, is Hemlock’s price for further expansion in the state. It would be expensive, costing the state $357 million, or an estimated $900,000 per job for the 400-500 jobs projected for Hemlock’s next expansion.

The proposed credit is also “fully refundable,” i.e., it becomes an outright payment from the state’s general fund in years when Hemlock’s Michigan tax bill is too low to take the full credit.

Even in Michigan circles favoring lower business tax rates, the company-specific handout has had some critics. The Republican chair of the senate finance committee, Nancy Cassis, fears the credit could “put a hole in the state’s budget” and add to the burden of “all companies not as large as Hemlock Semiconductor that are the backbone of our communities.”

Russ Harding of the Michigan-based Mackinac Center for Public Policy, a free-market think tank, also decried the proposed credits: “We gave them incentives to get them here. Now they’ve got leverage and say they’ll leave without more incentives. Where does it stop?”

It’s hard to say. In fact, the new subsidy would come soon after Governor Jennifer Granholm’s approval of “anchor zone” tax breaks for Hemlock, to be based on jobs created by silicon “wafer” manufacturers that locate in a zone around Hemlock’s Michigan plant.

One blogger noted these incentives are “part of a master plan to turn Michigan into a high-tech nirvana, where a few hundred jobs here and there will supposedly make up the shortfall created by the thousands of manufacturing jobs that have already left the state.”

Meanwhile, the legislation does not require Hemlock to create a definite number of jobs or maintain a specific level of investment in its next Michigan expansion, or to repay state incentives if it does not.

Ironically, the proposal to underwrite Hemlock’s intensive energy consumption is now linked to energy legislation that, while promoting more power plant construction, would also set tougher energy efficiency standards for Michigan business. 

New Yorkers Say ‘Enough!’ to Stadium Subsidies

June 18, 2008

Fed up with public funding going to stadiums instead of services that benefit the whole city, a coalition of good government, park advocacy and community groups sent an open letter yesterday to the New York City Congressional delegation. The letter demands they ask the Internal Revenue Service and the Treasury Department to help close a loophole discovered by local officials that allows federal subsidies (in the form of tax-exempt bonds) for sports facilities, which are normally not eligible. Another group began an e-mail campaign asking Mayor Bloomberg to refocus his priorities from stadiums to schools and other public infrastructure.

It seems the city’s attempts to use the loophole might not be so easy this time.

As we wrote last week, Assembly Member Brodsky broke the news that the New York Yankees asked the city to help them secure an additional $350 million in triple (city, state and federal) tax exempt bond financing to finish building their new stadium. The bases are loading up – last week more Assembly Members jumped on board denouncing the extra financing and calling for hearings on the matter. U.S. Congress Member Dennis Kucinich, who has previously held two hearings on stadium financing, has now written a letter to the IRS questioning their regulations.

The city’s Independent Budget Office estimated that the $350 in tax-exempt bonds would cost taxpayers approximately $83 million (that is, if the bonds were not tax exempt, governments would have collected $83 million in taxes). This comes on top of the $800 million in public financing the Yankees already received for the new stadium, plus cost overruns for parks the city promised to build to replace those that were destroyed for stadium construction.

Officials seem to be in a panic over the idea that in the future large stadiums may no longer be eligible for tax-exempt bonds. A recent New York Times story noted that the city is seeking bonds for the Nets Arena, part of the controversial Brooklyn Atlantic Yards project.

And perhaps officials should be panicking. It seems many New Yorkers have decided it’s time to turn off the stadium subsidy spigot.

The TIF That Won’t Die?

June 13, 2008

The Chicago Reader reported last week on the 18-month lifespan extension of a downtown TIF district that had already benefited from hundreds of millions in diverted property tax revenue and had been scheduled for retirement in 2007. The current extension is rumored to be a dress rehearsal for a full 12-year extension.

The Central Loop TIF district was created in 1984 to spur development in the apparently jinxed Block 37—where plans for a new station providing rapid transit to O’Hare Airport have just collapsed—but it now covers a wide swath of the Loop, one of the nation’s leading business and commercial hubs. The district’s geographic expansion is an especially glaring example of how state and local governments in Illinois have turned TIF into a largely unregulated diversion of property tax revenue to spur development in already affluent or thriving areas.

Having burst its original physical boundaries, the Central Loop TIF district, like others in the state, has stretched its physical life as well. In Illinois, TIF districts are supposedly created for areas designated as “blighted”, allowing increases in property tax revenue in the district to be reserved for further economic development rather than allocated to local taxing authorities. State law originally limited the ordinary duration of TIF districts to 23 years, and public officials seeking to create TIFs still cite this time limit.

However, the Reader’s Ben Joravsky, who has extensively covered the cost to taxpayers, education, and public services of TIF overuse/abuse, recently reported that the Chicago City Council in 2000 quietly extended the original 23-year lifespan of the Central Loop TIF district, due to expire in June 2007, to December 2008.

The extension was made possible by a 1999 state measure pushed by Mayor Daley and City of Chicago lobbyists, who claimed TIF districts were being short-changed because of the lag between when taxes were levied and when they are actually collected. However, Joravsky cited figures from the Cook County Clerk’s office that show the Central Loop TIF had already collected over $2 million in diverted tax revenue within three months of its creation in 1984.

With the extended duration of some TIF districts to as long as 35 or 36 years–an eternity for school districts, park districts, and other services dependent on property tax revenue– their economic development promise has become a nightmare.

The cost to schools and other public services and the unaccountability of Chicago’s TIF districts has long been controversial, due to the pioneering critiques of the Neighborhood Capital Budget Group (now defunct), the Center for Economic Progress and Illinois Housing Action. Cook County Commissioner Mike Quigly also has called for more accountability and openness in TIF expenditures by Chicago and its suburbs.

Even the Civic Federation, a leading Chicago business organization, called in 2005 for the Central Loop and some other Chicago TIF districts to be retired so tax revenues could be restored. Last year a Federation report called for a city TIF budget, since “TIF expenditures now occur in such a sporadic and obscure fashion that voters have difficulty knowing what’s really happening.”

The tax revenues appropriated by TIF districts in economically robust areas are large.Last year, the Cook County Clerk’s office noted that the Central Loop TIF was one of two Chicago TIFs that “alone are collecting more revenue ($152.5 million) this year than all Cook County spends from property taxes toward public health.” According to county figures cited by the Reader, the extension of the Central Loop TIF has meant an additional windfall of $48 million in diverted revenue for the first half of 2008 alone.

Nevertheless, Mayor Daley—who recently lobbied the Illinois legislature for $180 million for Chicago’s financially strapped school system, one of the public services starved by diverted TIF tax revenue —is reportedly seeking the legislature’s permission to extend the life of the Central Loop TIF by another 12 years.

The Yankees want relief and it’s not for the pitchers.

June 12, 2008

 To say New York Yankee executives have chutzpah is an understatement. To say New York City Mayor Bloomberg has lost his fiscal sense is not an overstatement.  Yesterday, Assembly Member Richard Brodsky who is trying to bring law and order to New York’s unwieldy public authorities, revealed that the New York Yankees are asking for $350 million more in public financing for their stadium.

As if the $800 million in subsidies the team already pocketed for its new home (currently being built on what once was parks and playgrounds) isn’t enough.  But as big projects like these often do, the new stadium is costing more than expected and the team wants New York officials to lobby the Internal Revenue Service to permit it to get tax-free financing. This is a repeat of what New York officials previously did on behalf of the Yankees. 

But the most shocking part of this scenario isn’t the Yankees voracious appetite for our tax dollars, it’s that the team reportedly said it would finish the stadium even if it didn’t get the financing. The Yankees claim they could finish the project without additional public financing, but the Mayor’s still offering to help? Yes, we’re confused too. 

With term limits making Mayor Bloomberg’s days in office numbered, let’s hope he quickly gets back the businesses sense he used to build his successful firm, and use it for New Yorkers. Any lobbying in Washington should be to advocate for really important infrastructure improvement for the whole city, not just the Yankees.

The more things change…?

June 11, 2008

Things are changing at New York State’s economic development agency. Governor Paterson’s recent appointment of Buffalo-based Robert Wilmers, the Chairman and CEO of M&T Bank Corp., to head the Empire State Development Corporation (ESDC), has garnered much praise from business groups across the state. But whether Wilmers will support state subsidy reforms remains to be seen.

Wilmers’ appointment (subject to confirmation by the state Senate), has pleased business leaders downstate like Kathryn Wylde, head of the Partnership for New York City, “because of his business background,” as well as those with more of a focus on upstate. Brian McMahon, the executive director of the business-backed New York State Economic Development Council (which is opposing a push to attach job quality standards to locally granted subsidies) told the Albany Times Union that because of Wilmer’s experience in New York City and upstate, he is “an outstanding choice” to lead ESDC.

As Buffalo News reporter Jim Heaney notes on his blog, Outrages and Insights, Wilmers, and M&T Bank have “in many ways been good corporate citizens” by investing in downtown Buffalo, but Wilmers has also directly benefited from public subsidies. Heaney points out that M&T Bank received $1.3 million in Empire Zone benefits in 2006. Since Wilmers will maintain his position at M&T while serving as the ESDC chairperson, Heaney questions whether it will be a conflict of interest for an Empire Zone recipient to head the agency that administers the program. According to the Albany Times Union, M&T Securities was listed by ESDC as a company that had not lived up to its Empire Zone job commitments, but officials with Paterson and the company recently said that was an error.

When it comes to corporate giveaways, let’s hope Bob Wilmers thinks beyond his immediate business ties and he doesn’t leave us sighing the old adage “… the more they stay the same.”

Big Brown’s Owners Seek Big Green as Consolation Prize

June 9, 2008

Fans of Big Brown are probably still in shock at the colt’s disappointing performance Saturday in the Belmont Stakes, which put an end to a widely anticipated steroid-enhanced gallop to a Triple Crown victory. The majority owners of the thoroughbred are looking for a consolation prize—at taxpayers’ expense.

Newsday reports today that International Equine Acquisitions Holdings Corp. (IEAH), a racing conglomerate and hedge fund that owns a big piece of Big Brown as well as dozens of other race horses, is seeking a property tax break worth at least $1 million in connection with its plan to build an “equine care medical facility” in Nassau County, New York near the Belmont track.

The Town of Hempstead’s Industrial Development Agency is considering a proposal that would reduce property taxes on the $17 million horse hospital through a sale-leaseback arrangement. While many of these deals go through unopposed, there is already some dissent on the IEAH plan coming from the public official whose job is to oversee property taxes. Nassau County Tax Assessor Harvey Levinson told Newsday that he objected to the idea of giving a tax break to the wealthy Wall Streeters who invest in IEAH. “The investors should gamble with their own money,” Levinson was quoted as saying. “The facility should not be removed from the assessment rolls and further erode the tax base…forcing homeowners and small businesses to pay more than their fair share of property taxes.”

One of IEAH’s investors responding by saying: “If it brings jobs, brings revenues and ultimately more taxes than the abatement…I don’t think it matters how wealthy are the investors.” According to Newsday, the facility would employ from 8 to 13 workers. It’s not clear how many of those would involve emptying equine bed pans.