Archive for August, 2008

A Boost for Prevailing Wages in Ohio

August 29, 2008

Strong, healthy communities are built by workers who are paid fair wages for their labor. In Ohio, the administration of Governor Strickland will see to it that this occurs on more projects in which public money is involved.

Strickland reportedly will soon mandate wider application of the state’s prevailing wage rule. A recently circulated Department of Commerce memo indicates that the state will require prevailing wages on privately funded projects that also involve partial public funding. This interpretation of the Ohio’s Little Davis-Bacon Act could indicate big changes for wage treatment of almost all subsidized development in the state. According to a spokesperson for the governor, the directive, originally slated for a Labor Day announcement, will be released soon thereafter.

In addition to the Davis-Bacon Act, which applies prevailing wage to all federal development and subsidized construction in the District of Columbia, 34 states have their own Little Davis-Bacon Acts. However, only a handful of states apply prevailing wage rules to projects involving economic development subsidies. Expansion of the laws to economic development financing tools tends to be politically divisive.

For an issue so mired in political partisanship, this is a bold move by Governor Strickland. Prevailing wage laws have been relentlessly attacked by their opponents since the passage of the Davis-Bacon Act in 1931. (Interestingly, Senator Davis and Representative Bacon were both Republicans and passed the Act through a Republican controlled Congress and Republican President Herbert Hoover.) Attacks on prevailing wage take many different forms, including attempts to directly repeal the laws, legislative proposals prohibiting prevailing wage on specific categories of construction projects, and non-enforcement of existing laws by adversarial administrations.

Ohio’s prevailing wage rule has weathered each of these attacks, but the Strickland Administration’s move could bring new controversy to the issue. An Ohio Department of Commerce memo obtained by Good Jobs First lays out a series of guidelines intended to clarify the application of prevailing wage rules. Common scenarios that will subject entire projects to prevailing wage include:

• publicly financed machinery or equipment in a newly constructed or remodeled private structure;
• infrastructure improvements on private land;
• remediation of environmental hazards for an identified end-user; and
• construction of multiple building projects in which only one building is subsidized.

The memo states that prevailing wage would be triggered when the funding comes in the form of bonds, grants, and loans but not by tax abatements, tax credits, or job training grants.

Happy Labor Day, Ohio!

Maybe some subsidies for MLB are not meant to be

August 26, 2008

With all the public funding New York City has lavished on the Yankees and Mets for their new stadiums (with amazingly high ticket prices), Major League Baseball is having a field day in the big apple. MLB has also been promised $5 million more in tax breaks to locate its start up cable network – the MLB Network LLC – in East Harlem.

The MLB Network is supposed to serve as the anchor tenant in the “Harlem Park” office tower that Vornado Realty Trust wants to build on 125th St. and Park Ave. In March the city approved over $16 million in subsidies for Vornado’s tower in conjunction with its approval of MLB Network’s tax breaks, since Vornado claimed in its subsidy application that without the assistance it would build a retail and residential complex rather than an office tower.

Despite the subsidies, it seems now that the office tower plan may not come to fruition, at least not as originally envisioned. Last month the New York Times reported that Vornado was scaling back the size of its proposed tower and seeking to renegotiate its lease with Major League Baseball due to financing problems, including difficulty attracting other office tenants.

And according to a Times story this past weekend, the MLB Network is now (unofficially) rejecting the new lease terms proposed by Vornado, which would require them to rent additional space in the building and pay an extra $2 million a year. Real estate executives say the network is instead considering staying in its temporary offices in Secaucus, New Jersey, at least for another few years.

All this goes to show that subsidies are usually not the key factor in determining how development deals pan out.

Leading Indiana Business Journal Calls for Halt to Subsidy “Charade”

August 7, 2008

Reacting to a recent spate of taxpayer-subsidized corporate relocations from existing central Indiana sites to nearby communities, the state’s leading business paper has urged officials to be more tight-fisted when confronted with business threats to relocate outside the region or state.

In a recent article, Indianapolis Business Journal reporter Peter Schnitzler begins with Bowen Engineering receiving a property tax break worth $290,000 over seven years to move its headquarters and 103 jobs from suburban Fishers in Hamilton County to Indianapolis —a distance of 8.5 miles.

Since Indianapolis and other central Indiana cities claim not to poach each other’s companies, officials of the unified Indianapolis/Marion County government approached Bowen only after the company threatened to leave central Indiana entirely if its space needs were not met. As the Business Journal article describes, Bowen’s move was part of a trend; over the past year at least six companies have shuffled jobs and investment between Indianapolis and nearby suburbs.

These relocations have been accompanied by substantial subsidies—at least $23.4 million in training, infrastructure and property tax breaks, as well as tax breaks yet to be quantified. Although the Bowen deal brings jobs to Indianapolis, overall the city has been the loser. For example, nearly 80 percent, or $18.3 million, of the recent subsidies went to moving the Indianapolis operations of SMC, a pneumatic and electronic-controls manufacturer, to the fast-growing nearby suburb of Noblesville. Indianapolis lost 500 jobs.

State and local officials claim they are not poaching or shuffling companies, but are merely “doing whatever’s necessary to keep companies in the region.” Speaking to Schnitzler, Good Jobs First Executive Director Greg LeRoy countered that the recently subsidized companies were very likely not about to bolt to Kentucky or southern Ohio: “Companies want to retain their skilled employees and proximity to suppliers and customers. They are where they are for good reason.” Subsidizing intra-regional relocations most often aggravates suburban sprawl at the expense of needier urban areas.

In a subsequent editorial, the Business Journal said the “rumblings about leaving the area” that accompanied the recent subsidy deals “all seem like a charade to us,” adding that the easy availability of incentives makes “companies feel like suckers if they don’t seek a handout.” The editorial urged state and local officials to end the charade and be stingier with such hand-outs. Hopefully more business-oriented publications in Indiana and elsewhere confronting similar subsidy games will start making the same point.

Big Breaks for the Big Boys

August 6, 2008

New York City has traditionally been a haven for small and independent businesses, but that seems to be changing. A new survey by the Center for an Urban Future titled “Attack of the Chains?” found over 5,700 chain stores in New York City’s five boroughs. As the Center’s Director told the Daily News, “There’s no question that some neighborhoods and maybe most of Manhattan is really oversaturated when it comes to chain stores…Clearly this does present a lot of problems for the mom-and-pop businesses out there.”

Not only are chain stores proliferating in NYC, but their bottom lines have been lifted by public money. Many of these chains have benefited from property tax breaks in New York’s recently reformed – but still problematic – Industrial and Commercial Incentive Program (ICIP), now the Industrial and Commercial Abatement Program (ICAP). Some of New York’s chains receiving subsidies: Dunkin’ Donuts, McDonald’s, White Castle and Rite Aid. And as big box stores have begun to creep into the city, they too have been subsidized. Most of the city’s seven Target and seven Kmart stores have received ICIP tax breaks.

At a cost of over $409 million to the city in 2007, ICIP, which provides as-of-right property tax breaks for construction or renovation projects, has been New York’s most expensive economic development program. Good Jobs New York has been a longtime critic of it, and even the city’s Economic Development Corporation has recommended reforms. In May, the Manhattan Borough President issued a report criticizing the millions in ICIP tax breaks that have gone to fast food restaurants, gas stations, and chain retail stores (we’ve also objected to the millions in ICIP subsidies for Midtown Manhattan commercial projects). The Borough President’s report noted that only about 12% of ICIP benefits for Manhattan retail went to independently owned businesses in 2008, with the remainder going to chain stores.

The state legislature passed program reforms this June (S6366 and S8705), converting ICIP into ICAP. Among the reforms, most retail space in Midtown Manhattan will be ineligible for benefits for any new renovations (though those already receiving ICIP will continue to). While this will affect both chains and independent stores, it has largely been the chains that have benefited. Still, the new legislation will not bar chain stores in Upper Manhattan and the outer boroughs from receiving the subsidies.

Of course, providing tax breaks to chain stores isn’t something limited to New York. Cities and states across the country give millions in subsidies to chains, including big box stores such as Wal-Mart and Cabela’s.

Accountable Development Victory in New Jersey: Major Project to Include Housing and Job Quality Standards

August 5, 2008

The redevelopment of the Military Ocean Terminal in Bayonne will now promote good jobs and affordable housing in northern New Jersey. Much of the credit for this goes to the Garden State Alliance for a New Economy (GANE), which persuaded local officials to include job quality and housing affordability language in a Request for Proposals (RFP)to redevelop the decommissioned army facility.

The $10 billion 16 million-square-foot mixed-use redevelopment project—which is expected to create some 3,000 waterfront residential units, up to 1,000 hotel rooms and commercial and light industrial space—is eagerly anticipated in the community. Kate Atkins, executive director of GANE—a recently formed affiliate of the Partnership for Working Families —said involvement in the project was too important to pass up: “It will have a major impact on the region’s economy for many years to come.”

Representing a coalition of five unions and four community groups, GANE testified at local redevelopment authority meetings and held meetings with Mayor Terrence Malloy and other local officials. According to Atkins, “The coalition has been united on making sure that throughout the project the larger public benefit is really kept in mind–for example, making sure that construction jobs are good union jobs, and the permanent jobs are also high quality jobs.”

GANE’s goals are not only to educate public officials about their capacity to set high standards for developers, but also to send the message that it is possible to promote economic development that is financially beneficial to the community both in the short-term and in the long-term.

While GANE is pleased with its impact on the RFP, its job is not done. The group will monitor the process of selecting the developer to make sure that the project continues to promote equitable economic development.