Archive for September, 2008

The Strange-Bedfellows Uprising

September 29, 2008

The financial sector has contributed more than $300 million to federal candidates in this election cycle – split evenly between Democrats and Republicans – but it apparently was not enough. Today a motley coalition of free-market-loving right-wingers, fiscally conservative Blue Dog Democrats and anti-corporate left-wingers came together to deliver a stunning rebuke to the Wall Street bailout plan concocted by the Bush Administration and the leadership of both major parties.

The House’s defeat of the $700 billion plan represents (for now, at least) a breakdown in the tradition of acceding to the wishes of Big Business and Big Finance, especially at times when those monied interests need to be saved from their own excesses. It has taken a financial crisis of monumental proportions to expose as never before the rift between the needs of the corporate elite and those of the rest of us.

It has been fascinating to watch this play out across the political spectrum. Conservatives clinging to the ideology of market supremacy find themselves in a clash with corporate elites who have jettisoned their laissez-faire sentiments in favor of unprecedented government intervention. Joining the die-hard conservatives are progressives who oppose the Paulson plan but see the crisis as an opportunity to push for even more aggressive intervention, on behalf of working families.

In between are corporate-friendly Democrats and Republicans who were forced to lash themselves to the mast of the Bush Administration’s wildly unpopular plan. They were proud to have forced Paulson to abandon his original power-grabbing proposal in favor of a bill that included an abundance of oversight and disclosure as well as some safeguards for taxpayers. Yet by retaining same basic bailout concept, they were seen as doing little more than putting lipstick and various other cosmetics on a giant pig of a plan.

By taking Bush and Paulson at their word on the necessity of the bailout, mainstream Democrats, who made up most of the losing side in today’s House vote, have put themselves in a precarious position. This was captured in a vignette in today’s Washington Post account of the marathon weekend negotiations on the ill-fated bill. After the conclusion of a post-midnight press conference, Secretary Paulson, who had been showing signs of exhaustion during the talks, locked arms with Democratic Sen. Chuck Schumer of New York “and leaned heavily on the senator for support as they walked away.”

By trying to act responsibly in this extraordinary situation, the Democratic leadership may be literally and figuratively taking on the albatross of the Bush Administration and its Wall Street supplicants. Whether this is a trap that was deliberately set for them is hard to determine at this point, but the result is that Democrats find themselves out of step with the new anti-corporate zeitgeist.

The apparent sea change in attitudes toward Big Business may have repercussions far beyond the current credit crisis. It may also be felt, for example, at the state and local level. Here at the Corporate Research Project and Good Jobs First, we deal all the time with another sort of corporate giveaway – the often huge economic development subsidy packages given to companies ranging from Wal-Mart and Cabela’s to Dell and Toyota.

While we tend to critique those subsidies because they lack job quality standards and take funds away from public schools, there are libertarians who oppose them as an unwarranted intrusion in the market. Perhaps the right-left uprising against the bailout can help us form more effective strange-bedfellows alliances in our work as well. Look out, Corporate America, you may get outflanked from both sides.

This piece is being posted simultaneously on the Corporate Research Project’s Dirt Diggers Digest blog.

“Super TIF” EATs Kansas City Alive!

September 25, 2008

The recent opening of a nine-story office building in Kansas City serves as a reminder of the intense controversy in that city over the abuse of tax-increment financing. The Briarcliff development was a major point of contention in last year’s mayoral race, when candidate Mark Funkhouser (who won the election) denounced the developer’s use of an extreme form of that financing tool known as Super TIF.

Whereas a regular TIF district takes a bite out of local tax revenues, a Super TIF project will swallow them whole. Super TIFs redirect 100 percent of the property tax increment and 100 percent of the economic activity tax (aptly, EAT) increment of the development district. Super TIF is a project specific designation given to development already occurring within a TIF district.

Included in the EAT increment are corporate and individual earnings taxes, sales tax for retail and utilities, use taxes, convention and tourism taxes on food and beverage sales, gross receipts taxes and franchise fees. Use of TIF and Super TIF in Kansas City continues to rise and is projected to result in a 27 percent growth rate in tax increment payments made to the private sector next year. In the meantime, the city’s tax revenues have risen by only 7 percent.

Widespread abuse of TIF as a redevelopment tool for urban economic blight in Kansas City led to the creation of the Super TIF mechanism. Its original intent was to allow legitimately blighted areas compete with regular TIF districts in Kansas City’s suburban greenfields. However, if developments such as Briarcliff are any indication of Super TIF’s future, it appears that it too is on its way to becoming perceived as entitlement by developers. The Briarcliff project, a hotel and office building development in an upscale area of Kansas City, received $26.7 million in TIF and Super TIF for a $91 million expansion in 2006. Regarding the project, Councilwoman Bonnie Sue Cooper, engineer of the gigantic incentive, put it accurately: “We’re kind of the cash cow.” No disagreement here.

An EZ Pass to EZ Reform?

September 24, 2008
NYS Senator Skelos

NYS Senate Majority Leader Skelos

After years of criticism from New York State watchdog groups like the Fiscal Policy Institute and certain elected officials, a high-ranking state legislator is chiming in on demands that the wasteful Empire Zone (EZ) program be drastically reformed. Last week, State Senate Majority Leader Dean Skelos issued a press release detailing the Senate’s new “Job Creation Plan,” which calls for reforms to increase accountability in the Empire Zone program and an elimination of it upon its 2011 expiration.

The president of the powerful Partnership for New York City – a business lobby group – issued a brief statement saying it supports Skelos’ call for an end to “a program that has spiraled out of control and provides almost $500 million a year in indiscriminate tax breaks to businesses without consideration of their contribution to the state’s economic growth.”

As we’ve blogged previously, too many businesses receive Empire Zone benefits without creating new, good jobs, or sometimes any jobs at all. Additionally, the program has strayed far from its original intent of targeting private investment and job growth to the state’s most economically depressed neighborhoods. With new Empire Zones designated frequently, there is now at least one in every county. Making matters worse, some business can receive benefits even if they fall outside of a zone.

Senator Skelos and the Senate majority have not discussed better targeting of tax breaks to truly needy areas, and they have not detailed how they will ensure greater accountability (for however long the program exists) so that only businesses that create high-quality jobs receive breaks. Rather, they focus on a plan for how the state could use the money saved from reform and program elimination, supposedly to lessen the tax burden across the board, especially for manufacturers, small businesses and high tech companies.

The details of the Senate’s plan will surely come under debate, but its focus on reining in Empire Zone benefits and letting the program expire is sound. It seems that officials across the political spectrum and advocates with very different agendas finally may be reaching some consensus that the Empire Zone program needs drastic changes, or it needs to be eliminated. Reaching an agreement out how to apply the savings will be a different story.

Obama or McCain Better for Cities?

September 22, 2008

Columnist Neal Peirce has a terrific new column out analyzing the urban policy track records and platforms of presidential candidates John McCain and Barack Obama.

An Obama presidency, he concludes, would be likely to bring us “an activist federal government in areas from transit and infrastructure to housing.” For a McCain administration, you have “to be a super-detective to discern any city-metro policy at all.”

Citing a recent debate held in Chicago with proxies for the candidates standing in, Peirce recounts that the Obama spokesman even pledged a new White House Office on Urban Policy to promote cabinet-agency cooperation, while the McCain speaker couldn’t be more specific than bashing taxes and regulation.

Given all the challenges facing metro/urban America today—the yawning infrastructure deficit, the affordable housing crisis, the need for more transit service and the golden opportunity presented by “green jobs” to solve global warming—these issues matter enormously and I highly recommend Neal’s column to everyone who cares about them.

Kansas Auditors Find Inflated Job Claims, Tiny Impact for $1.3 Billion

September 19, 2008

A legislative audit of Kansas’s $1.3 billion in state and local economic development spending finds only a small contribution to state job growth from 2003 through 2007. The audit estimated that the $1.3 billion accounted for just four percent of the state’s job growth, with pre-existing population and employment having a “far larger impact.” It also found no connection between business incentive spending and per capita wage growth.

Like most state performance audits that Good Jobs First once summarized, the Kansas auditors found “junk in” at the Commerce Department, making it hard to avoid “junk out” in the audit. The auditors reported that data was often “unavailable, unreliable, or potentially biased.” For example, they had to rework five years of state commerce agency data that mixed up state, federal, and other sources of money.

As usual, job claims were particularly suspect: combining data from the state’s five development agencies showed 130,000 jobs being created or retained —yet only 43,000 new jobs were reported by the Kansas Department of Labor in the same period! The report attributed this discrepancy to some programs failing to verify if new jobs survive, to double-counting of the same jobs by different programs, and to agencies passively relying on “self-reporting” by subsidized companies.

The audit also noted that subsidies are producing winners and losers within the state. For example, after the opening of the Nebraska Furniture Mart in Wyandotte County, subsidized by municipal STAR bonds, a third of existing furniture stores within a 150-mile radius closed.

Despite their damning findings, the auditors failed to recommend the elimination of any subsidies. They noted that while an extensive literature finds “incentives don’t have a significant impact on economic growth,” states are compelled to offer them since businesses “view them as an entitlement.”

In a remarkably vague defense, the state’s commerce secretary responded to the report by claiming that “The commitment and mechanisms for public and private funding would not exist if there was no perceived value in economic development by the business leaders and the elected officials in local communities. The state senate’s majority leader complained that the audit report “hadn’t resolved the issue of the best way to get the biggest return on the state’s investment.”

Despite the findings, subsidies march on: the state recently enacted a new sales tax break for business machinery that is projected to cost Kansas local governments $404 million a year.

Legislative Umpires Call Yankees Out

September 19, 2008

The controversy around the public financing of the new Yankee Stadium heated up this week as a New York State legislator and a member of Congress put the squeeze on the team and New York City officials who helped finance the $1.3 billion stadium.

Testifying before the House Subcommittee on Domestic Policy, New York Assemblyman Richard Brodsky revealed that his summer-long investigation into the public financing of the new stadium shows that the city’s job creation figures and property tax assessments might not be up to par.  And Rep. Dennis Kucinich, chairman of the Subcommittee who has held two previous hearings on the use of tax-exempt bond financing for stadiums said:

“In the case of the new Yankee Stadium, not only have we found waste and abuse of public dollars subsidizing a project that is for the exclusive benefit of a private entity, the Yankees, but also we have discovered serious questions about the accuracy of certain representations made by the City of New York to the federal government.”


A Short Circuit in Florida

September 17, 2008
Jabil Circuit Corporate Headquarters, St. Petersburg, FL

Jabil Circuit Corporate Headquarters, St. Petersburg, FL

Less than a month after securing nearly $35 million in subsidies for the creation of 858 jobs and the construction of a new corporate headquarters in St. Petersburg, Florida, Jabil Circuit announced it would cut 120 local positions. The electronics manufacturer’s conduct has triggered public debate over its commitment to Florida as well as the transparency of economic development deals made by local governments.

The Jabil deal was conducted under a veil of secrecy. As is the case in many economic development deals, St. Petersburg city council members were told that a major area employer was threatening to pack its bags but not informed of the identity of the employer before the subsidy deal was brought to a vote. Florida’s “Government in the Sunshine” law is intended to create a transparent and accountable government, but the law exempts economic development deals such as “Project Extreme,” the moniker assigned to the Jabil deal.

Extreme, indeed. Jabil’s track record spells risky business for Florida.

Layoffs are old hat for Jabil in Florida. The company moved there from Detroit 26 years ago and has eliminated over 1,000 of its Florida positions in the past ten years. Layoffs have included the elimination of 300 jobs in 2001 (then a full ten percent of the company’s workforce) and another 500 jobs in 2003. Jabil let go of 80 workers just last year. While the company denies that its current layoffs are unrelated to plans to ship jobs overseas, its employment growth in low labor cost markets would indicate otherwise.

Jabil also has a penchant for procuring subsidies in Florida. As the company reported in a quarterly SEC report: “Several countries in which we are located allow for tax holidays or provide other tax incentives to attract and retain business. We have obtained holidays or other incentives where available.” In 2001, the state promised the company $3.4-million in tax refunds in exchange for creating 1,150 new jobs in Florida. The jobs weren’t created, and the subsidy went unpaid.

Two years ago, Jabil unveiled plans to build a two million square-foot headquarters on 94 acres it has owned in St. Petersburg for nearly ten years, but it never moved on the project. This year the company claimed to have put in bids with California and Michigan for relocation incentive deals and received responses from two cities. The location of Jabil’s new headquarters? The same 94 acres purchased earlier in the decade.

While Jabil’s $35 million subsidy is tied to the construction of a $49 million campus and the net creation of 858 new jobs, there is no requirement that the company prevent further layoffs to receive the money. Project Extreme Job Churn, anyone? Massive subsidies that can still result in the loss of 1,000 jobs are a cry for better accountability and full disclosure of the goings-on that occur behind closed doors.

After 65 Years, Union Insurers Will Leave the Big Apple

September 10, 2008

Amalgamated Life Insurance, created in 1943 by the Amalgamated Clothing Workers of America (now part of UNITE HERE) has opted to move to the suburbs north of New York City rather than renew its Manhattan office lease.

Amalgamated hasn’t fully explained why it’s leaving the city. It cited the $480,000 in tax breaks offered by officials in Westchester County and its expiring lease with New York University (a dominant landlord in the area), but it was offered a more generous subsidy from New York City officials hoping the insurance company would stay.

For those of us New York, the competition between municipalities raised some concern since intrastate bidding wars for a company is against state law. Except of course, unless a company is considering relocating out of state. Hence, the report that Amalgamated looked for office space in Newark, New Jersey.  While we may never know if Newark was a serious contender it wouldn’t be the first time a firm used the old tried and true tour of New Jersey to “kick the tires and then go back to New York to negotiate a deal.” Add the legal logistics of moving an insurance company out of state and the claim to move to Newark gets weaker.

Yet, the most troubling aspect of this deal is that officials in Westchester are bucking a positive national trend to increase public investment for jobs located near public transit.  The company’s Manhattan location is right near several subway and bus lines. While the city Amalgamated is moving to, White Plains, is on a commuter train line, the site chosen by Almagamted (the former headquarters of General Foods), is not within walking the train station.

Amalgamated’s plan to move might make the insurance company’s bottom line, but its effect on current employees and environment certainly isn’t neutral.

Will North Carolina have Nothing to Show for Its Dell Subsidies?

September 9, 2008

Public officials in North Carolina and several other states are reeling from the revelation that Dell is considering the shutdown or sale of its assembly plants. The news that the computer maker is considering an exit from the manufacturing side of the business came in a front page story in the Wall Street Journal. Dell has not denied the report, which said the company might sell some of the plants to contract manufacturers and shutter the rest, but it has not provided specific details on its intentions.

Anxiety about Dell’s plans is especially intense in North Carolina, which went to great lengths in 2004 to put together a state and local subsidy package worth more than $250 million for an assembly plant in Winston-Salem. The deal was negotiated by the Department of Commerce and pushed through the state legislature in a special session with scant debate or analysis. The incentives package included a computer manufacturing tax credit, job investment grants, tobacco settlement fund grants, training incentives, transportation infrastructure grants, workforce development grants, sales tax refunds, waiver of property tax for 15 years and 200 acres of free land. In 2004, Governor Mike Easley estimated that the Dell plant would employ 8,000 people; so far, however, it has hired only about 1,150.

Along with the Winston-Salem plant, Dell owns 11 other manufacturing and distribution centers in Austin, Miami, Nashville, Brazil, Ireland, China and Poland.

Last March, however, Dell closed its facility in Round Rock, TX eliminating 900 jobs.

According to the Journal, Dell is in talks with manufacturers in Asia, who could either operate the plants on a contract basis or buy them outright. It is unclear whether those contractors would be willing or able to operate plants such as the one in Winston-Salem. A key complication would be the subsidies. There is no apparent precedent in North Carolina for transferring incentives to a new owner, which might not want to take on the job-creation provisions of the deal.

Dell spokesman David Frink has declined to comment on the report, instead stating, “we will continue to evaluate and optimize our global manufacturing and distribution network.” Bob Leak, president of Winston-Salem Business Inc., the local economic development agency, said he was not aware of any changes to Dell’s future in Winston-Salem.

In their negotiations of the Dell deal, North Carolina, Forsyth County and Winston-Salem bent over backwards for the company. They assumed that throwing subsidies, tax breaks and other incentives at a successful corporation was a smart economic development tool. Now they may regret putting so many of their eggs in one corporate basket.

Throwing Money at Foreign Companies

September 8, 2008

“It may sound like a joke but it can be cheaper than you imagine to manufacture there.” This quote from a German corporate executive that just appeared in the Financial Times was not referring to China, India, Vietnam or Mexico, but rather that new low-cost haven known as the United States of America. U.S. attractiveness, according to this article, is not a function of exchange rates: “The reason is less the level of the dollar…but rather the huge level of incentives some U.S. states are offering companies to set up factories in their region.”

Apparently, European executives are amazed at the willingness of state governments to shower cash on foreign manufacturers who are inclined to invest in the U.S. anyway these days. A senior executive at Italian conglomerate Fiat told the FT: “With the amount of money U.S. states are willing to throw at you, you would be stupid to turn them down at the moment.”

Deals such as the half a billion dollars that Tennessee is giving Volkswagen for a new auto assembly plant and the even larger package that ThyssenKrupp is receiving from Alabama in connection with a new steel mill are far beyond what European multinationals can expect at home. “States are willing to pay for new roads, re-train workers and offer huge tax breaks—that is a competitive package that not many parts of the world can match when you look at how productive U.S. workers are and where the dollar is,” the chairman of a large Swiss group told the newspaper.

The FT quotes a Tennessee official who is not at all embarrassed at the giveaways. Instead, he enthusiastically refers to the U.S. as “a shopper’s paradise” for foreign investors. With rising unemployment rates, the U.S. can certainly use the manufacturing jobs these European firms are offering, but state officials do not have to act like drunken sailors with taxpayer money to get them.