Archive for September, 2008

The Golden State Goes Greener

September 5, 2008

In California, an historic effort to reduce greenhouse gas emissions from passenger vehicles by curbing sprawl will likely soon become law. Senate Bill No. 375 would compel local planning agencies to make planning choices that reduce vehicle miles traveled between residential areas and employment centers. The bill has passed both the California Assembly and Senate and currently awaits Governor Schwarzenegger’s approval. He is expected to sign.

SB 375 provides a mechanism for reducing greenhouse gas emissions by the single largest producer, cars and light trucks. The bill’s broad coalition of supporters maintains that changes in land use and transportation policy must be made to achieve the state’s emissions reduction goals. To this end, SB 375 provides the California Air Resources Board (CARB), charged with reducing greenhouse gas emissions, with the authority to coordinate their efforts with metropolitan area transportation and land use planning.

The bill mandates that metropolitan planning organizations (MPOs) include sustainability strategies in their community growth and transportation plans. It integrates housing, transportation, and climate change policies for all 17 MPOs in the state. The bill’s basics:

• Transportation planning: CARB will set regional greenhouse gas reduction targets in consultation with local governments. Those targets will be incorporated into each region’s long-term regional transportation plan.
• Housing planning: Each region’s Regional Housing Needs Assessment (RHNA) – the mandated process by which local jurisdictions address their fair share of regional housing needs – will be adjusted to become aligned with the land use plan in each region’s regional transportation plan. This adjustment will result in a “fair share” redistribution in which municipalities growing more jobs must also provide for a larger share of housing and is inclusive of affordable housing near municipalities with strong job growth.
• California Environmental Quality Act reform: Environmental review will create incentives to implement the strategy, especially for transit priority projects.
Green strings: SB 375 offers local governments regulatory and other incentives to encourage more compact new development and transportation alternatives. Local governments found to be in noncompliance with the new plans will be ineligible for state and federal funding.

In one efficient stroke, S.B. 375 mandates regional cooperation in several major policy areas. It compels regional governments to take steps toward correcting jobs-housing imbalances. It positions affordable housing near central business districts. Finally, it coordinates a shared responsibility strategy for greenhouse gas emissions reductions. Let’s hope that the passage of this legislation will serve as an example to other states seeking to rectify the host of problems caused by sprawling growth.

Who’s Subsidizing the Electric Car?

September 4, 2008

Chevrolet Volt prototype

Announcements by U.S. cities of subsidy packages for new automobile plants have become commonplace, but the most recent one is fraught with irony. Last week, the city council of Flint, Michigan voted unanimously to grant several tax breaks to General Motors in connection with the construction of a facility that will produce engines for the company’s planned plug-in electric car called the Chevrolet Volt, which is expected to start production in 2010.

The deal includes a 15-year, 50 percent abatement of real property taxes on a new 500,000 square-foot plant, a 100 percent abatement of taxes on personal property (i.e. equipment) and the designation of the site as a brownfield redevelopment, which would make the plant eligible for additional state tax breaks. Flint officials have not yet released an estimate of the total cost of the package.

Flint…General Motors…electric car…subsidies—where to begin?

The typical U.S. auto subsidy story involves a foreign carmaker getting a ton of money to construct a new plant on a greenfield site in a Southern state where unions are scarce. Think of Volkswagen’s recent announcement it will open a plant in Tennessee, which follows a long string of investments by companies such as Toyota, Nissan, Honda and Hyundai in states such as Alabama, Mississippi and Texas.

The GM/Flint story, by contrast, involves a U.S.-based company investing in an established industrial area of a Northern city where the United Auto Workers is well entrenched. It is unlikely that Flint’s subsidies will match what foreign carmakers receive in the South, though it is worth noting that GM apparently intends to seek additional aid from the state of Michigan, which would presumably cover not only the engine plant in Flint but also the plant in Detroit/Hamtramck where the Volt will be assembled. GM, along with Ford and Chrysler, is seeking federal assistance as well.

There are apparently mixed feelings about GM’s plans in Flint, which calls itself the “birthplace of General Motors” and has been celebrating the 100th anniversary of the company’s founding with public events such as a parade of vintage GM cars. Yet Flint has also suffered through waves of GM downsizing that have cost the city many thousands of jobs over the past quarter-century. The travails of the city were made famous in Michael Moore’s 1989 documentary film Roger & Me.

The Volt facility, however, will create no new jobs. It will be staffed by about 300 existing GM workers in Flint, whose positions will be counted as “retained.” Flint City Councilman Jim Ananich told the Detroit News: “A lot of people still feel…General Motors owes us more than just a couple hundred jobs.”

The same argument could be made about tax revenue. It is true that GM is hemorrhaging cash—it posted a loss of more than $15 billion for the second quarter of this year—but will the property tax savings from Flint do much to rectify that mess? The tax payments would mean much more to a struggling city than to the company’s bottom line. It’s clear that GM would find a way to build the engine plant even without the abatements.

At the same time, I can understand why Flint would be willing to pay to get a foothold in a forward-looking part of GM’s operations. Subsidizing a plant that will manufacture a component for a cleaner-energy vehicle is more palatable than sinking money into conventional auto production. It should be noted, however, that the Flint plant will make the “dirty” part of the Volt—the gasoline-powered engines that will extend the range of the car beyond the 40 miles allowed by the battery-driven electric motor.

One can only hope GM is serious about the Volt. After all, this is the company that had developed an electric car—the EV1—a decade ago and declined to market it (as documented in the 2006 film Who Killed the Electric Car?). It is also odd that Vice Chairman Robert Lutz, the GM executive credited with promoting the Volt, is reported to have said privately earlier this year that global warming is “a total crock.”

I’d be a lot happier if a company without GM’s tainted track record were pioneering a plug-in electric car and creating lots of new union jobs in unsubsidized plants, but perhaps that’s something to expect not in a documentary but rather in a science fiction film.

Indiana City Enacts Clawbacks Extending Past Tax Abatement Period

September 4, 2008

A growing number of state and local governments are applying clawback provisions to economic development subsidies to be sure companies live up to their job-creation promises. Unfortunately, these provisions are not always enforced and usually are unenforceable after the subsidy period has expired.

The city of Portage, Indiana (east of Gary) recently took the unusual step of strengthening its clawback provisions relating to business tax abatements so that they remain in effect for five years beyond the duration of the abatements. The Portage City Council approved the new rules after growing frustrated at the number of companies that were leaving town after the abatements expired.

“A lot of times, we made investments, and companies got up and left,” Edward Gottschling, Portage City Council Member told Good Jobs First. “We want businesses that are going to stay here, not ones that will pick up and leave after abatement period ends.”

The new rules also strengthen the ability of the city to seek payment of abated taxes even during the subsidy period. Companies are required to provide an annual report to the City Council with the number of employees and level of wages to ensure that they are following the stipulations of their application. The penalties for infractions include discontinuation of the abatement and repayment of remitted taxes. The current abatements are grandfathered in and are not subject to the new clawbacks. If a company wants to apply for an additional abatement, however, they are required to meet the new requirements. As Donna Pappas, Clerk Treasurer of the City of Portage told me over the phone, “We’re trying to develop a diversified economy within our municipalities and at the same time look out for our residents and this is going to help us.”

A similar clawback provision is on the books in Ohio, where a company receiving state income tax abatements must stay at its original location for at least twice the number of years as the term of the tax credit. Other cities would be wise to follow suit and enact similar provisions to hold companies accountable to communities.