Archive for April, 2011

Stimulus? What Stimulus? Florida, Ohio and Kansas Gut Their Recovery Act Websites

April 26, 2011

(This post originally appeared on the States for a Transparent and Accountable Recovery blog).

Despite the left-right consensus that government transparency is good, some new governors seem to disagree when it comes to the Recovery Act. In a little-noticed shift since the November elections, at least three states—Florida, Ohio and Kansas—have dramatically stripped down their official American Recovery and Reinvestment Act (ARRA) websites.

While none of the original websites were great (they all ranked lower than 30th in our January 2010 report card, “Show Us the Stimulus”), they were goldmines compared to the current websites these states are offering up.  Take a look at their current ARRA websites and compare them to those archived on the Way Back Machine.  The differences are not subtle.

I recently spoke with officials in the Governor’s offices of all three states to try to get an explanation for why their ARRA websites have been downgraded, and asked state-based groups in Florida and Ohio how these changes will affect their work.

Florida

Under former Gov. Charlie Crist, Florida’s Recovery Act website categorized “state and local [stimulus] projects” by various issue areas, including “health care,” “education,” and “infrastructure.” Each category included sub-category pages that featured a description of the program and specific funding details.   The Florida ARRA site also included a stimulus timeline, news updates, FAQs and, according to a March 2009 report by ProPublica, “a lot of downloadable documents.”

None of this information is available at Florida’s new Recovery Act website under Gov. Rick Scott.  The revised website includes only a list of “Certifications Required by the American Recovery and Reinvestment Act of 2009” and links to these letters, in which the Governor assures that the state will use Recovery Act funds in compliance with the law.

Chris Land, Recovery Act coordinator for Gov. Scott, said that “it’s pretty standard procedure for a new administration to design their own website and [arrange] their policy priorities in a way that’s important to them, and that’s why the website was changed.”  Land added that “[m]ost of that information is available on Recovery.gov,” and that even though “some of it isn’t,” the state has no plans to return to the old website or add any additional information to the current one.

Commenting on the changes, Leda M. Perez, Vice President for Health Initiatives at the Collins Center for Public Policy, noted that the original website had served as “a valued resource for our own website evaluating the federal stimulus program in Florida.” Perez, whose organization is devoted to monitoring and analyzing ARRA’s investments in Florida and engaging the public around the activities of its government, added: “Certainly, a continued commitment to open and transparent government is essential to the democratic process.”

“People want to know how the stimulus money has been used in our state, especially how it has created jobs,” said Joseph Phelan, communications director at Florida New Majority, a group that tracks the impact of stimulus spending on Black and Latino communities in Florida. “Communities of color which were hardest hit by the recession are particularly concerned with this question. But in order to understand the impact of these funds, we need access to information about programs and spending.”

Ohio

Ohio’s former stimulus website overseen by then-Gov. Ted Strickland featured a “project location and info map” that allowed constituents to “track stimulus funds in your community,” analysis of reporting data by quarter, news updates, and documents describing the various ARRA programs in Ohio, how much had been spent on them and how many jobs they had created.  The website also had a page titled, “The American Recovery and Reinvestment Act at a Glance,” which was updated quarterly and provided a series of facts and figures summarizing the impact of the Recovery Act in Ohio.

Other than links to the federal ARRA website (Recovery.gov) and Ohio state agencies’ various ARRA websites, new Ohio Gov. John Kasich’s stimulus website only includes a list of certifications required by the Recovery Act.  The links to these certifications are not currently operational.

A constituent aide in Gov. Kasich’s office said she’d look into why the Ohio ARRA website has been stripped down, check with officials in the Governor’s office about “the information that the state can offer that’s not on the federal website,” and ask the Governor’s IT department to fix the broken certification links.  We also filed a media inquiry with the Governor’s office, but have yet to hear back.

“Ohio’s  comprehensive tracking of Recovery Act funding facilitated analysis of outcomes and impact,” said Wendy Patton of Policy Matters Ohio, which is finishing the last of seven reports on the impact of the federal stimulus in Ohio.   “The projects are still being completed, but under the Kasich administration, citizens’ oversight is eliminated.  Transparency in government serves an important role in strengthening democracy.  We are very disappointed that a valuable tool has been dismantled.”

Kansas

Under former Gov. Mark Parkinson, the Kansas ARRA website featured pages for “education,” “energy,” “health and human services,” “housing & water,” “job training & relief for Kansans,” justice & public safety” and “transportation.” Each page included funding information as well as a description of certain programs and projects.  The website also included a description of the purpose of the stimulus legislation, a timeline of key “milestones” relating to the implementation of the Recovery Act in Kansas and a list of “featured news” items.

The new ARRA website of Gov. Sam Brownback has a few pages that were also on the earlier website: the education page remains, as does a “help for Kansas citizens” page about various state programs and a link to the Recovery.gov page detailing stimulus projects in Kansas.  The new site also has a brief FAQ section about the Recovery Act, a list of certifications and a link to the legislation.  But the website no longer includes information about any of the other categories of stimulus funds or any information about specific programs or projects that aren’t related to education.

Gov. Brownback’s Press Secretary, Sherriene Jones-Sontag, said that the current website includes “what I’ve been told is required to be up there.”  Jones-Sontag said there aren’t any plans to change the website, but that “If there’s something that’s missing that should be on there, we’d be happy to make sure it gets put on there.”  However, she questioned “how many Kansans are actually accessing this page” and whether stimulus information is part of “the public discussion in Kansas.” According to Jones-Sontag, the Brownback administration is “not really promoting” the Recovery Act because it is trying to “get Kansas to live within its means.”

Posted in Recovery Act | 1 Comment »

K.C. Business Leaders Demand Cease-Fire on Wasteful Job Poaching

April 15, 2011

In an incredibly rapid private-sector response to our April Fool’s Day gag about that wonderful 50-state jobs truce, 17 prominent Kansas City-area business executives issued a letter this week urging the governors of Missouri and Kansas to stop offering subsidies to companies that are jumping the state line to create “new” jobs (no kidding!)

According to the Kansas City Star, the letter was not initiated by the Greater Kansas City Chamber of Commerce. A spokesperson for Kansas Gov. Sam Brownback basically said that state would press on. Missouri Gov. Jay Nixon is currently trying to convince AMC Entertainment not to jump the state line.

The paper also reported that the job-poaching wars have gotten worse since Kansas enacted a subsidy that allows employers to keep the personal income taxes of their employees (yes, you read that right), but then Kansas reportedly did that to defend itself against a similar Missouri giveaway…

Aside from the K.C. business leaders naïvely referring to their “unique bi-state community” (they’ve apparently not heard about New Jersey and Connecticut pirating New York City, or various Western states plundering Southern California, or northwest Indiana raiding Chicago, or [insert your favorite border job-war here], the letter is a lucid statement of the problem (if not a real solution). I especially like their point: “The losers are the taxpayers who must provide services to those who are not paying for them.”

And contrary to the tone of a similarly naïve piece about Kansas City-area job wars that recently ran in the New York Times, there is hardly anything new about this problem. Indeed, some people would date it to the 1937 birth in New York City of the Fantus Factory Locating Service, the grand-daddy of the secretive, powerful site location consulting industry.

Read this letter!

Apr. 11, 2011

Letter from KC area business leaders to Missouri, Kansas governors on ‘economic border war’

This letter to Kansas Gov. Sam Brownback and Missouri Gov. Jay Nixon was signed by 17 of the area’s top business executives: David Beaham of Faultless Starch/Bon Ami; Michael J. Chesser of Great Plains Energy; Ellen Z. Darling of Zimmer Real Estate Services; Peter J. deSilva of UMB Bank; David Gentile of Blue Cross and Blue Shield of Kansas City; Greg M. Graves of Burns & McDonnell; Donald J. Hall Jr. of Hallmark Cards; Michael R. Haverty of Kansas City Southern; Daniel R. Hesse of Sprint Nextel; L. Patrick James of Quest Diagnostics; A. Drue Jennings, formerly of Kansas City Power & Light; Mark R. Jorgenson of U.S. Bank; Jonathan Kemper of Commerce Bank; Thomas A. McDonnell of DST Systems; Michael Merriman of Americo Life; Robert D. Regnier of Bank of Blue Valley; and Kent W. Sunderland of Ash Grove Cement.

Dear Governor Brownback and Governor Nixon:

The Kansas City community is experiencing an economic border war. State incentives are being used to lure businesses back and forth across the state line with no net economic gain to the community as a whole and a resulting erosion of the area’s tax base. We are asking that you direct your Departments of Commerce to develop parallel legislation to reduce this unproductive use of tax incentives. While your departments work on this legislation, we ask that you both mutually agree to a bilateral halt to the issuance of incentives for business relocations between the two states within the Greater Kansas City area. We recognize that previously offered commitments should be honored and retention efforts and job training efforts should go forward. Let us give you more detail.

Both states offer competitive incentives for attracting new businesses. We support these incentives. We know they are necessary to compete with other states. We believe these incentives were intended to attract businesses and new jobs from outside the state or region. However, because of our unique bi-state community, too often these incentives are being used to shuffle existing business back and forth across the state line with no net economic benefit or new jobs to the community as a whole. At a time of severe fiscal constraint the effect to the states is that one state loses tax revenue, while the other forgives it. The states are being pitted against each other and the only real winner is the business who is “incentive shopping” to reduce costs. The losers are the taxpayers who must provide services to those who are not paying for them.

There are companies taking out short-term leases in hopes of taking advantage of the incentives more than once. This shuffle is a two-way street as one state lures businesses and the other responds in kind. Neither state will benefit as the stakes in this “economic arms race” continue to escalate, and we squander available tax incentives by fighting amongst ourselves.

Further, the effect of this economic border war is not only erosion of the tax base but a decrease in property values, and the chilling of community relationships on other important metropolitan issues.
We applaud an aggressive economic development effort by both states. However, we should measure success by new businesses and jobs from outside this area and the state, not from across the street. We need to compete with others … not each other.

We believe the directors of the Department of Commerce should examine the definition of “new jobs” for the granting of incentives. “New jobs” should be redefined to exclude jobs attracted to the states from counties bordering the state line in the Greater Kansas City SMSA and counties contiguous to those counties.

Greater Kansas City is unique in having a community equally divided between two states. Our community is interdependent. To compete we must cooperate. The use of these incentives is vital to attract new businesses to our region. We can’t grow this community if we’re using our incentives to steal from each other instead of attracting real new economic growth.

We ask that each state examine how incentives can be better used to grow our economy, and while that is being done, declare a moratorium on the use of incentives for relocations between states within the Greater Kansas City area. We do encourage continuing programs for job retention and job training that advance or maintain economic activity.

Thank you for your consideration.

Posted in Hidden Taxpayer Costs, Job Piracy, Jobs, New York, Site Location Consultants, Sprawl, Subsidies, Taxes | 4 Comments »

Teachable Moment: How Phase-Out of Stimulus Education Funds Impacts States

April 15, 2011

(This post originally appeared on the States for a Transparent and Accountable Recovery blog).

As budget battles continue in state capitals across the country, a recent Associated Press report provides a stark reminder that the budget crunch will likely grow worse for public education. With $100 billion in American Recovery and Reinvestment Act education funds set to run out by September, state lawmakers are, in the AP’s words, “staring over the edge of a massive fiscal cliff.”  The likely result: thousands of teacher layoffs and the elimination of critical school programs across the country.

The end of stimulus funds means that a state like Florida that has proposed cutting its state education budget by 5 percent would actually have to face a 10 percent reduction in education funds, while states that have proposed marginally increasing their education budgets would still see a sizeable reduction in overall education funding.

The looming crisis will play out worst in states that used the temporary boost of stimulus money as a justification for making deep cuts to the state education budget, rather than reduce spending in other areas.  When Recovery Act dollars dry up, the harsh impact of those cuts will suddenly become abundantly clear.

To help the states adjust to evaporating stimulus support, the federal government approved a $10 billion Education Jobs Fund last year.  That money will undoubtedly help, but in the end the states’ “fiscal cliff” is far too deep to be bridged by these additional funds coming from Washington.

With the writing on the wall, news reports across America have begun to identify the critical role the Recovery Act played in protecting education and the devastating impact the end of stimulus support will likely have on schools. Consider these recent stories:

  • In New Britain, Connecticut, “more than 100 teaching jobs could be in jeopardy” following the end of federal stimulus grants, and the school board has already had to “cut full-day kindergarten down to a half-day schedule.”
  • In Cobb County, Georgia, one woman “lost her job despite being her school’s teacher of the year,” and was only rehired thanks to stimulus funds.  The Recovery Act ensured that many of the 9,000 teachers in Georgia who were projected to be casualties of state budget cuts kept their jobs or were rehired, but now their futures are uncertain.
  • In Fort Worth, Texas, trustees voted this week to lay off 80 education employees, including more than 50 teachers, “because the two-year stimulus funding or other short-term money paying for those positions was ending.” Nearly 30 other school employees opted to resign rather than be laid off.
  • Indianapolis Public Schools used federal stimulus money “to keep 147 teachers employed until May,” something Superintendent Eugene White described as “a privilege” that “we don’t have … anymore.”  The cuts will mean larger class sizes, although IPS hopes to keep the increase “manageable.”
  • Kansas Governor Sam Brownback indicated in January that “he wouldn’t replace exhausted federal stimulus money next year,” and proposals from Brownback and the state legislature would reportedly cut state aid by between $226 and $250 per pupil.  Even if the most modest proposed cuts are adopted, state education funding would fall by at least 3.8 percent, on top of cuts necessitated by the phase-out of more than $500 million in education funds that the Recovery Act has provided for Kansas schools since 2009.
  • The Ohio Education Association “estimates more than 10,000 education jobs could be eliminated in fiscal year 2012 because of the governor’s two-year budget proposal and other funding changes,” primarily the loss of federal stimulus money.

As perhaps the most glaring example of how the phase-out of Recovery Act funds could negatively impact vital public services, we’ll continue to track this issue at Good Jobs First.

It’s also personal for us: one of our staffers has a child who will enter a kindergarten class in August that is 50 percent larger than her sister’s class was three years ago.  Maybe some of those who denied that the stimulus made a difference will finally get it when they drop their kids off at school this fall.

Posted in Recovery Act | Leave a Comment »

Subsidizing State Tax Avoidance

April 13, 2011

Tax Day arrives this year amid a growing outcry over tax avoidance by large corporations such as General Electric.  Corporate tax dodging, however, is not only about the offshore havens and accounting loopholes that GE’s 975-person tax department exploits to the max.  It’s also about economic development subsidies.

The vast majority of “incentive” dollars that state and local governments provide to companies in the name of job creation consist of tax breaks: property tax abatements, corporate income tax credits, sales tax exemptions and rebates, etc.

Business apologists would have us believe that such tax deals encourage companies to increase their investments and their hiring, resulting in higher tax collections. However, too many subsidies are structured “as of right,“ making them windfalls that pay companies to do what they would have done anyway. And as the growing numbers of clawback episodes tell us, many companies end up not hiring as many people as they promise when negotiating the deals. Subsidy deals are often so lavish that, even at a higher level of business activity, the tax obligations of the recipients remain artificially low.

To illustrate this, here are three examples of prosperous companies that are frequent subsidy recipients and are paying meager amounts in state and local taxes (as reported in the notes to their recently published 2010 financial statements).


Intel Corporation

State taxes: The semiconductor giant reports that it paid only $51 million in state and local taxes in 2010, which is less than one percent (0.37 percent to be more exact) of its $13.9 billion in pretax U.S. profits. In the previous two years it reported negative amounts, meaning that it received net refunds.

Subsidies: Intel is one of the most aggressive companies in the nation when it comes to seeking giant subsidy deals and preferential tax treatment. It has obtained hundreds of millions of dollars in property tax abatements and sales tax exemptions in states such as Arizona, New Mexico and Oregon when building its large chip fabrication plants and has successfully campaigned in various states for the adoption of a corporate income tax computation system known as Single Sales Factor, thereby avoiding many millions more in tax payments.

A great deal of the taxes that Intel has avoided should have gone to pay for schools. Brazenly ignoring his company’s contribution to the problem, former Intel chief executive Craig Barrett recently criticized Arizona’s educational system, saying it is so weak that it inhibits the attraction of new business.


Boeing Company

State taxes: The aerospace leader reports that it expects to receive a net tax refund of $137 million from state and local governments for 2010, despite earning more than $4 billion in U.S. pretax profits for the year. For the past three years combined, Boeing’s total state and local net tax bill was only $28 million on domestic pretax profits amounting to $9.7 billion—a rate of less than one-third of one percent.

Subsidies: Boeing rivals Intel in its unrelenting quest for tax breaks. Although Washington had long been the company’s manufacturing base, in 2003 Boeing let it be known that it would build its new Dreamliner aircraft somewhere else if the state did not approve what turned out to be a 20-year, $3.2 billion package of tax credits and abatements. Despite that concession, when it came time to build a second Dreamliner production line, Boeing chose to locate it in South Carolina after that state provided a subsidy package that is estimated to be worth more than $900 million.


Cabela’s Inc.

State taxes: For 2010 Cabela’s expects to pay less than one million dollars ($769,000 to be exact) in state and local taxes. That represents not even one half of one percent of the company’s $167 million in pretax profits.

Subsidies: Cabela’s is a much smaller company than Intel and Boeing, but it is the largest retailer focused on hunting and fishing gear and other outdoor sporting goods. It has used its popularity to drive hard bargains with nearly all of the roughly 30 localities where it has built its big-box stores. The company has received subsidy packages totaling more than $500 million for its outlets, which it promotes as tourist attractions (its taxidermy displays are sometimes legally structured as museum condominiums, making those portions of the stores exempt from property taxes). In its financial reports Cabela’s acknowledges that these deals are an essential part of its business plan. Local officials, however, have sometimes found that the new sales tax revenues generated by the giant stores have fallen short of levels projected to justify the subsidies.


Big Picture: Burden Shift

Intel, Boeing and Cabela’s are just a few of the many large corporations getting lucrative subsidy deals that minimize their state tax bills. The aggregate effects of this and other sorts of business-oriented fiscal policies are dramatic. According to the U.S. Census Bureau, corporate income tax payments contributed only 5.4 percent of total state tax collections last year, down from nearly 10 percent in 1980. This trend is a significant factor in state budget deficits.

When large corporations pay less, households and small businesses have to pay more, or the quality of schools and other public services declines, or some of both. Something to think about as you prepare your state tax return.

Note: We follow the lead of Citizens for Tax Justice and the Institute on Taxation and Economic Policy in considering only the reported figures for current income taxes, ignoring the deferred amounts.

Posted in Subsidies, Taxes | 3 Comments »

Stung by Shutdowns, Massachusetts Debates Reforms

April 12, 2011

Recent job loss events in Massachusetts, though unfortunate for the state and its workers, may prompt passage of strong economic development accountability and clawback legislation that would apply to all economic development subsidies statewide.   Announcements by Evergreen Solar and Fidelity Investments – both major recipients of economic development subsidies – that the companies would be moving large numbers of jobs out of state have frustrated development officials, lawmakers and residents alike.

Evergreen Solar announced in January that it would shutter its Devens manufacturing facility and send over 800 jobs to China, despite the $58 million in job creation and development subsidies it received from the state.  Fidelity’s March announcement that it would be relocating approximately 1,100 jobs to two neighboring states from its Marlborough facility also came as an insult to the state; in the 1990s – at Fidelity’s urging and great cost to the state – Massachusetts altered its state tax code to apply single sales factor (SSF) corporate income tax calculation to mutual fund firms.  Weak accountability standards and a lack of safeguards in the state’s subsidy programs mean that Massachusetts will be able to recoup very little from Evergreen and nothing from Fidelity of the subsidies they received to create and maintain jobs in the state.

Executives from both companies were questioned by lawmakers last week about their acceptance of job subsidies and subsequent decisions to move jobs out of Massachusetts.  Evergreen Solar CEO, Michael El-Hillow, stated during the hearing that the company would not be repaying the $21 million it received as direct cash grants and tax credits from the state.  Fidelity’s major economic development subsidy, provided in the form of reduced corporate income tax responsibility through the SSF calculation, is impossible to recapture.  However, even some lawmakers who voted for the passage of SSF are now questioning its value to the state’s economic development efforts.  During the hearing Senator Mark Montigny, chairman of the Senate Post Audit and Oversight Committee, stated that he expected SSF “not to continue in perpetuity with no oversight” or accountability.

Prompted by these revelations,  the Massachusetts State Auditor issued a preliminary review of business tax expenditures this week.  She found that of 91 business tax expenditures, only 8 include a sunset clause, just 10 contain clawback provisions, and only 19 have public disclosure or accountability reporting requirements.  (Program sunsets, clawback provisions, and public disclosure are among the most basic and most critical aspects of key subsidy reforms supported by Good Jobs First.)   Massachusetts passed its first public disclosure law last year, which covers only the recipients of refundable or transferable tax credits.

This law, though a good first step towards strong public disclosure, is narrow and incomplete compared to other states’ disclosure practices.  It would be leapfrogged by S153/H2565: An Act to Promote Efficiency and Transparency in Economic Development, legislation currently being examined by the Joint Committee on Revenue.  Over 50 legislators, including primary sponsor Sen. Jamie Eldridge, are co-sponsoring the omnibus economic development reform bill.  Among its many provisions are the following major subsidy reforms:

  • Transparency, including spending transparency via a Unified Development Budget
  • Enhanced online disclosure of job creation and performance monitoring
  • Mandatory clawback provisions; and
  • Job quality standards

If enacted, the bill would protect Massachusetts’ future investments in economic development and ensure that companies can no longer take taxpayers’ money and run.

Posted in Clawbacks, Disclosure, Job Piracy, Job Quality Standards, Jobs, Single Sales Factor, Subsidies | Leave a Comment »

New Report Details How Lone Star Legislators Did Away With Lone Stimulus Committee

April 5, 2011

(This post originally appeared on the States for a Transparent and Accountable Recovery blog)

Texas officials are nowhere near finished with the massive endeavor of spending the state’s share of the Recovery Act pie, but the state’s House of Representatives has apparently lost its appetite for systematically keeping track of the process.  In a report titled, “It Ain’t Over Till It’s Over: The Texas Legislature and the American Reinvestment and Recovery Act,” interfaith group Texas Impact recounts how the state legislative committee that monitored the use of stimulus funds has been disbanded and its website has expired.

For nearly two years, Texas legislators made a gallant effort to keep stimulus dollars openly accountable and transparent.

Led by State Representative Jim Dunnam, the Select Committee on Federal Economic Stabilization Funding held 26 public hearings and put out 60 bi-weekly updates on implementation of the Recovery Act in Texas, according to an interim report the committee published in December 2010.  The committee published each of these “Chairman’s Updates”—as well as several reports the Committee authored and all documents the Committee prepared for hearings—on a website registered in Dunnam’s name.  Dunnam also appointed sub-committees focusing on education, energy and transportation.

Among the actions undertaken by the select committee were questioning Texas transportation officials about whether they attempted to target funds for economically-distressed areas (they didn’t); pushing officials to pick up the pace by which they use stimulus funds to weatherize homes; “quiz[zing]” the state’s Deputy Comptroller about problems with its stimulus-funded appliance rebate program; and asking the Texas Department of Transportation to explain why a majority of the state’s Recovery Act funds allocated for highways and bridges had not yet been spent as of last fall.

Clearly, the select committee was making its presence felt, and interested citizens could follow the action on the committee’s website.

But Dunnam failed to win reelection last year, and in December 2010, Texas Speaker Joe Straus chose to discontinue the committee.  Then, in March, the domain name of the committee website expired and the information published on it was suddenly no longer publicly available.  (The ARRA website that was established by the Texas State Comptroller—and evaluated by Good Jobs First in both versions of our “Show Us the Stimulus” report—is still active).

The “missing website” episode typifies Texas Impact’s central criticism of those state legislators still in office: they have “for the most part … moved on” from watching how state agencies use federal stimulus funds even though the Recovery Act is still playing a major role in the state.

Texas Impact concluded that even though the Recovery Act has created or saved more than 236,000 jobs in Texas and “ensured the availability of core public services,” state legislators are not doing enough to “maximize ARRA’s benefit to Texas.” The group cites “strategic investment, accountability and transparency” as areas where the politicians aren’t up to par.

The report includes ten recommendations for how legislators can “re-engage ARRA and take every remaining opportunity to maximize Texas’ strategic use of ARRA dollars.”  High on the list: the Texas House should reconstitute the Recovery Act monitoring committee and ensure that it continues until ARRA funds have been exhausted and a final evaluation of the entire process has occurred.

Texas Impact also urges lawmakers to modify the state’s calculation of unemployment benefits so that Texas can collect $555 million in stimulus funds for unemployment insurance that Gov. Rick Perry rejected in 2009.  As Good Jobs First recently documented in our March report, “Slashing Subsidies, Bolstering Budgets,” Texas has taken at least $162 million from the state’s Unemployment Insurance fund to pay for the Texas Enterprise Fund, a bloated corporate subsidy program that has all too often failed to deliver on promised job creation. The raid on UI funds helped Texas deliberately keep its unemployment trust fund low, which forced the state to borrow $1.3 billion in 2009 to keep the fund afloat.

Posted in Recovery Act | Leave a Comment »

A tale of two closing funds, the Chinese Communist Party, and genetically modified mice

April 1, 2011

Guest blog by Gene Perry, Oklahoma Policy Institute
reposted from OKPolicyBlog

As the state continues to grapple with severe budget shortfalls, Gov. Fallin’s agenda has mostly involved regulatory changes and managing additional cuts to state services. Yet the governor does have one major new program on her wish list: a deal-closing fund to entice new businesses to Oklahoma. The “Oklahoma Quick Action Closing Fund” would allow the Governor and Department of Commerce to help cover businesses’ relocation and expansion costs, pay for maintaining existing jobs that are at risk of termination, or invest in capital improvements requested by a company.

The concept has a few precursors. In particular, Oklahoma’s deal-closing fund is a descendant of two programs: the Oklahoma Opportunity Fund and the Texas Enterprise Fund. The histories of both programs should raise warning flags before we follow the same path.

The Opportunity Fund was Oklahoma’s first attempt at a deal-closing fund. The fund was created in 2006 at the request of Gov. Henry. At the time, Henry made many of the same claims as Gov. Fallin that the fund was needed for attracting business to the state. In its brief life, almost nothing went as planned.

In 2006, the Nanjing Automobile Group Corporation, which is owned by the Chinese government, was considering bringing a new MG auto plant to Ardmore. To facilitate the deal, Oklahoma used the Opportunity Fund to provide $15 million for improvements to the Ardmore airport as well as $5 million for a startup loan to MG. The company also promised to build a new headquarters in Oklahoma City and a research facility in Norman, all of which would receive public money under the Quality Jobs Act of up to 5 percent of the company’s payroll for 10 years.

MG North America CEO Duke Hale said at the time, “I mean when we compared yourselves in the total state offering to other states, man, I can tell you the incentive package offered by the state is superb.”

However, the deal ran into trouble when the Chinese Communist Party decided to consolidate its auto industry and scale back plans for manufacturing in the United States. Representatives from MG have never made a definitive statement that the deal was finished, but 5 years later and despite Oklahoma’s investment, MG has not come to Ardmore.

The Oklahoma Opportunity Fund soon ran into a trouble as well. In 2007, the Oklahoma Supreme Court ruled that the fund violated the separation of powers because the board to oversee it included legislators even though it was part of the executive branch. However, the court ruled that the fund could continue under the governor and Department of Commerce.

After the Supreme Court ruling, Governor Henry unilaterally awarded $15 million to the Oklahoma Medical Research Foundation. He also gave $10 million to build a new hangar and renovate another building at Tulsa International Airport on behalf of American Airlines and Spirit Aerosystems. Finally, he awarded $1 million to Sulzer Chemtech and $4 million to Oklahoma County (information on the purpose of these awards was not immediately available).

Today the fund still exists and contains just over $140,000, but the legislature has not appropriated additional money into it since 2008.

Another model for the Quick Action Closing Fund frequently mentioned by Governor Fallin is the Texas Enterprise Fund. Yet even as we move towards copying the TEF in Oklahoma, it is under attack in Texas. Senator Kay Bailey Hutchinson has called for an independent audit of the program, and a current proposal in the legislature would abolish it entirely.

This program has its own checkered past. Created in 2003 at the request of Gov. Rick Perry, it has handed out $412 million in subsidies. However, a report by Texans for Public Justice found that more than a quarter of the money went to companies that failed to create promised jobs, based on their own compliance reports. When job creation falls short, the state has the authority to terminate the agreement. However, that did not happen in Texas. Governor Perry ended agreements with two companies, but for 11 other non-compliant firms, only 1 percent of the $61.4 million they had been given was returned.

Other projects paid for by the Texas Enterprise Fund have brought charges of political cronyism. In 2005, TEF gave $50 million for a genetic research center to be operated as a public-private partnership between Texas A&M and Lexicon Genetics. The facility would develop genetically altered mice for researchers to study specific traits affected by changes to the genome.

The next year, failure to win a $50 million NIH grant put the entire project in jeopardy. The lab has required annual subsidies from Texas A&M to stay in operation, and the university also took on all of Lexicon’s job creation obligations until 2012 since they employ fewer people today than when they received the award. Critics pointed out that several Lexicon investors were also major financers of Governor Perry’s political career.

Oklahoma’s Opportunity Fund raised its own issues of conflict-of-interest, or at least the appearance of one. When Gov. Henry awarded $15 million to the Oklahoma Medical Research Foundation, his wife served on the board of directors.

All of these examples should raise serious concerns about the accountability and effectiveness of closing funds. The Supreme Court ruling prevents us from giving legislators direct oversight on where the money goes after it is appropriated. And if history is any guide, putting the fund at the discretion of the governor provides inadequate safeguards against political favors or unwise award decisions.

Political leaders may assure us that safeguards are in place, but by necessity any program meant as a last-minute deal closer will sacrifice oversight for speed. With the state budget already stretched to its limit, a closing fund is not a responsible use of limited public dollars.

Posted in Subsidies | Leave a Comment »

States and Cities Finally Declare Jobs Truce

April 1, 2011

For Immediate Release April 1, 2011; Contact: Greg LeRoy 202-232-1616 x 211

Good Jobs First today announced a comprehensive treaty agreement among the nation’s leading associations of public officials to end the “economic war among the states” and the far more common “economic war among the suburbs” and finally direct job-creation subsidies where they are needed most.

“I applaud the National Governors Association, the National League of Cities, the U.S. Conference of Mayors, the International Economic Development Council, the Council of Development Finance Agencies, and the Governmental Accounting Standards Board for this stunning breakthrough,” said Greg LeRoy, executive director of Good Jobs First. “America’s public officials are finally realizing that they are not each other’s enemies, and that corporate tax dodging, off-shore job flight, and unsustainable sprawling land use are the real issues.”

To deliver on the 50 states plus-D.C. cease-fire, all of the governors have agreed to sponsor legislation that would prohibit the use of state economic development funds to subsidize interstate job flight. The same bills will also prohibit the use of state or local job subsidies to relocate jobs within a state. To end the “prisoners’ dilemma” game, the states have entered a compact to call each other and tattle on companies seeking to play states against each other. The new state laws will require mayors to do the same within a state.

“We know we can’t use federal funds to drag jobs across state lines,” said one Midwestern governor who requested anonymity. “But we’ve always used state and local dollars for interstate job piracy and of course federal money is often fungible. We have finally seen the light: state-eat-state is a futile net-loss game and a distraction from globalization.”

Getting back to basics, the new laws will allocate deals to communities based on how badly they have suffered job loss as recorded under the federal WARN Act on plant closings and mass layoffs.

To make development programs more transparent and encourage taxpayer engagement, the governors and big-city mayors also agreed to enact uniform legislation mandating that every deal be disclosed online, with reporting standards based on Good Jobs First’s recent study Show Us the Subsidies. Mimicking the Recovery Board’s new iPhone app for federal stimulus projects, each state will also mandate that all smart phones come installed with an app for detecting nearby economic development dollars via GPS.

Guided by new rules issued by GASB, each state will publish a Unified Development Budget annually, detailing all forms of spending for jobs, especially tax breaks, which have never been uniformly reported. The rules include a requirement that states project revenues lost to each tax break program for the next 10 years. “We are very keen to see these new Unified Development Budgets,” said a credit-rating agency official on background. “We suspect that some states have been hiding huge tax-break liabilities. Now we will be able to compare apples to apples and whack states that generate bogus forecasts.”

Money-back guarantee clawbacks will also be attached to every program, and every tax break subsidy will be sunsetted every three years and not eligible for renewal unless a performance audit determines it is effective. “We are embarrassed that more than 20 years after clawbacks became a common safeguard, some states are still getting ripped off by runaway shops,” said a New England governor who asked his name be withheld.

In addition to locating deals where plant closings have been concentrated, the new laws will use other rules to explicitly address poverty and reduce greenhouse gas emissions: for deals in metro areas with public transportation systems, the new state laws will require that subsidized jobs be accessible via mass transit (for carless workers). To get employers to act in their own economic self-interest (and the environment’s), the new laws will also require that all subsidized buildings be built or retrofitted to LEED standards or equivalent green building efficiency.

Job Quality Standards will be attached to every program, requiring subsidized companies to pay wages at least as good as the market, i.e., the wages for that industry in that labor market, with a living-wage floor, plus health care.

Site location consultants will be registered and regulated as lobbyists under the new state laws, making commissions to them illegal. The states with film production tax credits will deny them to G, PG and PG-13 movies that include smoking.

To plug corporate tax loopholes and shore up state revenues, the states with Single Sales Factor will repeal it. The states that lack combined reporting will enact it. And the states with the sales tax “vendor discount” will repeal it.

Finally, the new state laws will shield public education from property tax abatements and tax increment financing (TIF). The school share of property taxes will no longer be eligible for abatement or TIF diversions. “We finally realized that K-12 is our best economic development investment,” said a big-city mayor. “It was nuts that we allowed abatements and TIF to undermine our economic foundation.”

Indeed, the law will go further: school boards will take control of abatement and TIF decisions now made by city and county boards. School boards will determine whether funding for non-education purposes is abated or TIFed. “They’ve played with our money for decades,” said one state’s school board association president. “It’s payback time.”

“Liberated by these safeguards, America’s leaders will now be free to focus on the things that really matter in economic development,” said LeRoy, author of The Great American Jobs Scam. “Now we can all focus on skills, infrastructure, clusters, innovation—and fair trade—to restore the nation’s ailing economy.”

Editor’s note: Happy April Fool’s Day!

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