Archive for May, 2011

New Jersey’s $1 Billion Subsidy Spree

May 4, 2011

Xanadu, an "offense to the eyes."

According to a new report released last week by New Jersey Policy Perspective (NJPP), a nonpartisan policy research center based in Trenton, Gov. Christie’s administration has awarded $822 million in economic development subsidies in its first 15 months in office.  A Surge in Subsidies documents the recent torrent of tax credit and grants awarded by the Economic Development Authority at a time when the state is slashing budget items for education, health, and social services.

NJPP examined just four of the state’s many economic development subsidy programs.  The controversial Business Employment Incentive Program redirects the personal income tax withholding of employees to participating businesses.  The recently enacted Economic Redevelopment and Growth Grant (ERG) program has been used to approve awards totaling an astounding $351 million in diverted tax increments to New Jersey companies since February of 2010.  Once laudable for its geographic targeting, the Urban Transit Hub Tax Credit is now used so extensively that it is poised to become a major revenue drain for the state.

Despite abundant criticism of recent deals such as the state’s decision to bail out a casino owned by Morgan Stanley ($261 million through ERG) and $101 million to relocate Panasonic’s North American headquarters just eight miles, New Jersey continues to dole out major subsidies.  Gov. Christie once called the stalled Xanadu mall project “an offense to the eyes as you drive up the turnpike.”  Now, he favors a $200 million tax break to rescue the project.

NJPP president Deborah Howlett notes that the Xanadu subsidy brings the 16-month subsidy spending total to over $1 billion, yet “all of that spending to spur job creation has had almost no effect on the unemployment rate.”

You can find everything on Amazon, except sales tax

May 3, 2011

 Subsidy deals normally involve reductions in a company’s tax bill, but Amazon recently abandoned a distribution center project in South Carolina because the state decided not to make it easier for the online retailer’s customers to avoid paying sales taxes on their purchases.

The complicated dispute began last year, when the previous administration of Gov. Mark Sanford offered Amazon a five-year exemption from the obligation to collect sales taxes on purchases made by South Carolina residents. In recent months, both the new governor, Nikki Haley, and growing numbers of legislators criticized the plan, leading to a lopsided vote against the exemption in the South Carolina House last week.

For an online company such as Amazon, the ability not to collect taxes is worth a lot more than conventional “incentives.” It provides a competitive advantage over brick-and-mortar stores that have to tack on the additional amount to a customer’s bill, making their prices seem higher. Big retail corporations such as Wal-Mart, Target and Best Buy have lined up against Amazon by supporting organizations such as Alliance for Main Street Fairness that represent small business.

Note: The fact that Amazon declines to collect the taxes does not mean the transactions themselves are exempt. Customers are supposed to voluntarily submit the appropriate amount to state authorities but rarely do so.

The issue extends far beyond South Carolina. Amazon has been battling with states around the country over sales tax issues. In states where Amazon does not have a physical presence such as a distribution center or a store (the technical term is nexus), the company relies on a 1992 U.S. Supreme Court ruling to justify its refusal to collect sales tax. In states where the company has such a presence, Amazon has been seeking to get exemptions from its collection obligation.  

Some states are fighting back. The Institute on Taxation and Economic Policy notes in a brief that public officials in many states, with the support of traditional retailers, are beginning to pass laws requiring that online retailers like Amazon collect sales tax even when there is no nexus. Some states have expanded the definition of a “physical presence” to include affiliates (for example, a business that has an Amazon advertisement on its website and gets a commission when a client clicks on the ad). Amazon tries to combat these laws. After New York passed its legislation, Amazon unsuccessfully tried to challenge it in court. The company also has threatened to cut relations with its affiliates, as it did in Texas and plans to do in Illinois.

The South Carolina sales tax exemption was unusual because it had been offered to the company as a part of a bigger subsidy package which included an obligation to create 1,249 full time jobs (with health benefits) and 2,500 temporary positions by 2013. The promised deal had to be approved by the state legislature. After the last election, the subsidy lost the support of many of the state’s Republicans, especially Tea Party-supported legislators who focused on tax cuts for all businesses. They also wanted a public review of subsidy deals. Governor Nikki Haley said she would not have promised a deal such as this one, but if the legislature passed the Amazon bill, she would not veto it. Some Senators said the state had to keep its word, and the sales tax exemption bill passed the Senate Finance Committee. But the House killed the deal by a vote of 71 to 47.

Although focused on sales tax collection issues, Amazon has taken traditional subsidies in other states. In Tennessee, to encourage Amazon to build two distribution centers and create 1,400 jobs by the end of 2011, the state offered the company, in addition to a sales tax exemption, free land, job-training support, and $12 million in property tax breaks. In 1999, the company received millions of dollars in free land, tax breaks, and job training programs from Kansas, Kentucky and Georgia.  Additionally, in Kentucky, the company was allowed to keep 4 percent of withholding taxes on each employee paycheck.

South Carolina deserves some credit for standing up to Amazon, but the state’s economic development practices still need a lot of improvement. The state fared poorly in Good Jobs First’s 2010 rankings of states’ subsidy transparency due to its lack of online recipient reporting for any of its major economic development programs.  Hopefully the Amazon conflict will prompt the state to adopt accountability reforms.  If nothing else, the Amazon episode shows that no deals between public officials and private companies should be made behind closed doors, without public debate, and should be offered only when truly needed.

Governors React to Questions about Stripped Down Recovery Act Websites

May 3, 2011

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

We now have official responses from all three governors that Good Jobs First identified last week as having dramatically downgraded their states’ Recovery Act websites.

As we documented in our initial blog post on the subject, Kansas Gov. Sam Brownback’s press secretary, Sherriene Jones-Sontag, questioned whether federal stimulus information is part of “the public discussion in Kansas” and said the Brownback administration is “not really promoting” the Recovery Act because it is trying to “get Kansas to live within its means.”  In media reports in Ohio and Florida over the last few days, Ohio Gov. John Kasich and Florida Gov. Rick Scott have also defended their respective decisions to deny taxpayers a fully-informed debate about the Recovery Act:

  • In an email to Columbus Business First, Kasich spokesman Rob Nichols claimed “Ohio lost 150,000 jobs under the so-called ‘stimulus’ program,” and added: “Literally, thousands of Ohio communities and schools put off much-needed reforms because one-time stimulus funds gave them a false sense of prosperity. Trying to paper over that kind of failure with a fancy website isn’t a priority.”

 

  • As reported by The Sarasota Herald Tribune, Scott spokesman Brian Burgess said, “We decided we wouldn’t do anything to promote the stimulus program” because “[t]he governor clearly doesn’t believe in it.”  He also said the move was motivated by a desire to “not put a ton of energy or spend tax dollars on content that few people read.”

Burgess returned to the “price tag” argument several times during a Twitter exchange with Collins Center Director of Online Strategies Dan Bevarly.  Burgess said the Scott administration had found that the ARRA website had low traffic and asked Bevarly, “how much are citizens willing to pay for the engagement of so few?”  Bevarly responded, in part, by noting that governments promote citizen participation when they share data and that in the case of Florida the cost argument rings hollow because “data on projects, spending & jobs was already online & removed.”

In a blog post on the topic, Bevarly added: “Making assumptions on behalf of what public information to make available to citizens based on the perceived public’s interest or lack thereof goes against principles of democracy.  It becomes controversial once the information removed has already been published.” Collins Center Vice President Leda Perez also addressed Burgess’s comments in a column posted on the Collins Center website.  Among Perez’s key points was that “We cannot treat public information as a commodity to be placed in the market only if people are willing to pay for it,” and that “[a] government committed to [transparency and government openness] might actually invest resources in order to create this demand for information.”

Burgess ultimately abandoned the cost argument in favor of a different defense: that the Florida ARRA website under former Gov. Charlie Crist wasn’t an example of “open government” at all, but rather “hand-picked data prepackaged and designed to sell [the] stimulus program.”

In doing so, Burgess is wrongly blurring detailed information about specific stimulus programs with political spin.  It’s true that the old version of the website included some positive comments by Crist about the Recovery Act that the new Scott administration would of course remove, but the website’s data and project information is a different matter entirely.  Reasonable people may disagree about the merits of a project or program, but it’s impossible to have an informed debate when information is withdrawn.   As Perez noted, “Open and transparent government means that ALL public information is put on the table, regardless of political views or positions on the subject.”