Archive for June, 2011

More Subsidy Tracking in North Carolina, Texas and Colorado

June 30, 2011

Subsidy Tracker, Good Jobs First’s database of company-specific info on economic development subsidies, has just expanded its coverage of North Carolina, Texas and Colorado.

The new information includes controversial programs such as North Carolina’s William S. Lee tax credit and its successor as well as Texas’s Enterprise Fund and Emerging Technology Fund, which have been at the center of conflict-of-interest scandals. Tracker now has data on all significant subsidy awards made by Colorado’s Economic Development Commission since 2000.

Overall, Subsidy Tracker now contains more than 69,000 entries on 175 programs in 38 states.

New Additions
Colorado – Economic Development Commission Awards (2000-2010)
North Carolina – Article 3J Tax Credits for Growing Businesses (2008-2010)
North Carolina – One North Carolina Fund (2001-2010)
North Carolina – William S. Lee (Article 3A) Tax Credits (2008-2010)
Texas – Emerging Technology Fund (2006-2010)
Texas – Enterprise Fund (2003-2010)

Additional years of coverage added
Colorado – Job Creation Performance Incentive Fund
Colorado – Job Growth Incentive Fund
North Carolina- Film Production Tax Credit
North Carolina – Job Development Investment Grant

Michigan Slashes Corporate Subsidies While Cutting Business Taxes

June 17, 2011

The dust has settled in Michigan’s budget battle, and the outcome is dramatic: a state that has spent billions on economic development subsidies is ending a number of its core programs like MEGA tax credits and reducing spending in others like film tax credits. The new budget put forth by Gov. Rick Snyder (R) consolidates many programs, requires subsidies to undergo the annual appropriations process, and limits new subsidy spending to $125 million for the next fiscal year. At the same time, however, the state is completely revamping its business tax system bringing about significant reductions in corporate tax revenue.

Gov. Snyder’s Republican colleagues initially balked at the idea of ending corporate subsidies , but they liked what went along with it: replacement of the state’s hybrid gross receipts-corporate income tax, the Michigan Business Tax, with a low 6 percent corporate income tax rate. The Michigan League of Human Services estimates that the overall changes to the tax code will result in a $1.8 billion reduction in taxes paid by businesses.

So who makes up the difference? Taxes were increased for individuals, especially low-income families (the state Earned Income Tax Credit was slashed) and retirees (pensions were taxed for the first time). The whole package also includes deep cuts in education spending.

Although subsidy programs were eliminated, corporations that have already been awarded tax credits will be allowed to continue receiving those benefits by filing their taxes under the old Michigan Business Tax system. One result of this is that state revenue losses from the existing credits will actually increase for a number of years. It is estimated that in FY 2012-2013, grandfathered subsidies will cost the state a half-billion dollars.

Among the state’s largest subsidy programs, two were eliminated: MEGA tax credits (which cost $106 million in 2010) and Advanced Battery Credits ($200 million in 2011). Film tax credits survived but will be reduced from $155 million to a maximum of $25 million.

These are all remarkable changes for a state that has used subsidies so profusely for so long. During former Gov. Jennifer Granholm’s (D) eight years in office, 500 companies received $3.5 billion in economic development subsidies. While it is encouraging to see large reductions in corporate subsidy spending in a time of fiscal crisis, it’s dismaying that these reforms are accompanied by an overall shift of the tax burden from business to families, especially those of limited means.

Recovery Act Shapes Push for More Federal Spending Transparency

June 17, 2011

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

Last month, Director Michael Wood mentioned that Congress, the White House and the Inspectors General community were all behind using the Recovery Act’s landmark transparency measures as a model for broader federal disclosure.  Now that support has led to action; in coordinated efforts, the executive and legislative branches each signaled this week that they are serious about improving federal spending transparency based on some of the institutions and procedures that were created to track Recovery Act funds.

On June 13, President Obama issued an executive order creating a Government Accountability and Transparency Board, modeled after the Recovery Board, which will “provide strategic direction for enhancing the transparency of Federal spending and advance efforts to detect and remediate fraud, waste, and abuse in Federal programs.”  That same day, Rep. Darrell Issa (R-CA), chairman of the House Oversight and Government Reform Committee, introduced the Digital Accountability and Transparency Act (DATA Act), which also calls for the creation of an independent agency to track federal spending that is based on the Recovery Board.  Sen. Mark Warner (D-VA) introduced the Senate version of the DATA Act on June 16.

Our friends at OMB Watch have already broken down some of the pros and cons of the DATA Act, but here are some key aspects of the legislation:

  • The new agency, known as the Federal Accountability and Spending Transparency (FAST) Board, would take over the responsibilities of the Recovery Board.  The FAST Board would oversee all federal spending disclosure and take over from the Office of Management and Budget.
  • The DATA Act would create common data elements and reporting standards and a single web-based platform for publishing all federal spending information.
  • The reporting requirements would apply to all recipients of federal funds except for those individuals who, during that calendar year or fiscal year, have received less than $100,000 and were not involved in a transaction of $25,000 or more.
  • The FAST Board would collect both recipient-reported data and agency-reported data, and would work with the agencies to investigate any incongruities.  OMB Watch proposes that the DATA Act include Treasury Department data instead of less accurate agency-reported data.
  • The DATA Act does not address federal tax expenditures.
  • The DATA Act would sunset on September 30, 2018, and would repeal the Federal Funding Accountability and Transparency Act of 2006, the legislation sponsored by Sen. Tom Coburn (R-OK) and then-Sen. Obama that created  OMB Watch argues that “[i]t is a bad idea to repeal a permanent law and replace it with a temporary law,” and that Congress should instead amend the Federal Funding Accountability and Transparency Act to include the DATA Act’s recipient reporting and data standardization provisions.

It remains to be seen what the final version of this legislation will look like.  But with strong bipartisan support for transparency in Washington, the prospects for meaningful progress are bright, thanks in no small part to the Recovery Act.

More Subsidy Tracking in Iowa, Vermont and New Hampshire

June 15, 2011

Subsidy Tracker, Good Jobs First’s database of company-specific info on economic development subsidies, has just expanded its coverage of Iowa, New Hampshire and Vermont. New Hampshire appears for the first time in Tracker.

We uploaded data on a total of 15 additional programs in those states and expanded the number of years of data for two Iowa programs already in the database. Subsidy Tracker now covers all awards by the Iowa Department of Economic Development from fiscal years 2004 to 2010, and it has data for all of Vermont’s major subsidy programs.

Overall, Subsidy Tracker now contains more than 67,000 entries on 169 programs in 38 states.

New Additions

Community Economic Betterment Account (July 2003-June 2010)
Economic Development Set-Aside (July 2003-June 2010)
Enterprise Zones (additional years bring coverage to July 1997-June 2010)
Entrepreneurial Ventures Assistance (July 2003-June 2010)
Grow Iowa Values Fund (July 2003-June 2010)
High Quality Job Creation Program (additional years bring coverage to July 2003-June 2010)
High Quality Jobs Program (July 2003-June 2010)
Loan and Credit Guarantee Fund (July 2003-June 2010)
New Capital Investment Program (July 2003-June 2010)
Physical Infrastructure Assistance (July 2003-June 2010)
Value-Added Agricultural Products & Processes Financial Assistance (July 2003-June 2010)

New Hampshire
Job Training Fund (November 2007-May 2011)
Tax Credit Program (2009)

Direct Loan Program (2008-2010)
Economic Advancement Tax Incentive (1998-2006)
Vermont Employment Growth Incentive (VEGI) (January 2007-May 2011)
Workforce Education & Training Fund (FY2008-2010)

Expiration of Stimulus Funds Means Higher Costs for Higher Education

June 15, 2011

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

A couple months ago, I detailed in this space how the end of federal stimulus support is putting the squeeze on states’ K-12 education budgets, forcing school boards across the country to grapple with teacher layoffs, larger class sizes, fewer school programs and shorter school days.  But the pain isn’t only being felt by K-12 teachers and students; it also extends to public university students and their families, many of whom are facing major hikes in tuition and fees as Recovery Act funds for higher education come to an end.

As the Pew Center on the States’ Stateline news service explains, lawmakers facing severe budget crunches have “targeted higher ed because it’s easier to cut — legally, politically and logistically — than K-12 schools, roads, prisons or health care.”  As a result, “higher education continued to bear the brunt of state budget cuts in 2011.” These cuts, necessitated in large part by the expiration of stimulus funds, have forced public colleges and universities to raise tuition rates, often dramatically:

  • As Stateline noted, state support for the University of Washington has been cut from $400 million to $200 million, causing tuition to “rise by at least 16 percent next year.”
  • State budget cuts have “prompted a 20 percent increase in tuition at Arizona State University,” according to Stateline.
  • The Associated Press reported that the Florida state legislature has “approved an 8-percent tuition increase and most if not all” of the state’s 11 public universities “are expected to seek the board’s permission for an addition 7 percent, the legal limit.”  The spending cuts, the AP notes, “are due almost entirely to the expiration of federal stimulus funding the universities have received in the current budget year.”
  • In a separate article, the AP noted that the chancellor of the Tennessee Board of Regents cited “the evaporation of federal recovery act funds” in announcing that “[s]tudents attending Tennessee colleges and universities could see a tuition increase of 9.5 percent or more this fall.”
  • As the Boston Globe recently reported, the University of Massachusetts’ Board of Trustees has approved a plan that “will increase tuition and fees by 7.5 percent, meaning the average in-state undergrad will pay $11,838, an $826 increase from the academic year that recently ended.”  According to University officials, “the fee hike was necessary mainly because a federal stimulus program, which provided $38 million in funding this year, has ended.”
  • Wright State University in Ohio has raised tuition to the 3.5 percent state cap ($273 per year) to help offset the largest reduction in state funding in the school’s history, the Dayton Daily News reported. In response to these state budget cuts, which “come mainly from a loss of federal stimulus money that was not replaced,” the University of Cincinnati has also raised tuition to the cap, Miami University and Ohio State University are expected to do the same, and less expensive community colleges are seeking state lawmakers’ approval to raise tuition rates more than 3.5 percent.

A college education has long been recognized as a path to financial security, but with tuitions on the rise, more and more prospective students may lack the resources they need to make the dream of attending college a reality. Higher costs also impact those who are struggling to find work; in periods of high unemployment like today, many people go back to school to retool and gain new skills, but higher tuition rates may take this option off the table for those with more limited means.  Then there’s the big picture: Making college less affordable seems like precisely the wrong thing to do in an increasingly competitive global economy where those nations that invest in a skilled and educated workforce have the best hopes of future prosperity.

For all of these reasons, steep tuition hikes at traditionally affordable public institutions could exacerbate our economic troubles.  But that’s precisely the situation we find ourselves in as the Recovery Act moves into the rearview mirror with no more federal support in sight.

Oregon Ramps Up Transparency, Looks to Rein In Subsidies

June 14, 2011

The past couple of months have brought broad changes to economic development tax credit policy in Oregon.  Last month the state enacted major tax credit transparency practices when Gov. Kitzhaber signed into law House Bill 2825, which requires company-specific disclosure of tax credit recipients.  Also up for consideration in the state legislature’s final days is House Bill 3671, which if passed would reduce available business tax credits from approximately $40 million to $10 million annually and make significant structural changes to the contentious Business Energy Tax Credit (BETC) program.

The new transparency law, which was pushed by groups such as OSPIRG, requires state agencies responsible for administering economic development subsidies to disclose via Oregon’s transparency website information about recipients, including their names, addresses, subsidy values, and performance measures.  Programs covered under this law include the controversial manufacturing and renewable energy components of the BETC program, the state’s enterprise zone program, and contributions to the film production development fund, among others.  The law will go into effect later this year.  Oregon scored zero on Good Jobs First’s recent 51-state subsidy disclosure study, Show Us the Subsidies, for its failure to disclose company-specific recipient information for any of its major economic development programs.

As in other states, Oregon’s revenue crisis has forced the state to consider reducing and in some cases eliminating business tax credit programs.  HB 3671 would end the practice of subsidizing construction of major solar and wind production facilities through the BETC program.  It does not completely eliminate subsidies for manufacturers of solar energy equipment and energy conservation activities, but replaces existing subsidies with a set of smaller, more targeted programs.  The bill additionally proposes reducing the total value of business tax credits from the projected $40 million biennially at the state’s current rate to $10 million.  The measure has reportedly gained broad support, although Gov. Kitzhaber has proposed raising the cap to $25 million.

Both of these measures will move the Oregon’s economic development practices toward greater accountability and ultimately, more effective job creation and energy conservation policy.

Amazon Prevails in South Carolina

June 6, 2011

Amazon will be allowed to help its customers in South Carolina dodge sales taxes, after all. In a dramatic reversal, Palmetto State legislators approved a bill that gives the online retailer a five-year exemption from collecting sale tax from the state’s residents. The move revives Amazon’s plans for a $125 million distribution center in the state that is projected to create 2,000 jobs. Unfortunately, the bill does not include strong clawback provisions.

The legislation is a defeat for Amazon’s brick-and-mortar competitors, both small businesses and big-box retailers such as Wal-Mart that lobbied hard against the exemption sought by Amazon.

As we previously reported, the original promise to exempt Amazon from its obligation to collect sale taxes was made last year by then-Gov. Mark Sanford and was a part of a subsidy package that included $5 million in free land; $3,250 in tax credits for each job created; and property tax breaks on equipment.

Initially, the House rejected the deal but gave into political pressure stoked by Amazon’s decision to increase its job-creation projection by 750 jobs. Gov. Nikki Haley has opposed the deal, though she now says she will let the bill take effect without her signature.

Limited attention is being paid to the terms of the company’s job promises. The final version of the bill requires Amazon to create 2,000 jobs by the end of 2013 and retain 1,500 jobs between the end of 2013 and January 1, 2016. If the company decides to lay off up to 500 workers after 2013, it will face no consequences. After January 1, 2016 (when the exemption expires), Amazon is not required to retain any specific number of jobs.

If the company does not meet job creation or investment ($125 million) obligations, the only penalty Amazon would face is cancelation of the exemption. There are also no wage requirements for the jobs, though Amazon is required to provide a comprehensive health plan for the workers.

It is disappointing that after the long battle, the legislature did not put measures in place that would truly protect workers and hold Amazon accountable.

New revelations in Texas technology fund scandal

June 2, 2011

More details have emerged in the ongoing scandal about the Texas Emerging Technology Fund (ETF), providing further evidence of the pitfalls of letting business interests oversee the awarding of subsidies. New revelations indicate that six former members of the fund’s board had close ties to eleven companies that received $27 million in subsidies.

ETF is a multi-million dollar slush fund controlled by a 17-member board appointed by the Governor and consisting mostly of corporate executives. A series of investigative reports by the Dallas Morning News had previously revealed that eight companies received $16 million from ETF after their investors or officers made significant campaign contributions to Governor Rick Perry. Other investigations revealed that at least one member of the ETF board made personal investments in companies it had approved for subsidies. The Dallas Morning News has now established that at least six members of the board had been working for or investing in companies that eventually got subsidies.

Texas’ Emerging Technology Fund stands out as a prime example of what can go wrong when so-called public-private partnerships are used to manage economic development functions.