Archive for July, 2012

Kentucky Approved Massive TIF

July 9, 2012

Recently, the Kentucky Economic Development Finance Authority approved $709 million in tax increment financing, or TIF, for the University of Louisville Research Park.  It appears to be the largest commitment of public money through TIF ever in the United States.

This deal is different than many TIF giveaways, since the University of Louisville is a state institution not a private company, and the TIF money will be used for public infrastructure development. Nevertheless, the value of the TIF is significant.

The Research Park will cost more than $1.1 billion and will cover 1.3 square miles. Nine buildings will be dedicated to research and five to commercial activities, including a hotel. About 30 percent of the $1.1 billion investment will be privately funded and will cover the commercial development.  The $709 million TIF will pay for research buildings and other research support infrastructure.

The Research Park was approved as a “Signature Project” under a Kentucky TIF law which allows state TIF participation only in public projects. For 30 years, up to 80 percent of state and local tax increment at the site will go to the University, not to the State or the locality. Most TIF districts allow diverting property taxes, but because in Kentucky the State can also participate in TIF, the University might retain other taxes, including individual and corporate income taxes, limited liability entity taxes and sales taxes. The University can activate the TIF only after it invests $200 million in the project.

There is no ranking of the largest TIF districts in the country, but taking into consideration that other large TIFs never materialized (like the $408 million SunCal TIF in New Mexico), Kentucky might have just set a record for the most expensive TIF.

Shell “Cracks” Pennsylvania’s Tax Code

July 3, 2012

Pennsylvania Governor Tom Corbett’s controversial plan to award an estimated $1.7 billion in corporate tax credits to Royal Dutch Shell became law with the passage of the state’s budget late Saturday night.  The 25-year deal—one of the largest subsidy packages ever awarded to an individual company in the United States—is for an ethane refinery that Shell plans to build north of Pittsburgh in Beaver County. Known as a “cracker,” the facility will break down ethane into other petrochemical products.

The legislation did not name Shell but limited the new credit of 5 cents for each gallon of ethane purchased for processing to crackers that create at least 2,500 jobs and make a capital investment of $1 billion, which is what Shell plans to do.

It is no secret that the Corbett Administration cooked up the new credit in order to land the Shell project, which the company also shopped to Ohio and West Virginiain search of the best subsidy deal. The $1.7 billion price tag of Gov. Corbett’s package shocked Pennsylvania residents and made national news.  Astonishingly, the final signed law contains no annual or cumulative cap on the total value of credits that ethane refineries can claim, meaning the cost may be even larger than Gov. Corbett’s original proposal.

Because the Shell cracker will be located inside a virtually tax-free Keystone Opportunity Zone, the immediate value of its state tax credits will be derived from the cash value of selling them to other firms for an estimated 15 years.  The state changed an existing KOZ boundary to accommodate Shell’s project, despite the fact that the township never requested that the boundary be expanded.

The Corbett Administration, Shell and the American Chemistry Council trade association sought to justify the sweet deal with a contentious claim that the project would create a total of 20,000 new jobs, a figure composed of direct, indirect, induced, and temporary jobs such as construction positions.  The jobs figure was repeated by industry parties and notably, Administration officials, who were later forced to quietly revise the laughably rosy jobs estimate to half that amount, after admitting under pressure that no independent job creation analysis had been performed.  The Administration’s revised 10,000 new jobs figure remains no less preposterous, given that the ACC estimates just 400 to 600 permanent jobs will result from the new refinery.  (For more information about calculating “ripple effects” of job creation, see this report by the U.S. Economic Development Administration.)

Any legitimate economic analysis would have difficulty showing how the state could recoup a quarter of a century of huge giveaways to Shell.  Pollution concerns notwithstanding, the state needs to consider the potentially short life span of an industry based on depletion of limited resources such as natural gas.  Fortunately for Gov. Corbett, he will be out of office long before a final accounting of the deal can be made.

New Disclosure Data from Tennessee and New York Captured in Subsidy Tracker

July 3, 2012

Tennessee has joined the ranks of those states (now up to 45 plus DC) that disclose which companies are receiving financial assistance from at least some subsidy programs.

Meanwhile, New York has issued the first disclosure report for its new Excelsior Jobs Program, which replaced the notorious Empire Zones. We have already incorporated the new info from both states in Subsidy Tracker, the Good Jobs First national database of subsidy awards.

It is encouraging to see that Tennessee, which long resisted transparency, has begun to bring its subsidies out of the shadows. The state’s Department of Economic and Community Development put up a website that shows the companies participating in the FastTrack Training Job Training Assistance and FastTrack Infrastructure Development programs since the beginning of this year. Earlier awards are covered in employment audits (which include a racial breakdown of workers in the jobs created) but these documents do not show the subsidy amounts. The site also has info on the state’s Film Incentives, but only the name of the movie, not the name of the production company getting the assistance, is displayed.

The FastTrack disclosures, which come after representatives of the DECD consulted with Good Jobs First, are a good first step, but the site cannot yet be considered an exemplary disclosure source. For example, the current PDF lists need to be supplemented with a searchable search engine and/or downloadable spreadsheet. The entries should include additional information such as the full address of the subsidized facility. Tennessee officials say they are committed to improving the site. Hopefully, this will include the inclusion of disclosure data on the state’s Jobs Tax Credits and Super Jobs Tax Credits.

New York’s Empire State Development agency has finally posted the first Excelsior Jobs report in the form of a PDF list of the companies that have been admitted into the program—along with their maximum potential tax credit and their commitments on job creation and investment. Another PDF shows the small number of companies that have already been issued tax credits. This site needs enhancements like those prescribed for Tennessee.

As part of our effort to expand Subsidy Tracker’s coverage of city and county programs, we have just uploaded data obtained from the Missouri State Auditor on payments to developers in all of the state’s many local tax increment financing districts.

Tracker’s latest batch of enhancements also includes unpublished data on companies benefiting from the the Business Industry Training and Existing Workforce Training programs in Arkansas and South Carolina’s readySC training program.

Tracker now contains more than 155,000 entries from 351 programs in all 50 states and the District of Columbia.