Archive for July, 2014

What’s Wrong with ALEC’s Subsidy Critique

July 25, 2014

alexexposedAt Good Jobs First we are normally pleased when another organization takes an interest in our issue and adds its voice to the campaign to end the wasteful subsidies given to corporations by state and local governments. Yet when it’s the American Legislative Exchange Council (ALEC) signing on, we can’t be quite so welcoming.

ALEC, a lightning rod for controversy relating to its role in promoting voter suppression, private prisons and “stand-your-ground” policies (read Trayvon Martin), has just issued a report entitled The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth.

At first glance, the study echoes many arguments we have made since our founding 16 years ago and which Greg LeRoy cataloged in The Great American Jobs Scam. It points out how the granting of special tax breaks for certain corporations (Boeing’s $8 billion deal in Washington State is cited as a “notorious example”) tends to increase the tax burden on other companies and puts them at a competitive disadvantage. ALEC also notes, using the example of the producers of the Netflix series “House of Cards” in Maryland, how companies that get subsidies to locate in a state may later threaten to leave unless they receive even more giveaways.

Yet the similarities to our work go only so far. Rather than an independent research group, as ALECExposed has documented, ALEC is essentially a front for powerful corporations to transmit their state legislative wish lists to business-friendly legislators. Although ALEC’s board is made up of elected officials, the real power in the organization comes from its corporate backers. The most important of these are the 10 companies represented on its Private Enterprise Advisory Council.

We checked those companies against our Subsidy Tracker database (which the ALEC authors choose not to mention, citing instead a New York Times compilation based largely on our data). It turns out that all but one of the 10 companies have received state and local subsidies. In some cases the aggregate subsidy amounts have been enormous: $340 million to Exxon Mobil, $278 million to Peabody Energy, $202 million to Pfizer, $133 million to United Parcel Service, and $89 million to Koch Industries, run by the supposedly free-market purist Koch Brothers. The total for the nine companies is more than $1 billion. The one company in the group that has apparently not received direct subsidies is Energy Future Holdings, but the struggling Texas utility (now in Chapter 11 bankruptcy) is owned by private equity firms led by KKR, whose other portfolio companies have received $55 million in subsidies.

We have no idea whether advisory council members reviewed the report before it was published, but one thing that may have placated them is that the document bends over backward to avoid criticizing companies that accept subsidies. Although the term “cronyism” implies some kind of improper collusion, the ALEC authors claim that taking subsidies should not be viewed as tax avoidance. “Businesses should generally not be vilified or blamed for tax cronyism,” they argue. “The key issue rests with the policymakers who introduce these laws.” The ALEC authors even go so far as to depict targeted tax breaks as a form of “central economic planning.”

We find ALEC’s analysis here historically ill-informed and refer the authors to Jobs Scam for a primer on how corporations and their site location consultants drive the subsidy-industrial complex. Given that history, it is ridiculous to equate the haphazard nature of subsidy policies with any kind of planning.

Although ALEC wants to blame poor policymaking for tax cronyism, the report also fails to acknowledge that big subsidy giveaways are common in states celebrated in the Rich States, Poor States reports written for ALEC by the unreconstructed supply-sider Arthur Laffer. For example, Utah, which Laffer ranks first in terms of its economic outlook and second in economic performance, has given generous packages to companies such as Procter & Gamble, Goldman Sachs, eBay and Adobe Systems.

Besides the hypocrisy and lack of historical awareness, ALEC’s report has another fundamental problem (akin to that of other conservatives such as those at the Mercatus Center): their alternative to “tax cronyism” or targeted corporate tax giveaways are generalized corporate tax giveaways. That is, after decades of declining corporate tax rates and corporate contributions to state treasuries, they want big business to pay even less of a fair share of the cost of public services.

At Good Jobs First, subsidy reform is intended to improve economic conditions for working families and give small businesses a fairer shake; it isn’t about reducing tax rates for corporations like those bankrolling ALEC.

GE Receives Record Subsidy for Cincinnati, Ohio Operations Center

July 22, 2014

Ohio and Cincinnati have agreed to give General Electric a record subsidy deal which will be 1229gemostly composed of its workers’ personal income taxes.  About 1400 jobs will be relocated, from undisclosed locations, as GE locates its Global Operations Center to downtown Cincinnati.  GE projects another 300 new jobs to accept this $98 million subsidy package; that’s about $326,600 per job.

It’s not just the exorbitant cost per job, but also the source of the subsidy dollars: an estimated $51.6 million will Ohio’s  Job Creation Tax Credit (JCTC) program, a subsidy derived from employees’ state personal income taxes.  Essentially the state of Ohio will use the employees’ state withholding taxes to credit GE.  (For more information see Paying Taxes to the Boss.)  This represents the largest JCTC deal Ohio has agreed to since 2003, according to the Ohio Development Services Agency.

Not only will the state sacrifice tens of millions of dollars in tax revenue, but so will Cincinnati. Offered in conjunction with the state JCTC is the City of Cincinnati municipal JCTC estimated at $23.9 million via GE’s local earnings tax.   In short, other states and localities are losing tax revenue, while Ohio and Cincinnati forgive it.

Although the GE jobs will have a projected average salary of $79,000, it is unclear how many of the 1,500 existing jobs are coming from other cities in Ohio versus out of state. To the extent the jobs are already in Ohio, the JCTC will cause a revenue loss for the Buckeye State.

At the very least, Good Jobs First recommends truth in taxation: when a worker’s taxes are deducted from her paycheck and do not actually go to the state treasury, the pay stub should clearly state that GE is getting the money.  Instead of fixing roads or supporting education, healthcare, or public safety, the money will flow into GE’s books.  Those same books stash profits in offshore tax havens like Bermuda and the Bahamas, according to recent findings by Citizens for Tax Justice.

Cook County, IL Succeeds at Truth in Taxation!

July 11, 2014

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One year ago today, Cook County Clerk David Orr announced plans to print TIF revenue diversions on county property tax bills. We previously blogged about this effort, eagerly awaiting this TIF transparency enhancement.

Wait no longer! The Cook County Clerk’s office made good on its promise of taxpayer transparency and has issued property tax bills containing information about TIF for each individual property owner. For that we congratulate them on bringing needed sunlight to TIF in Chicago and other municipalities in Cook County.

We hope jurisdictions across the country take notice of Cook County, Illinois. Taxpayers have a right to know how their taxes get spent. With so much property tax revenue in Chicago never ending up in the city’s general revenue fund, printing TIF costs on tax bills enables citizens to make better judgements about the value of TIF projects and how their taxes get spent. We applaud such efforts.

For more Good Jobs First research on TIF revenue diversions in Chicago, see our 2014 report.

For more about how Cook County printed TIF on property tax bills, see the County Clerk’s website and watch the Youtube Video below:

Report: Sprawling Job Piracy among Cities and Suburbs Can Be Ended

July 10, 2014

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Washington, DC – The most common form of job piracy-among neighboring localities in the same metro area-can be ended, as agreements in the Denver and Dayton metro areas have proved for decades. The agreements prohibit active recruitment within the metro area, and they require communication and transparency between affected development officials if a company signals it might move.

Those are the main conclusions of a new study released today by Good Jobs First. “Ending Job Piracy, Building Regional Prosperity,” is online at www.goodjobsfirst.org.

The study finds that even regions like the Twin Cities, with revenue-sharing systems intended to deter job piracy, have rampant job piracy because they lack the procedural safeguards Denver and Dayton have. Multi-state metro areas like Kansas City suffer the problem on steroids because state subsidies fuel the problem.

Career economic development professional staff-not elected officials-are best suited to institute anti-piracy systems, although politicians and the public generally should be educated about the value of such agreements. Information-sharing about companies considering relocation is also key. And states need to amend incentive codes to stop requiring local subsidies to match state awards, to deny state monies for intra-state relocations, and to deny eligibility for such relocations to locally administered tax increment financing (TIF) districts. These changes will deter job piracy and promote regionalism, the study concludes.

“The anti-piracy agreements we describe focus on economic development professionals communicating openly with each other in a transparent system,” said Leigh McIlvaine, GJF research analyst and lead author of the study. “When local officials cooperate for the benefit of the metro area, they can better focus on attracting investment and jobs that are truly new.”

“We know from previous studies that intra-regional job piracy fuels job sprawl, harming older areas, communities of color and transit-dependent workers,” said GJF executive director Greg LeRoy. “By favoring retention, anti-piracy agreements help stabilize employment in areas that need help the most, and areas that provide more commuters the choice of transit.”

Good Jobs First is a non-partisan, non-profit group promoting accountable development and smart growth for working families. Founded in 1998, it is based in Washington, DC.

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Missouri Seeks Cease-Fire in Kansas City Border War

July 2, 2014

borderwar01-1200xx900-506-0-85A bill signed this week by Missouri Governor Jay Nixon has the potential to solve one aspect of the wasteful jobs border war currently ravaging the Kansas City metropolitan economy: the use of state subsidies to fuel intra-regional business relocations.  Senate Bill 635 would prohibit the state’s business subsidies from being awarded to businesses relocating within the two-state metro area from Kansas to Missouri.  However, the law will only go into effect if Kansas enacts a companion law limiting its own use of state business incentives in the Kansas City metro within the next two years.

The legislation was sponsored by state Sen. Ryan Silvey (R-Kansas City), who called the practice of subsidizing companies to hop the border “senseless.”  The bill also had the support of the Kansas City Chamber of Commerce, which stated that it was one of its “highest legislative priorities.”  One of the most vocal supporters of the effort to end the border war is a coalition of metropolitan business leaders, who in 2011 submitted an open letter to governors in both states demanding a cease-fire on the use of subsidies for intra-regional relocations.  And in June, while awaiting Gov. Nixon’s signature on SB635, the business coalition again appealed to both leaders in an open letter:

“For the last several years, both states have followed a destructive practice of encouraging a cross border job shuffle. This has cost taxpayers hundreds of millions of dollars and it has generated little or no new economic activity. Neither state is a winner in this game as one state loses tax revenue while the other state forgives it.”

For its part, Kansas has signaled little interest in supporting a companion bill, citing the need of local suburban jurisdictions to pursue their own economic development agendas.  This is an ironic position to take, given the extent to which state subsidies have interfered in metropolitan economic dynamics in the region.  The best way to allow localities to pursue their own economic development agendas would be for both states to stop providing ammunition for the border war.