California Bans a Tax-Break Commission

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For Immediate Release September 17, 2014
Contact Greg LeRoy 202-232-1616 x 211

Good Jobs First Congratulates California for First-Ever Ban of Consultant Commissions on Job Subsidies

Washington, DC – Good Jobs First today congratulated the State of California Governor’s Office of Business and Economic Development (“GO-Biz”) for the first-ever effective ban in the United States of consultants receiving percentage commissions on a major economic development tax-credit program. It also criticized the prominent tax-consulting firm led by G. Brint Ryan of Texas for seeking to overturn the ban.

“This is historic good news for taxpayers and for the economic development profession, and a teachable moment for the public about a questionable practice,” said Greg LeRoy, executive director of Good Jobs First. “We expect it will provoke a backlash from site location and tax-break consultants who may threaten to blacklist California and any state that follows suit, but California is in a strong position to withstand such threats. The best thing that could happen is that many more states adopt the same rule.”

The California ban was installed in emergency regulations issued by GO-Biz on August 8 that became law August 18. It covers one program: the California Competes Tax Credit, a discretionary program totaling about $150 million gearing up for its second competitive round this month. The regulations allow consultant fees, but state in part: “Any contingent fee arrangement must result in a fee that is less than or equal to the product of the number of hours of service provided to the applicant and the industry standard hourly rate for such services.”

LeRoy’s 2005 book The Great American Jobs Scam explicitly called for site location consultants, especially those who negotiate tax breaks, to be registered and regulated as lobbyists so that success fees, a.k.a. commissions, would become illegal. “For decades, secretive site location consultants have profited greatly by orchestrating the economic war among the states, sometimes pulling down commissions of as much as 30 percent of the discretionary subsidies they win for their corporate clients,” explained LeRoy. “They have used confidentiality agreements and the unwritten threat of blacklisting to keep their business practices low-profile. California has just violated this etiquette that is so lucrative for some tax-incentive consultants.”

The California regulations were quickly challenged in a lawsuit by Ryan, the large Texas-based tax services firm that was described at length in the New York Times’ December 2012 series “United States of Subsidies.” Its founder G. Brint Ryan, is a major political donor in Texas and his firm helps fund TexasOne, the organization behind Gov. Rick Perry’s job-piracy trips to other states that Good Jobs First has criticized for their unprecedented levels of political partisanship.

“We congratulate California for a gutsy reform that should inspire many states to follow suit,” concluded LeRoy.

Good Jobs First is a non-profit, non-partisan resource center promoting accountability in economic development. Founded in 1998, it is based in Washington, DC.

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One Response to “California Bans a Tax-Break Commission”

  1. Fernando Centeno Says:

    Another teachable moment for the public to understand is that luring businesses to “create jobs” using massive public funds is NOT “economic development”, it is simple business development activity. This is what Chambers of Commerce focus on; public entities (cities & states) engaging in “economic development” must focus upon leveraging their funds with private actors to gain social and economic outcomes, in areas with greatest needs.

    Public funds are not measurably improving standards-of-living or quality-of-life indicators; public funds help private businesses but they are not impacting needed public outcomes. This is because “economic development” is led by “urban” planners, who focus on the built environment, rather than on human capital development. Public officials are also financed by the commercial real estate industry, who is left to represent the public’s interests?

    Finally, there is no such thing as “private sector economic development”, because economic development is a public term, having a different focus, mission, metrics, and outcomes than that of a private, free enterprise actor. What concrete public outcomes are we getting from all the private subsidies? For 40 yrs, we continue to see structural poverty, yet our business page touts a “healthy” economy and strong “economic growth”.

    We’ve long needed a new paradigm in understanding basic planning concepts. Don’t you agree? Thanks.

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