Archive for March, 2015

DC Subsidy Transparency Leads to Campaign Finance Reform

March 27, 2015

On the heels of a terrific NPR-station exposé, the District of Columbia has become the first large U.S. jurisdiction to enact campaign finance reform thanks to job subsidies becoming transparent.

moneybags

In 2011, the D.C Fiscal Policy Institute convinced the DC Council to require an annual Unified Economic Development Budget (UEDB, a key Good Jobs First reform). Better than most UEDB’s that report only program costs, DC’s UEDB was how DC began online recipient disclosure for all subsidy transactions worth more than $75,000 in any fiscal year. It was a landmark moment in economic development transparency: District subsidies are now posted online in a single place for all to see.

When the data came online in 2012, WAMU reporters Julie Patel and Patrick Madden began investigating rumors that big campaign contributors were also getting big subsidies. Their 2013 series, “Deals for Developers, Cash for Campaigns,” mashed up campaign finance reports with subsidy deals. The results shocked many: over a decade, 10 big developers had given more than $2.5 million in campaign contributions to political candidates and then received nearly a third of the District’s $1.7 billion in subsidies examined. Despite strict campaign finance laws capping such donations, developers skirted the law by forming multiple LLCs and donating to candidates from each of them—the “LLC loophole.” Madden and Patel built a timeline that found such campaign donations were also timed noticeably close to subsidy award, suggesting an influence connection.

Timing of Campaign Contributions & Awarding of Subsidies (credit: WAMU)

 

So thanks to economic development transparency, the District learned it had a massive campaign finance loophole. Council members were outraged and eventually passed a bill in 2013 to close the LLC loophole. The new law went into effect in January 2015 and LLC bundling is no longer legal. Before the loophole took effect, numerous developers rushed to make significant contributions. Unfortunately, political consultants are already suggesting the law be defeated by trusted campaign staffers to run Political Action Committees (or PACs) which can take unlimited campaign contributions after the Citizens United decision.

While subsidy transparency can reveal influence and loopholes and spur officials to act, ethics in government need more than local campaign finance reforms. Mashing up subsidy disclosure data and campaign finance records can change the public discourse and allow citizens to demand greater ethics from their elected representatives.

Posted in Campaign contributions, Disclosure, Subsidies, Subsidy Tracker, Tax Credits | Leave a Comment »

Chicago Mayor’s Proposed Tax-Free Zones No Policy Panacea

March 26, 2015

As early voting begins in the Chicago mayoral runoff election, incumbent Rahm Emanuel has proposed tax-free zones allowing businesses exemptions on property, income, and sales taxes in impoverished neighborhoods. The idea is neither new nor promising. In fact, Illinois already has six Enterprise Zones in Chicago and they have very mixed track records.

For example, Pepsi Cola General Bottlers, Inc. received Enterprise Zone subsidies, but automated its business processes and shed 14 positions after applying for the subsidies. The Sherwin Williams Company’s Chicago facility had 12 fewer jobs than when it applied for Enterprise Zone subsidies. And although the Solo Cup Operating Corporation has gained 24 jobs since applying, according to public documents, the company did not make use of Enterprise Zone State Utility Tax Exemptions for which it was eligible. In other words, they hired without needing subsidies.

Research on the effectiveness of enterprise zones makes it clear these anecdotes are not atypical. As the Minnesota State Legislature found in a review, “the economic effects of enterprise zones remain unclear. Most studies find no significant increase in employment, while a few do.” Moreover, it concluded that enterprise zones are most likely to be successful in already thriving areas, not blighted ones. Most importantly, the review suggested that subsidies should never let the quality of public services drop as it would easily wipe any positive effects of the policy. However, many of Chicago’s poorest neighborhoods have been made less desirable by Emanuel’s closure of 50 public schools. Emanuel has proposed shifting dollars from other subsidies, including the heavily criticized TIF program, to pay for his rendition of enterprise zones.

For the average company, state and local taxes amount to less than two percent of their overall cost structure. The business basics—the 98 percent of corporate cost structures that are not state and local taxes—almost always dictate why companies expand or relocate where they do, factors such as access to a qualified workforce, proximity to suppliers and customers, energy costs, availability of high-quality infrastructure and logistics.

Tax Breaks Don't Move the Needle

Tax Breaks Don’t Move the Needle

But while tax breaks can do little to move the needle on corporate location decisions, the opportunity costs can be enormous. Indeed, as we documented last year, subsidies in Chicago appear to have significantly harmed public budgets. Since 1985, some $5.5 billion in property tax revenues have been diverted into TIF accounts and one out of every ten property tax dollars now ends up in TIF districts instead of funding schools and other public goods that benefit all of Chicago’s employers by investing in the labor force and infrastructure as well as keeping up with the city’s bills.

It’s also important to consider that enterprise zones may do little to target job creation to communities of need. Without adequate community benefits like local hiring policies included in enterprise zone policies, companies may not hire from within a neighborhood hungry for jobs enabling inclusive revitalization and a pathway to the middle class.

Posted in Community Benefits Agreements, Enterprise Zones, Illinois, Jobs, Property Taxes, Subsidies, Tax Increment Financing, Taxes | 1 Comment »

Uncle Sam’s Favorite Corporations

March 17, 2015

UncleSam_WebTeaserFederal “Corporate Welfare” Database Now Online
Study: Large Corporations Dominate Federal Subsidy Awards; Banks, Foreign-Owned Energy Firms and Federal Contractors Among the Biggest Recipients

Washington, DC, March 17, 2015 — Two-thirds of the $68 billion in business grants and special tax credits awarded by the federal government over the past 15 years have gone to large corporations. During the same period, federal agencies have given the private sector hundreds of billions of dollars in loans, loan guarantees and bailout assistance, with the largest share going to major U.S. and foreign banks.

These are key findings of Uncle Sam’s Favorite Corporations, a study with accompanying database released today by Good Jobs First, a non-profit and non-partisan research center on economic development accountability based in Washington, DC. They derive from the first comprehensive compilation of company-specific federal subsidy data. The study and database are available at www.goodjobsfirst.org.

The database, which collects more than 160,000 awards from 137 programs, expands Good Jobs First’s Subsidy Tracker, which since 2010 has posted economic development data from states and localities. The federal data was enhanced with Good Jobs First’s proprietary subsidiary-parent matching system, enabling users to see individual entries linked to more than 1,800 corporate parents, along with each parent’s total subsidies.

“For more than 20 years, so-called corporate welfare has been debated widely with little awareness of which companies were receiving most of the federal assistance,” said Good Jobs First Executive Director Greg LeRoy.

“We now see that big business dominates federal subsidy spending the way it does state and local programs,” said Philip Mattera, principal author of the study and creator of Subsidy Tracker. “Our hope is that the new Subsidy Tracker will serve as a resource in the ongoing debates over federal assistance to business,” Mattera added.

Other key findings:

  • Six parent companies have received $1 billion or more in federal grants and allocated tax credits (those awarded to specific companies) since 2000; 21 have received $500 million or more; and 98 have received $100 million or more. Just 582 large companies account for 67 percent of the $68 billion total.
  • The largest recipient of grants and allocated tax credits is the Spanish energy company Iberdrola, which acquired them by investing heavily in U.S. power generation facilities, including wind farms that have made use of a renewable energy provision of the 2009 Recovery Act. Iberdrola’s subsidy total is $2.2 billion. Other top grant/allocated tax credit recipients include NextEra Energy (parent of Florida Power & Light), NRG Energy, Southern Company, Summit Power and SCS Energy, each with more than $1 billion. The results exclude the numerous corporate tax breaks that cannot be attributed to individual companies.
  • Mainly driven by the massive programs launched by the Federal Reserve in 2008 to buy up toxic securities and provide liquidity in the wake of the financial meltdown, the total face value of loans, loan guarantees and bailout assistance run into the trillions of dollars. These include numerous short-term rollover loans, so the actual amounts outstanding at any given time, which are not reported, were lower but likely amounted to hundreds of billions of dollars. Since most of these loans were repaid, and in some cases the government made a profit on the lending, we tally the loan and bailout amounts separately from grants and allocated tax credits.
  • The biggest aggregate bailout recipient is Bank of America, whose gross borrowing (excluding repayments) is just under $3.5 trillion (including the amounts for its Merrill Lynch and Countrywide Financial acquisitions). Three other banks are in the trillion-dollar club: Citigroup ($2.6 trillion), Morgan Stanley ($2.1 trillion) and JPMorgan Chase ($1.3 trillion, including Bear Stearns and Washington Mutual). A dozen U.S. and foreign banks account for 78 percent of total face value of loans, loan guarantees and bailout assistance.
  • A small number of companies have obtained large subsidies at all levels of government. Eleven parent companies among the 50 largest recipients of federal grants and allocated tax credits are also among the top 50 recipients of state and local subsidies. Six of the 50 largest recipients of federal loans, loan guarantees and bailout assistance are also on that state/local list. Five companies appear on both federal lists and the state/local list: Boeing, Ford Motor, General Electric, General Motors and JPMorgan Chase.
  • Foreign direct investment accounts for a substantial portion of subsidies. Ten of the 50 parent companies receiving the most in federal grants and allocated tax credits are foreign-based; most of their subsidies were linked to their energy facilities in the United States.
  • The Federal Reserve aided a large number of foreign companies in its efforts to stabilize banks that had acquired toxic securities originating mainly in the United States. Thanks largely to those programs, 27 of the 50 biggest recipients of federal loans, loan guarantees and bailout assistance were foreign banks and other financial companies, including Barclays with $943 billion, Royal Bank of Scotland with $652 billion and Credit Suisse with $532 billion. In all cases these amounts involve rollover loans and exclude repayments.
  • A significant share of companies that sell goods and services to the U.S. government also get subsidized by it. Of the 100 largest for-profit federal contractors in FY2014 (excluding joint ventures), 49 have received federal grants or allocated tax credits and 30 have received loans, loan guarantees or bailout assistance. Two dozen have received both forms of assistance. The federal contractor with the most grants and allocated tax credits is General Electric, with $836 million, mostly from the Energy and Defense Departments; the one with the most loans and loan guarantees is Boeing, with $64 billion in assistance from the Export-Import Bank.
  • There is also a link to the current debate over so-called tax “inversions.” Federal subsidies have gone to several companies that have reincorporated abroad to avoid U.S. taxes. For example, power equipment producer Eaton (reincorporated in Ireland but actually based in Ohio) has received $32 million in grants and allocated tax credits as well as $7 million in loans and loan guarantees from the Export-Import Bank and other agencies. Oilfield services company Ensco (reincorporated in Britain but really based in Texas) has received $1 billion in support from the Export-Import Bank.
  • Finally, some highly subsidized banks have been involved in cases of misconduct. In the years since receiving their bailouts, several at the top of the recipient list for loans, loan guarantees and bailout assistance have paid hundreds of millions, or billions of dollars to U.S. and European regulators to settle allegations such as investor deception, interest rate manipulation, foreign exchange market manipulation, facilitation of tax evasion by clients, and sanctions violations.

Posted in Subsidies, Subsidy Tracker | 1 Comment »