Archive for May, 2015

Our New Blog Location

May 26, 2015

The Good Jobs First blog can now be found right on our homepage and is no longer known as Clawback. All old posts (with revised URLs) can be found on our new blog page on that site. This Clawback site will remain in place as an archive of old posts with their original URLs.

We invite you to change your bookmarks and RSS feeds (here is the new one). In addition to the blog, our redesigned homepage contains a news feed reposting the best journalism from around the country on subsidy controversies and advances in accountability.

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Start-UP NY: Early warning signs

May 19, 2015

Start_UP NY blog

The Start-UP NY economic development program does one thing well: it gets people talking. The one-year-old program started generating headlines from the moment it was announced, in part due to its ambitious – some would say excessive – use of subsidies. The program creates tax-free zones to connect start-up companies in targeted industries with university research and development resources.  Companies that locate in the zones are exempt from paying any taxes — including sales taxes, business or corporate state and local income taxes, and property taxes — and employees of companies enrolled in the program pay no personal income tax for the first five years, and a reduced income tax rate for the second five years.

Last month, the state’s Empire State Development agency produced a report on the program’s outcomes revealing that in its first year it created only 76 jobs yet spent $53 million advertising the program nationwide. Though officials maintain that the program’s slow start and high cost are to be expected from a program in its first year, Start-UP NY already has many critics.

Groups from both the left and the right — including the state’s Conservative Party, Working Families Party, National Federation of Independent Businesses, Reinvent Albany, Citizen Action, and the Fiscal Policy Institute —  have come together to call for an end to the program. State Assemblyman Kieran Lalor (R-East Fishkill) has introduced legislation to repeal the program, calling Start-UP NY “an expensive gimmick.”

Watchdog groups have good reason for concern. Some perceive similarities with the Empire Zone program which was ultimately dismantled in 2010, and widely criticized for poor results and corruption. Indeed, there are already early signs of problems with Start-UP NY. According to a review by The New York Times of the program’s participants (based on the ESD report), only about half of the businesses enrolled in the program in 2014 were actually new companies, the others are businesses relocating from within New York State, or from out of state. One company moved just one mile to qualify for enrollment

There’s also controversy about the cost of advertising the program. An audit by Comptroller Thomas DiNapoli found that the state performed no evaluation of the Start-UP NY promotional campaign and actually does not have a metric for doing so.

Based on Start-UP NY’s initial results, the criticism it has received in its first year is clearly justified, raising questions about the future of the program.

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Supported By a Megadeal, Volvo Choses South Carolina

May 18, 2015

Swedish automaker Volvo has chosen South Carolina over Georgia and North Carolina for its first car-making facility in the Volvo_logo-LUnited States. A hefty subsidy package of more than $200 million helped the state close the deal.

Volvo, owned by a Chinese investment company but still managed from Sweden, will locate in Berkeley County, about 30 miles north of Charleston. The company is planning to invest $500 million and to hire 4,000 workers by 2030 (the first hiring benchmark will be 2,000 workers in about a decade).

The $208 million package will include $120 million that the state will borrow to pay for infrastructure and road improvements around the plant. The economic development bonds still need to be approved by the legislature. The South Carolina Commerce Department will provide about $30 million in grants, most likely via Job Development Credits. State-owned energy company, Santee Cooper, will spend $29 million to buy the land for the plant and will provide an additional $24 million in loans and grants to the company. Berkeley County will chip in $5 million toward the purchase of the land as well. The reported value of the subsidy package is about 41 percent of Volvo’s investment.

The final cost of the subsidy package, however, might be much larger than what has been reported. The package amount includes neither funds for workforce training nor the value of local property tax breaks.

By locating in South Carolina, Volvo has chosen a state that not only has a “right-to-work” law but also a governor who is openly anti-union. It remains to be seen whether Volvo, which has strong ties to unions in Sweden, will join the long line of European and Japanese companies that gladly operate non-union in the U.S. or will follow the exception to the rule, Volkswagen, in being receptive to some sort of worker representation.

Based on what has been announced, the Volvo subsidy package would rank as the third largest megadeal ever awarded in South Carolina (behind the $900 million to Boeing in 2009 and the $250 million to Continental Tire in 2011), according to data compiled by Good Jobs First for our Subsidy Tracker. Another automaker, BMW, has been located in South Carolina since 1992; it received $150 million in 1992 and another $103 million in 2002.

Learning the full value of the Volvo package will be difficult, given the state’s poor disclosure practices. Now would be a good time for South Carolina to improve its transparency.

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Balancing the Scales in New Jersey

May 14, 2015

Risky Business, a new report by New Jersey Policy Perspective, urges the state to improve subsidy accountability and protect taxpayers from bad economic development deals. Such reforms are needed now more than ever as spending on subsidies has sky-rocketed under the Christie administration: $5.1 billion has been awarded since 2010, four times the amount awarded in the previous ten years.

One of NJPP’s key recommendations is to change the “net benefits test,” which is intended to ensure that the new tax revenue generated by a subsidized project exceeds the cost of the subsidy. The current formula is lopsided: benefits are counted over 35 years and subsidy costs over 15 years, the latter being the length of time the company must meet its performance obligations to receive the maximum award. NJPP’s analysis of a $260 million tax break to Holtec International shows how this works. If Holtec keeps performing for 35 years, the state gets a net benefit of $156,000. Yet if it were to leave the state or significantly downsize after 15 years, the New Jersey would experience a loss of up to $105.7 million.

Image Source: NJPP

Image Source: New Jersey Policy Perspective

Changing the nets benefits test to equally weigh costs and benefits might rein in some of New Jersey’s more extreme subsidy awards. But it still avoids the most important question: do the benefits of awarding a subsidy outweigh the benefit of investing the money in other proven economic development assets like education and infrastructure? Research has shown the answer to this question is almost always no.

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Wisconsin’s Privatized Jobs Agency Criticized Again

May 13, 2015

Audit_Bureau_Logo

The evidence continues to mount against the notion that privatized economic development agencies are a responsible means to promote state  economic development  A new audit of the Wisconsin Economic Development Corporation (WEDC) echoes previous findings in outlining missteps at the agency. For example, the non-partisan Legislative Audit Bureau finds that:

  • “WEDC did not report clear, accurate, and complete information on the numbers of jobs created and retained as a result of its programs.”
  • Subsidy recipients were not required to submit critical informational about job creation outcomes.
  • Subsidies were awarded to a company for jobs that had been created prior to the awarding of a tax break agreement.
  • The agency has lax implementation on wage standards.
  • A provision to steer state economic development dollars toward small businesses and rural areas was quietly eliminated in July 2014.

The audit was so embarrassing that Gov. Scott Walker dropped a plan to expand the WEDC’s authority by merging the state’s housing finance agency into it.

Despite the poor track record of agencies such as WEDC, other states including Wisconsin’s neighbor Illinois, continue to consider privatizing their state commerce agencies. They should instead heed  the lessons of Wisconsin (and Indiana, Florida, and Ohio to name a few) and acknowledge that privatization is no policy panacea.

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New Markets for Whom?

May 11, 2015

A recent series of articles from the Portland Press Herald (see Payday at the Mill and Shrewd Financiers Exploit Unsophisticated Maine Legislators) is bringing new attention to the complex system of state level New Markets Tax Credits (NMTC). Whit Richardson’s reporting exposes how a NMTC deal that was intended to upgrade the Great Northern Paper mill in East Millinocket, Maine was exploited by out-of-state investment firms using complex financial tools. In the end, $8 million was expended on debt payments and fees with no investment made in the mill itself. A one-day loan for $32 million artificially inflated the investment to a total of $40 million, allowing the investors to cash in on a $16 million tax credit (at 39% of the total investment) payable by the state of Maine over the next 7 years.

Image Source: Portland Press Herald

The Federal NMTC program states the intent of the program as “the creation of jobs and material improvement in the lives of residents of low-income communities.” Many states, like Maine, have in recent years created state level NMTC programs, driven largely by the lobbying efforts of a handful of investment firms that benefit from these deals. And as the Maine case strongly shows, it seems it is these very firms that are benefitting from the state NMTCs, not low-income communities or the businesses that serve them.

In the weeks since Richardson’s piece legislators and others have been pushing to attach greater accountability measures to the NMTC program.

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