Author Archive

Retailers sing “Subsidize Me In St. Louis”

January 31, 2011

The East-West Gateway Council of Governments has released a damning report on economic development subsidy use in the St. Louis region. The report is the product of three years of comprehensive research. Researchers offer a conservative estimate that more than $5.8 billion in public funds have gone to subsidize private developments in the area over the last 20 years.

More than $2.6 billion of those funds were committed through the use of highly controversial tax-increment financing (TIF). The use of TIF in the St. Louis region has been a sore spot for years, due to its dominant use by retail projects mostly involving outlets of national chains in the wealthier suburbs. This focus on retail expansion is described in the report as a “losing economic development strategy”, in which municipalities end up pirating jobs from their neighbors. The report uses mapping to demonstrate this leakage in economic activity, tracking the movement out of the urban core between 1998 and 2007. Most distressing is a key finding that TIF use exacerbates economic and racial disparities when these retail projects locate in affluent areas with few minorities.

Efforts to estimate the full amount of economic development incentive spending were hampered by inadequate data. Without better and more widely available data, researchers, elected officials and the public cannot know the full impact of any tax incentive strategy.  The report authors call for greater transparency and accountability and the creation of a “complete database of public expenditures and outcomes for all publicly supported development projects”.

For more information on TIF use in the St. Louis region, see Chapter Six of The Great American Jobs Scam by Greg LeRoy.

Tax Expenditure Reporting – An Essential Policy Tool

April 21, 2009

According to a new report by the Center for Budget and Policy Priorities, nine states are leaving lawmakers in the dark by failing to publish any sort of tax expenditure report. This group includes: Alabama, Alaska, Georgia, Indiana, Nevada, New Jersey, New Mexico, South Dakota, and Wyoming. The report notes that even among those states that do publish tax expenditure reports, most have major gaps in information.

CBPP explains how a well designed and properly implemented tax expenditure report is an essential policy tool. It recommends that all state taxes are included, and stresses that reports should be published regularly, incorporated into the budget process, and available online. Armed with a better understanding of the true cost and effect of tax expenditures, lawmakers can make more informed spending decisions.

In Georgia, one of the nine states failing to publish a tax expenditure report, the House of Representatives is currently considering a bill that would lead to greater transparency and accountability in state tax policy. Senate Bill 206, which passed the Senate in early March, would require tax expenditure review as part of state budget reports. The Georgia Budget and Policy Institute (GBPI), a member of both the SFAI and EARN networks, supports this bill. According to GBPI Executive Director Alan Essig, “The bipartisan support for SB 206 shows that the principles of good government are held by both political parties…Although there may be honorable disagreements over policy, there is agreement that policy decisions should be made based on accurate and timely information. SB 206 gives policy makers such information.”

The Georgia Department of Audits and Accounts and the Pew Center of the States (PCS) also support SB 206. PCS, a division of the Pew Charitable Trusts, has partnered with the state of Georgia for a year-long program to strengthen government policy and performance by building a system to analyze state spending data.

Million-Dollar Profits, Ten-Dollar Tax Bill

March 11, 2009

The Oregon Center for Public Policy found new data showing that more than 5,000 profitable corporations operating in Oregon paid no more than $10 in corporate income tax for 2006. Among this group, 31 corporations each recorded profits of over $1 million.

OCPP policy analyst Michael Leachman emphasizes the need for the Oregon Department of Revenue to disclose the names of these corporations: “By shining light on the system, Oregonians can see which big, profitable companies are good corporate citizens and which are not.” We need to know, stresses Leachman, “Which ones are playing us for fools?”

When corporations get lower tax rates they are contributing less to the cost of public services, thereby shifting more of the burden onto individual taxpayers. The current share of income taxes collected from corporations operating in Oregon is projected to be around 6 percent during 2009 to 2011, compared to the 18.5 percent in the mid 1970’s.

Leachman notes that a larger number of corporations are paying more than the $10 minimum, but still less than the typical Oregon household. “The system has gone awry when a profitable corporation pays less in income taxes than a single mother working at a minimum wage job,” Leachman notes. “When corporations don’t pay their fair share, working families and small businesses are forced to pick up the slack”

Corporate tax dodging is occurring across the country and across industry sectors. The data from Oregon is part of a larger pattern of declining corporate contributions to the cost of public services. In his book, “The Great American Jobs Scam,” Greg LeRoy examines how this pattern developed over the last 25 years, particularly due to large corporations with the resources to aggressively pursue lower income tax rates. With widespread budget shortages and physical infrastructure in such dire need of maintenance and repair, we can not afford to let corporations dodge their share of the cost.

Money for Nothing

February 24, 2009

Money for NothingThe West Virginia Center on Budget & Policy has just released a new report examining how state agencies can improve their bang for the buck on job-creation investments. The report, entitled “Money for Nothing: Do Business Subsides Create Jobs or Leave Workers in Dire Straits?,” focuses on the three of the most common subsidies with job-creation requirements: the Economic Opportunity Tax Credit, the Manufacturing Investment Tax Credit, and the West Virginia Economic Development Authority’s (WVEDA) low-interest direct loans.

Despite spending millions of dollars annually to encourage private businesses to create good-paying jobs, the report concludes West Virginia is getting little in return. The authors recommend better public disclosure on the details of each program, timely and company-specific information on the number and quality of jobs created, clear consequences for non-compliant subsidy recipients, and an annual unified development budget to keep state agencies better informed.

Report Calls Endless Tax Incentives for Retail Expansion A Losing Strategy for St. Louis

January 28, 2009

Dead Mall Despite years of diverting massive amounts of public revenue to private development throughout the St. Louis region, a new study by the East-West Gateway Council of Governments finds these tax expenditures have done little more than redistribute retail sales and low-wage jobs around the region. Over the last 15 years, local governments have doled out more than $2 billion to developers through tax increment financing (TIF) and special tax districts. Knowledge of the full impact of tax expenditures is limited by poor data reporting. From what is known, these expenditures result in a zero-sum competition between neighboring communities. The study concludes: “Focusing development incentives on expanding retail sales is a losing economic development strategy for the region.”

East-West Gateway has been designated by state and federal agencies as the metro planning organization for the region. This latest report is aa work in progress, commissioned in early 2008 by the East-West Gateway Board of Directors, a group made up of local elected officials. The Board authorized the study to examine the effectiveness of local development incentives, out of concern for the long-term economic health of the region and the fiscal well-being of local governments.

The authors of the report said their ability to analyze trends was limited by a lack of transparency and accountability in the reporting of revenues, expenditures, and outcomes in all tax incentive programs. Tax abatement data was so incomplete that it was not included in this report. Given more information, the report estimates that tax abatement totals “could easily double” the $2 billion attributed to TIF and special tax districts. In most cases, the authors observed weak penalties for failing to report expenditures and economic outcomes, thereby providing little incentive to improve record keeping. The report recommends immediate legislation to require uniform full disclosure.

The report found that 80% of TIF and special tax district incentives were used to build new shopping centers. However, retail jobs have increased only slightly, and taxable retail sales have remained stagnant for years. A mere 5,400 new retail jobs were created in the region between 1990 and 2007. This translates to local governments spending $370,370 in tax incentives per retail job created. This number is staggering, the report notes, considering annual wages for retail jobs in the area average just $18,000.

The overall message of the report is that the principle effect of diverting tax revenues to expand retail operations has been a losing strategy for the region, resulting merely in the redistribution of retail sales and jobs, rather than expansion.