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Chicago Aldermen Want a Brighter Light on City’s TIF Spending

March 31, 2009

A specter is haunting Chicago City Hall-the specter of transparency for the city’s massive Tax Increment Financing (TIF) program

Last month two city aldermen—Manny Flores and Scott Waguespack—introduced a resolution to create an on-line TIF disclosure system that gives easy access to project budgets and actual spending ( including financing terms, dates, amounts, recipients and purpose) and that includes both weekly payroll data and periodic job creation reports for TIF districts.

Flores and Waguespack introduced the legislation after they tried to get employment and other data for the Republic Windows factory, which had been occupied by laid off workers protesting the company’s attempt to cheat them out of severance pay and health benefits.

The aldermen wanted the data to determine if the city should retrieve its subsidies for the Republic factory, which was closed in favor of a lower-wage site in Iowa. Chicago government had provided $9.5 million in TIF assistance for the plant, based on Republic’s pledge to create and maintain over 600 jobs until 2019.

That even members of city council have to struggle to get basic TIF data comes as no surprise. Chicago Reader reporters Ben Joravsky (since the Neighborhood Capital Budget Group’s demise the most trenchant critic of city TIF abuse) and Mike Dumke described in almost farcical terms the bureaucratic delays and incomplete data that met their own request for the same employment data.

In Illinois, TIF districts are created for areas designated as “blighted.” Increased property tax revenue from development (the “increment’) in a TIF district is reserved for further economic development in the same district for as long as 23 years (sometimes longer), rather than shared among local taxing authorities like schools and park districts.

However, in Chicago TIF has become an all-purpose business incentive benefiting companies and developers in areas that are already affluent, like the city’s Central Loop. According to Cook County Clerk David Orr, since the 1980s city TIF districts, which now number about 160, have diverted about $3 billion in revenue. The Daley Administration now controls what critics call a $550 million TIF “slush fund.”

In a city where reform measures are often DOA, the resolution introduced by Flores and Waguespack at least produced a March 16th public hearing before the City Council’s joint economic development and finance sub-committee. Speakers supporting the sunshine resolution included Professor Rachel Webber of the University of Illinois-Chicago, a nationally noted TIF expert, who cited Minnesota’s requirements for TIF disclosure, and community development consultant Valerie Leonard, who described how the city TIF documents currently posted frequently contain blank pages, and how TIF job creation data for North Lawndale, a depressed but developing community with seven TIF districts, was unavailable.

Unintended comic relief was provided when the city planning department’s deputy commissioner touted (via online demonstration) the TIF data already provided by the city. His presentation backfired when the only data he could pull up was outdated. When questioned about other data that had been available on-line, he admitted it had been removed. Dan O’Neil, an expert on making government data publicly available in usable formats, offered to construct a city TIF disclosure website for free.

Although no one testified against the reform measure, Alderman Margaret Laurino, the chair of the economic development subcommittee chair, tabled it: “We want people to have access to information, but we don’t to overwhelm them…It’s something we don’t want to rush into.” The comment from the Chicago Sun-Times, which supported the TIF sunshine measure, was apt: “This from a City Council that can approve a $1.2 billion deal to lease the city’s parking meters after about an hour of debate “

Fake concern over drowning policy wonks with complete data aside, Laurino’s action represents the “business as usual” deference to the Mayor, who successfully blocked efforts to subject TIF beneficiaries to the reporting requirements of Illinois’ 2003 subsidy disclosure law. But with ‘transparency” an increasingly powerful theme on the state and national level, Chicago officials and citizens may be less willing to be kept in the dark.

Cooper Tire’s Novel Approach to Subsidy Competition: Pay to Survive

January 23, 2009

In a grim variation of the subsidy game that may become more common in a tanking economy, Cooper Tire last month successfully squeezed over $66 million in subsidies for plants in three states, pushed down union wages and benefits, and eliminated one plant altogether.

Cooper Tire announced in October that it would close one of its four U.S. plants. It then “invited” employees and state and local governments in the different locations to help it decide by offering worker concessions and public subsidies.

The plants pitted against each other were in Tupelo, Mississippi (1200 workers), Texarkana, Arkansas (1,400 workers), Findlay, Ohio (1,100 workers), and Albany, Georgia (1,400 workers).

Mississippi moved quickly to offer Cooper Tire state and local subsidies worth more than $36 million, mostly in workforce training and infrastructure improvements. Some press reports suggested Mississippi’s speed in offering a subsidy package put pressure on the competing sites, especially the unionized ones.

The Findlay and Texarkana plants stayed open after new agreements with their United Steelworkers bargaining units were reached. The locals made significant concessions on wages and on employee contributions to health care costs, in each case worth $30 million over 3 years. The Tupelo and Albany workforces are not unionized.

In addition to worker concessions, the company received $2 million from the Arkansas Governor’s “quick action” closing fund; a 6.5 percent sales tax credit for capital improvements; a five-year, two percent income tax credit for and a 10-year, five percent rebate on payroll for new employees. Cooper Tire received $28.5 million in tax credits, grants and loans from Ohio state and local governments. Georgia reportedly offered $32 million in incentives in an unsuccessful bid to sustain the Albany facility.

In December, Cooper announced the Albany plant would close, with the three surviving plants adopting a “24/7” production schedule that the company said might lead to further hiring. The comparative weight of subsidies, union concessions, and other factors in Cooper Tire’s decision was not clear, although Cooper Tire’s 2006 conversion of its Arkansas factory into a “flex” plant more adaptable to production increases and decreases may have helped it survive.

Cooper Tire CEO Roy Armes called the Albany plant’s closing a “difficult decision,” but said it would “allow Cooper to optimize our global footprint and capitalize on current and future market opportunities.”

Mississippi officials and press treated the survival of the Tupelo plant as a consolation for the indefinite delay of production at Toyota’s nearby Blue Springs plant, for which Mississippi has pledged $323 million. A Jackson Clarion-Ledger editorialist saw the Georgia plant closing as warning states not to forget existing companies while chasing new ones.

But the real lesson is how easily Cooper Tire could compound the pain of a plant shutdown in one state by extracting wealth from workers and taxpayers in three others.

Starting Up Stalled State Economies: Experts Give Some Do’s and Don’ts

November 14, 2008

With the election of a new president, officials in many states are hoping a renewed federal/state partnership will jumpstart the troubled economy. Until the new president takes office, however, falling revenues have prompted some states to take actions that are counter-productive rather than counter-cyclical.

States are in a tough spot. For example, Illinois officials predict a revenue hole this fiscal year of $800 million or more. The Center for Budget and Policy Priorities (CBPP) projects state budget shortfalls across the nation will total $100 billion in fiscal year 2010.

Since every state but one must balance its budget, without federal support lawmakers must raise taxes, cut services, or both. (Outright fiscal irresponsibility—e.g., failing to pay Medicaid bills, underfunding state employee pension funds—is another option: Illinois’ unpaid bills could top $5 billion by early 2009.)

New York Governor David Paterson has just proposed school and health care funding cuts of $3.2 billion over two years, similar to those that have already occured in other states. But CBPP economist Nicholas Johnson argues cutting services and income supports makes the economy contract even more as the purchasing power of struggling families falls.

Johnson cites the work of noted economists Joseph Stiglitz and Peter Orzag. They argue tax increases, by reducing savings and not just consumption, are less harmful to a depressed economy, especially when they fall mainly on wealthier taxpayers.

While some states have enacted such tax increases or closed loopholes, others have instead considered tax cuts. Yet tax cuts are the least effective way to stimulate state economies in a recession. They can lead to further spending cuts while reducing the buying power of public employees. Fortunately, voters in several states have recently rejected the tax cut mantra.

States would be better off strengthening consumer demand by extending unemployment insurance, preserving healthcare coverage, preventing foreclosures, and speeding up already scheduled public works projects. The federal government could help by providing grants, paying a larger share of Medicaid costs, and rescinding (or actually funding) burdensome, federally-imposed unfunded mandates that cost states nearly $34 billion in the last fiscal year.

States can help themselves by better tracking, targeting or terminating largely unmonitored business incentives and tax giveaways like Single Sales Factor. They could adopt comprehensive unified economic development budgets (UDB), like the excellent UDB proposed for Kentucky. While more federal support is needed, states can use the recession to make their own economic development spending less wasteful and more productive.

Can Slowdown in the Chicago Suburbs Lead to Smarter Growth?

October 23, 2008

Chicago-area advocates of more sensible growth and land-use policies got a boost this week when Chicago Tribune columnist John McCarron urged the region’s public officials to see one upside of the painful economic crisis: a chance to put the region’s “suburban sprawl machine” into reverse.

McCarron, an expert on urban affairs and state and local fiscal policy, cited problems in previously booming Chicago exurbs, where higher gas prices have made long commutes painfully expensive, and where affordable housing and public transit are limited or non-existent. He called on the region’s public officials to rethink the “anything goes” development and land use policies that have led to massive traffic congestion, high commuting costs, “monster” mortgage payments, and the loss of agricultural land.

The editorial described the redevelopment of an old naval air station in suburban Glenview as an example of more rational, energy-efficient and compact suburban development based on accessible public transit. A recent report by Chicago Metropolis 2020, a business-oriented civic policy group, predicts that seniors and low-income immigrants (two groups leading the region’s population growth) will demand more such compact and transit-rich communities, as well as more affordable housing.

Even if the recession limits some smart growth investments, McCarron believes local governments can still require private developers to take common sense steps to increase energy efficiency, transit access, and the number of pedestrian walkways.

Besides McCarron’s suggestions, other smart growth measures, affordable even in a recession, include promoting the state’s little used “business location efficiency” incentive, which provides a moderately larger corporate income tax credit to companies locating near affordable housing and public transit. McCarron is certainly right to urge Illinois officials to respond to a bad economy with policies that both promote more sustainable development and save taxpayer dollars.

Will Chicago’s Budget Crisis Finally Curb TIF?

October 21, 2008

Chicago city government faces a two-year deficit of at least $469 million, with additional massive shortfalls looming through 2012. Mayor Richard Daley has proposed some draconian steps: laying off over 900 city workers, eliminating over 1,300 unfilled positions, raising city amusement and parking taxes, and imposing six days of unpaid leave on “non-essential” city employees.

Daley blames the unexpectedly large deficit on the economy, but others are citing causes the mayor is not eager to discuss, such as the city’s overuse of tax increment finance districts (TIFs). Chicago had 37 TIF districts in 1997; it now has 155; they can last 23 years and even be extended 12 years beyond that.

The original purpose of TIF in Illinois was to help genuinely “blighted” neighborhoods. However, under Daley, Chicago has been a leader in making TIF an all-purpose development and attraction tool even in already thriving or growing parts of Chicago, including the commercial/financial powerhouse called the Central Loop.

In their analyses of the city’s budget crisis, both dailies, (the Tribune and the Sun-Times), and an alternative weekly (the Reader) have all cited TIF’s massive diversion of property tax revenue –now $500 million annually –from city services, schools, parks and other local services.

The revived debate over TIF’s harm to public services is a tribute to the now-defunct Neighborhood Capital Budget Group. As their ground-breaking 2001 study Who Pays for the Only Game in Town? revealed, many Chicago TIFs are in areas that were the opposite of blighted. Now the high price of diverting revenue from areas that were already rising in value without the TIF boost is coming home to roost.

Despite these pressures, Mayor Daley stands by his TIFs, telling Tribune editors: “If we didn’t have that [TIF], we’d be in deep (bleep).” But some change is evident. The city recently dropped efforts (described in the earlier blog The TIF That Won’t Die?) to extend by 12 years the massive Central Loop TIF district when Gov. Blagojevich reportedly demanded more disclosure on its “winners and losers.”

Kansas Auditors Find Inflated Job Claims, Tiny Impact for $1.3 Billion

September 19, 2008

A legislative audit of Kansas’s $1.3 billion in state and local economic development spending finds only a small contribution to state job growth from 2003 through 2007. The audit estimated that the $1.3 billion accounted for just four percent of the state’s job growth, with pre-existing population and employment having a “far larger impact.” It also found no connection between business incentive spending and per capita wage growth.

Like most state performance audits that Good Jobs First once summarized, the Kansas auditors found “junk in” at the Commerce Department, making it hard to avoid “junk out” in the audit. The auditors reported that data was often “unavailable, unreliable, or potentially biased.” For example, they had to rework five years of state commerce agency data that mixed up state, federal, and other sources of money.

As usual, job claims were particularly suspect: combining data from the state’s five development agencies showed 130,000 jobs being created or retained —yet only 43,000 new jobs were reported by the Kansas Department of Labor in the same period! The report attributed this discrepancy to some programs failing to verify if new jobs survive, to double-counting of the same jobs by different programs, and to agencies passively relying on “self-reporting” by subsidized companies.

The audit also noted that subsidies are producing winners and losers within the state. For example, after the opening of the Nebraska Furniture Mart in Wyandotte County, subsidized by municipal STAR bonds, a third of existing furniture stores within a 150-mile radius closed.

Despite their damning findings, the auditors failed to recommend the elimination of any subsidies. They noted that while an extensive literature finds “incentives don’t have a significant impact on economic growth,” states are compelled to offer them since businesses “view them as an entitlement.”

In a remarkably vague defense, the state’s commerce secretary responded to the report by claiming that “The commitment and mechanisms for public and private funding would not exist if there was no perceived value in economic development by the business leaders and the elected officials in local communities. The state senate’s majority leader complained that the audit report “hadn’t resolved the issue of the best way to get the biggest return on the state’s investment.”

Despite the findings, subsidies march on: the state recently enacted a new sales tax break for business machinery that is projected to cost Kansas local governments $404 million a year.

Leading Indiana Business Journal Calls for Halt to Subsidy “Charade”

August 7, 2008

Reacting to a recent spate of taxpayer-subsidized corporate relocations from existing central Indiana sites to nearby communities, the state’s leading business paper has urged officials to be more tight-fisted when confronted with business threats to relocate outside the region or state.

In a recent article, Indianapolis Business Journal reporter Peter Schnitzler begins with Bowen Engineering receiving a property tax break worth $290,000 over seven years to move its headquarters and 103 jobs from suburban Fishers in Hamilton County to Indianapolis —a distance of 8.5 miles.

Since Indianapolis and other central Indiana cities claim not to poach each other’s companies, officials of the unified Indianapolis/Marion County government approached Bowen only after the company threatened to leave central Indiana entirely if its space needs were not met. As the Business Journal article describes, Bowen’s move was part of a trend; over the past year at least six companies have shuffled jobs and investment between Indianapolis and nearby suburbs.

These relocations have been accompanied by substantial subsidies—at least $23.4 million in training, infrastructure and property tax breaks, as well as tax breaks yet to be quantified. Although the Bowen deal brings jobs to Indianapolis, overall the city has been the loser. For example, nearly 80 percent, or $18.3 million, of the recent subsidies went to moving the Indianapolis operations of SMC, a pneumatic and electronic-controls manufacturer, to the fast-growing nearby suburb of Noblesville. Indianapolis lost 500 jobs.

State and local officials claim they are not poaching or shuffling companies, but are merely “doing whatever’s necessary to keep companies in the region.” Speaking to Schnitzler, Good Jobs First Executive Director Greg LeRoy countered that the recently subsidized companies were very likely not about to bolt to Kentucky or southern Ohio: “Companies want to retain their skilled employees and proximity to suppliers and customers. They are where they are for good reason.” Subsidizing intra-regional relocations most often aggravates suburban sprawl at the expense of needier urban areas.

In a subsequent editorial, the Business Journal said the “rumblings about leaving the area” that accompanied the recent subsidy deals “all seem like a charade to us,” adding that the easy availability of incentives makes “companies feel like suckers if they don’t seek a handout.” The editorial urged state and local officials to end the charade and be stingier with such hand-outs. Hopefully more business-oriented publications in Indiana and elsewhere confronting similar subsidy games will start making the same point.

Volkswagen’s Tennessee Subsidy Deal: Are Taxpayers Being Taken for a Ride?

July 24, 2008

Tennessee officials are still celebrating Volkswagen’s announcement last week that it will build a new assembly plant in Chattanooga, describing it as a big step toward their state becoming the nation’s number one auto producer. The state has apparently at least gained the more dubious status of providing the biggest subsidies to date for a foreign-owned carmaker–a package reportedly worth at least a half billion dollars.

According to reporting by Chattanooga Times Free Press reporters Andy Sher and Dave Flessner, the state and Chattanooga-area local governments have pledged the following to land the $1 billion investment and related 2,000 jobs:

1,350 acres of land worth $81 million.

At least $30 million for worker training improvements, and a $6 million technical training center.

$43 million in road and highway improvements, and $3.5 million for rail connections.

$200 million in job tax credits over 20 years.

Between $150 million to $350 million in property tax breaks over 30 years, depending on how well Volkswagen meets job and investment targets. However, VW will pay the education portion of property taxes, about $5.5 million yearly.

Other subsidies of unspecified value, including machinery sales tax exemptions, and low cost loans and energy credits from the federal Tennessee Valley Authority.

Michigan and Alabama were reportedly Tennessee’s main competitors for the VW plant, although the strong United Autoworkers presence in Michigan seems to have made that state a distant third.

Putting the cart before the horse, Tennessee’s economic development commissioner said the University of Tennessee would do a cost-benefit analysis of the VW deal later this year, after its costs are fully known. That this evaluation will be very critical may be doubted since a previous UT study of the Nissan headquarters deal (which cost Tennessee state and local governments $197 million) reportedly attributed to it an unlikely economic benefit of half billion dollars a year.

Tennessee Governor Phil Bredesen, a Democrat and former Nashville Mayor with a history of getting big subsidies for computer giant Dell, Nissan and a football stadium is unembarrassed by the deal’s cost:“I don’t know whether it’s fair that a Mercedes Benz costs $90,000, I just know if I want one that’s what I’ve got to pay.”

Whether a half billion dollars, or $250,000 per job, is in fact the real going rate for an auto plant is less clear, however. The exact importance of subsidies in a company’s location decision remains locked in “a black box”, but is generally limited. In fact, VW spokespeople acknowledged the attraction of the incentives but stressed the particular importance of those for worker skills and site preparation, which form a comparatively small part of the mammoth package.

Successive interstate competitions for big auto assembly plants–which began in the Midwest in the 1970s and have occurred repeatedly in the South over the past decade–have often led to overspending as states try to outbid each other, and then to a sense of fiscal hangover when the competition is over.

Although the euphoria and industrial recruitment folklore surrounding the deal—Senator Lamar Alexander serenading VW executives with a rendition of “Chattanooga Choo-Choo”– seem to have at least delayed that hangover’s onset. The euphoria has also muted concerns about whether, how and when Tennessee will recoup its “investment,” but those concerns are real.

For example, Tennessee officials promise that new auto supplier firms —which may themselves get subsidies to locate near VW– will help offset the deal’s costs. But Business Week has suggested that numerous such firms already located in Alabama and elsewhere in the South could serve the plant with existing capacity. And Alabama is already scheming to land suppliers for the new plant. Continued intense competition like this between Tennessee and other states, and between VW and its competitors, may eventually make the state’s huge subsidy deal seem more like a costly gamble.

Illinois Bellies Up to the Bar with Beer Maker Subsidies

July 16, 2008

With substantial state and local subsidies, MillerCoors—the new joint venture that unites Miller Brewing and Coors Brewing—has announced it will locate its new headquarters and 300-400 employees in downtown Chicago. While hailed by Illinois Governor Rod Blagojevich and other leaders as a major gain for the region’s economy, the deal once again poses questions about the role of such public subsidies in business location decisions, and their costs compared with their benefits.

While modest compared to earlier Illinois mega-deals, the state and local incentive package promised MillerCoors is still substantial, ranging between $20.5 and $23 million or about $57,000 per job. Chicago’s competitors for the new headquarters were reportedly Dallas, Kansas City, Boston and Atlanta.

MillerCoors was pledged $18 million in state assistance, including $17.5 million in corporate income tax credits (over 15 years), a $500,000 grant for capital improvements, and $325,000 for employee training. The City of Chicago will provide between $2.5 million to $5 million in tax increment financing, depending on which of three downtown Chicago sites offered the company is selected.

As a result of MillerCoors’ decision, Milwaukee will lose 150-175 administrative jobs to Chicago, although the company will reportedly boost the capacity of its Milwaukee brewing operations by up to 55% by 2011. Employment at the company’s Molson-Coors’ headquarters in Golden, Colorado apparently will be similarly affected.

It appears that the hastily assembled incentive package had a limited role in the company’s selection of Chicago. While acknowledging state and city’s support, company president Tom Long cited Chicago’s available labor and excellent inter-city travel connections as crucial to the decision to locate here.  Another company official cited Chicago’s concentration of advertising and marketing firms, some already closely linked to MillerCoors.

And, when interviewed yesterday by a Colorado newspaper, MillerCoors CEO Leo Kiely couldn’t say how big the subsidy package actually was. He instead stressed that the location decision was driven by “the bias for a neutral city” that could mediate between the company’s production centers in Milwaukee and Golden. 

These comments suggest that subsidies from fiscally hard-pressed state and local governments were a minor, even negligible factor in MillerCoors’ decision to put its headquarters in Chicago.

Even the Chicago Tribune has its suspicions. Although the Tribune print edition’s front page story on the deal had the upbeat headline “Beer giant to locate in Chicago”, the on-line version had “Beer tab too high for jobs?” While acknowledging the “symbolic victory” for Chicago of landing the MillersCoors headquarters, the Tribune pondered whether an incentive package was even needed, given Chicago’s many economic and cultural assets.

The Tribune’s skepticism may reflect disillusion with the hype and exaggerated claims associated with the 2001 Boeing deal. The massive state and local subsidies provided Boeing then were justified by inflated job creation claims and by unfulfilled predictions of an influx of new corporate headquarters to Chicago.

In contrast, the Tribune’s story on the MillerCoors deal cites federal data showing high-paying corporate management jobs continuing to grow rapidly despite the Chicago’s loss of some headquarters. Perhaps if more observers shared the Tribune’s skepticism, there would be fewer, and less costly subsidy giveaways.

“Eco-towns” Ignite UK Debate

July 2, 2008

Plans by Britain’s Labour Government to build new “ecotowns” are sparking demonstrations outside Parliament and elsewhere in Britain.

The government wants to build a total of 10 “zero carbon-emission communities,” containing 5-15,000 housing units each, with five completed by 2016. Announcing the project last year, then Labour Housing Minister Yvette Cooper said the new towns would address the country’s urgent need for more affordable housing while cutting carbon emissions.

The developments were to be built on brownfields or surplus public land linked to public transportation, and would serve as a testbed of new environmental technologies for Britain’s emerging green industrial sector.

However, the list of 15 possible ecotown sites recently put forward by Cooper’s successor Caroline Flint has raised questions about the viability of the basic concept and the government’s credibility. Opponents believe the proposed towns represent unaccountable, developer-driven planning that replicates some of the worst features of suburban sprawl.

For example, critics say some ecotowns would be built not on brownfields but on greenfield sites chosen by developers, including some linked to Tesco, a major UK supermarket chain. According to the Campaign to Protect Rural England, the proposed “Pennbury” ecotown would even use up valuable farm land near an historic market town.

Although the proposed eco-developments are in theory subject to local review, some local officials are complaining about the increased demand for costly infrastructure they would create, and about the central government’s failure to take existing local development plans into account. One official attributes the selection of a site near Stratford-on-Avon—an area that already has adequate housing and employment— to the potentially lucrative sale of government land.

In response, ecotown supporters accuse opponents of “NIMBYism.” Prospective developers are also promising various inducements like free public transit, computer terminals with constantly updated transit information, and extensive bicycle paths.

But some people just think ecotowns are a bad idea. A Times of London editorialist recently wrote that “Zero-carbon house-building is about as likely as the odourless fart,” adding “The unremarkable truth is that car use is at its lowest where people live closest to city centres and are linked to them by public transport.”

The Labour government should perhaps consider the proposal by Sian Berry of Britain’s Green Party, who last year wrote that “green” industrial development should be based not on ecotowns but on hundreds of small locally-based eco-projects to retrofit and rehabilitate older housing stock in areas rich in public transit. Working with local officials and groups to “green” such areas would likely produce more, and more immediate, benefits than urbanizing additional greenfields in the name of ecology.