Author Archive

Community Wins in Missouri

December 17, 2012

Congratulations to community groups in Columbia, Missouri on their win last week preventing most of the city from being designated “blighted” to create massive property tax abatements.

Photo credit: Charles Minshew/KOMU, via Flickr. “Columbia residents discuss EEZ concerns: Columbia resident Shari Korthuis (right) discusses the latest version of a map of the city’s Enhanced Enterprise Zone with Nancy Wood and Jeff Memmer at a meeting at Parkade Center in Columbia, Mo., on Wednesday, March 14, 2012.”

Photo credit: Charles Minshew/KOMU, via Flickr. “Columbia residents discuss EEZ concerns: Columbia resident Shari Korthuis (right) discusses the latest version of a map of the city’s Enhanced Enterprise Zone with Nancy Wood and Jeff Memmer at a meeting at Parkade Center in Columbia, Mo., on Wednesday, March 14, 2012.”

A year and a half ago, the Regional Economic Development Inc. (REDI) board proposed to create an Enhanced Enterprise Zone, or EEZ, that would cover most of Columbia (at one point, the Columbia City Council approved a 49-square-mile EEZ; later, the Council repealed its decision). Missouri EEZs (there are 124) allow certain companies to receive 50 percent local property tax abatements and state tax credits for investing and creating jobs. The program also requires zones to be designated as blighted.

A coalition of community groups (including the Columbia Climate Change Coalition, Grass Roots Organizing, and the local chapter of the Women’s International League for Peace and Freedom) opposed the fake blight designation. They spoke during REDI meetings, contacted media, and organized an informational community meeting with Good Jobs First’s Greg LeRoy and more than 80 participants. Using state EEZ disclosure data captured in Subsidy Tracker, LeRoy noted that EEZ credits were dominated by agricultural food processing companies that, of course, need to be close to Missouri’s abundant farmlands.

After months of grassroots pressure, the REDI board last week surrendered, asking the Columbia City Council to drop the plan, citing “lack of community support” as the main reason for its decision.

Newspaper Rips Missouri Economic Development Practices

September 21, 2012

The St. Louis Post-Dispatch ran a scathing editorial  this week criticizing Missouri’s economic development practices.

The occasion for the criticism was the announcement by state Attorney General Chris Koster that his office was bringing criminal charges of theft and securities fraud against the CEO of a company called Mamtek that had received financial assistance from the state through the issuance of industrial revenue bonds. The CEO, Bruce Cole, was accused of using a portion of $39 million in bond proceeds to prevent foreclosure of his Beverly Hills house. Those proceeds were supposed to finance an artificial sweetener factory Mamtek had proposed to build in Moberly, a small rural community in central Missouri. After Mamtek failed to make bond payments and after the collapse of the whole project in 2011, Moberly defaulted on its bonds.

The editorial criticizes Missouri state and local economic development agencies for failing to do an adequate background check before authorizing the bond issue. “[Mamtek] failed,” the newspaper says, “because nobody, including Moberly officials and the state Department of Economic Development did their work. … Nobody was very eager to do the due diligence that would have shown the deal to be bogus.” The editorial points out that both Democrats and Republicans are guilty of subsidy giveaways and both parties are responsible for “creating a climate where business is free from the kind of regulation that could weed out bad actors.”

Mamtek had also been approved for up to $17 million in several additional types of subsidies, including Missouri’s controversial Quality Jobs program, which allows companies to retain state taxes withheld from the paychecks of new workers (Good Jobs First criticized this and related programs in our Paying Taxes to the Boss report last April).

The Post-Dispatch editorial points to an audit of Quality Jobs showing that the number of jobs that participants in the program created was far below the number they had projected (out of 45,646 originally estimated jobs, only 7,176 materialized).

The editorial uses the shortfalls of the Quality Jobs program to make a broader point about the foolish way in which the state tried to encourage job creation. It calls the Mamtek incident  a symptom of “an economic develop strategy, at state and local levels, that relies on promises and demands little accountability. The state this year will pay out a record $629 million in tax credits to wealthy developers, corporations and investors, while money is being cut for schools and health care. Local governments cannibalize each other to make tax incentive finance deals that steal from schools and create few net new jobs.”

We couldn’t have said it better.

Kentucky Approved Massive TIF

July 9, 2012

Recently, the Kentucky Economic Development Finance Authority approved $709 million in tax increment financing, or TIF, for the University of Louisville Research Park.  It appears to be the largest commitment of public money through TIF ever in the United States.

This deal is different than many TIF giveaways, since the University of Louisville is a state institution not a private company, and the TIF money will be used for public infrastructure development. Nevertheless, the value of the TIF is significant.

The Research Park will cost more than $1.1 billion and will cover 1.3 square miles. Nine buildings will be dedicated to research and five to commercial activities, including a hotel. About 30 percent of the $1.1 billion investment will be privately funded and will cover the commercial development.  The $709 million TIF will pay for research buildings and other research support infrastructure.

The Research Park was approved as a “Signature Project” under a Kentucky TIF law which allows state TIF participation only in public projects. For 30 years, up to 80 percent of state and local tax increment at the site will go to the University, not to the State or the locality. Most TIF districts allow diverting property taxes, but because in Kentucky the State can also participate in TIF, the University might retain other taxes, including individual and corporate income taxes, limited liability entity taxes and sales taxes. The University can activate the TIF only after it invests $200 million in the project.

There is no ranking of the largest TIF districts in the country, but taking into consideration that other large TIFs never materialized (like the $408 million SunCal TIF in New Mexico), Kentucky might have just set a record for the most expensive TIF.

Sunshine State Accidentally Releases Sunshine

June 28, 2012

Florida has been turning out the lights on economic development, and now it is having trouble managing the release of less information.

Last week, Florida’s Department of Economic Opportunity (DEO) accidentally released information on subsidy deals currently being negotiated by the state. Instead of sending a blank template for an upcoming subsidy disclosure website, DEO sent a database to Integrity Florida, a watchdog group that in turn shared it with journalists. Upon learning of its mistake, DEO demanded everyone destroy their copies claiming that publication of the list would harm the state’s recruitment efforts.

The gaffe comes as the Sunshine state has been growing opaque on jobs. Florida law prevents releasing information on subsidized companies for the first two years after deals are agreed to, and deals in negotiation are granted confidentiality. Enterprise Florida, the state’s public-private development arm, discloses only partial information on subsidy recipients in its annual reports.

That’s a retreat from 2007, when the Office of Tourism, Trade and Economic Development started posting information on deals in several programs. However, after Gov. Rick Scott took office in 2011, the disclosure website disappeared (as did Florida’s Recovery Act website). More than a year ago, Good Jobs First asked about the lost information and DEO told us the data were merely being moved to a new website under the new Department of Economic Opportunity. But the data has yet to resurface.

The data leak last week shows that since January 2011, Florida committed $155 million to 270 subsidy deals that promised to create more than 32,000 jobs.

According to a blog by Aaron Deslatte from Orlando Sentinel, the state “flipped out” and Gov. Scott himself called the Sentinel’s editor trying to quash the story, but to no avail.

We predict the leak will not harm Florida’s economy, because economic development disclosure never has hurt any state’s business climate. We hope the episode will remind Floridians that its pioneering Open Records history has served it well.

Tennessee Goes Clawback-Free for Electrolux

September 21, 2011

In an extraordinary investigative report this week, The [Memphis] Commercial Appeal discovered that the state of Tennessee promised Electrolux much more in subsides than it officially announced and that the offer came with an explicit “no clawback or recapture” provision.  The newspaper reports that in addition to the officially announced $153.6 million subsidy package, property tax breaks and local grants and loans increased the total to $188.3 million. With 1,240 projected jobs, that’s almost $152,000 per job.

Daniel Connolly and Amos Maki, The Commercial Appeal reporters, made impressive use FOIA to obtain internal emails, contracts, and public documents that revealed many of the hidden subsides and decisions made “by a handful of people working in secret.”

With the clawback-free agreement, Electrolux is free to fall short on jobs or leave town. And Tennessee swims against the tide: Good Jobs First is not seeing a trend towards more clawback-free deals. (We will be releasing a new 50-state survey on clawbacks late this year.)

Missouri Set to Load on Subsidies for Cargo Hub

September 7, 2011

During a special session this week, the Missouri legislature is expected to approve $360 million in tax credit subsidies for “Aerotropolis,” a project that would create a cargo hub at Lambert–St. Louis International Airport to lure Chinese air carriers. Yet, the project faces some serious questions. In its report Aerotropolis: If You Build It, Will They Come?  the Missouri Budget Project (MBP) makes the case that the legislature should think twice before approving the subsidy.

The report points to some important issues overlooked by the legislature. Based on a review of Airports Council International market data, MBP argues that the U.S. has been experiencing a decrease in air cargo transportation and already has “excessive unused existing capacity for international cargo movement throughout the entire Midwest.” Chicago‘s O’Hare Airport, one of the nation’s biggest cargo hubs, has unused capacity even as it undergoes an expansion.  MBP notes that Lambert, where traffic is down 20 percent since 2000, also has extra capacity.

Another concern, according to MBP, is that the project lacks an enforceable commitment from a major international freight forwarder, a company that manages cargo movement. MBP cites an independent analysis that evaluated a similar project in Hazelton, Pennsylvania. The Hazelton analysis, noting that no cargo airport has ever succeeded in the United States without a major tenant such as FedEx, UPS, or DHL, argued that the project should not proceed without a committed anchor tenant. MBP also notes that Aerotropolis has not been subjected to an independently performed cost-benefit analysis.

While voting on the big Aerotropolis giveaway, the special session will also, ironically, consider proposals to reform the state’s entire system of tax credits. While some of those credits definitely need reform, the plan to eliminate others could have a harmful effect on low-income residents. One of the most controversial proposals is to phase out tax credits for low-income seniors and disabled renters (MBP’s reports on the issue are available on its website).

As MBP argues, it is foolish of the Missouri Legislature to rush through the Aerotropolis subsidy deal with no strings attached. Before committing any public money, the legislature should commission an independent study that would evaluate the costs and benefits of Aerotropolis, and secure an enforceable commitment from a major international freight forwarder.

September 21 update:

As of this week, the Missouri legislature is still debating the Aerotropolis proposal, but with significant changes. In the new version of the bill, the Missouri Senate took out the $300 million tax credit for warehouses at the future hub and created the Compete Missouri program. The new $141 million fund would combine six economic development programs and would give the Governor power to control who gets the subsidies. Warehouses at Aerotropolis would be able to apply for subsidies under the new program. Unhappy with the changes, the House threatened to kill the bill if consensus between both chambers is not reached by Friday.

Amazon Prevails in South Carolina

June 6, 2011

Amazon will be allowed to help its customers in South Carolina dodge sales taxes, after all. In a dramatic reversal, Palmetto State legislators approved a bill that gives the online retailer a five-year exemption from collecting sale tax from the state’s residents. The move revives Amazon’s plans for a $125 million distribution center in the state that is projected to create 2,000 jobs. Unfortunately, the bill does not include strong clawback provisions.

The legislation is a defeat for Amazon’s brick-and-mortar competitors, both small businesses and big-box retailers such as Wal-Mart that lobbied hard against the exemption sought by Amazon.

As we previously reported, the original promise to exempt Amazon from its obligation to collect sale taxes was made last year by then-Gov. Mark Sanford and was a part of a subsidy package that included $5 million in free land; $3,250 in tax credits for each job created; and property tax breaks on equipment.

Initially, the House rejected the deal but gave into political pressure stoked by Amazon’s decision to increase its job-creation projection by 750 jobs. Gov. Nikki Haley has opposed the deal, though she now says she will let the bill take effect without her signature.

Limited attention is being paid to the terms of the company’s job promises. The final version of the bill requires Amazon to create 2,000 jobs by the end of 2013 and retain 1,500 jobs between the end of 2013 and January 1, 2016. If the company decides to lay off up to 500 workers after 2013, it will face no consequences. After January 1, 2016 (when the exemption expires), Amazon is not required to retain any specific number of jobs.

If the company does not meet job creation or investment ($125 million) obligations, the only penalty Amazon would face is cancelation of the exemption. There are also no wage requirements for the jobs, though Amazon is required to provide a comprehensive health plan for the workers.

It is disappointing that after the long battle, the legislature did not put measures in place that would truly protect workers and hold Amazon accountable.

Money Losing Arenas Cause a Big Headache for Small Cities

May 27, 2011

It’s well known that big cities frequently get snookered into using taxpayer funds to build professional sports stadiums and convention centers that turn out to be financial disasters. The same thing has been happening with entertainment arenas built by smaller cities, and one company is behind many of the deals.

This was recently brought to light by the New York Times in an article about Rio Rancho, a suburb of Albuquerque, whose leaders were persuaded by the company, Global Entertainment, to build the Santa Ana Star Center a decade ago.  

The arena, to be operated by Global Entertainment, was designed to be the anchor of a new city center that would boost economic activity in Rio Rancho. Yet soon after the arena opened in 2006, it became obvious that the financial projections were wildly unrealistic.

The 6,500-seat arena turned out to be too small for big events and too big for smaller performances, and it had difficulty competing with Albuquerque’s venues. As a result of these and other problems, the facility soon began racking up heavy losses, and in 2009 the city fired Global Entertainment and sued it over unpaid bills. Arena-related costs squeezed an already tight municipal budget, forcing Rio Rancho to eliminate jobs.

The Times notes that numerous other arenas promoted by Global Entertainment have run into similar difficulties, with the company getting ousted. Yet it goes on making new deals.

When will public officials learn that entertainment and hospitality projects are usually not suitable investments for taxpayer funds?

States Shine More Light on Tax Spending

May 19, 2011

The CBPP map shows states that do not have tax expenditure reporting (in red) and states that do not include important information in their reports (in orange).

States are doing a better job in letting the public know how much tax revenue is being lost through special credits, deductions, and exemptions, according to a new report on tax expenditure budgets released by the Center on Budget and Policy Priorities (CBPP).

Over the last two years, CBPP notes, two more states–New Jersey and Georgia–passed legislation requiring tax expenditure reviews, decreasing the number of states that do not report on the issue to seven (Alabama, Alaska, Indiana, Nevada, New Mexico, South Dakota, and Wyoming). At the same time, the Center finds, states such as Minnesota, North Carolina, Oregon, Rhode Island, and Vermont as well as Washington, DC have improved the quality of their reporting.

The news is not all positive. CBPP points out that the tax expenditure budgets of 18 states are still deficient. Out of 44 states that have some kind of reporting system (counting Washington, DC as a state), ten do not report on major categories of tax spending and six do not release reports at least every other year. Two states, Arkansas and New Hampshire, don’t bother to put their reports online.

CBPP offers a good list of best practices for tax expenditure budgets. These include putting the reports online; including all tax expenditures, even small ones or those that affect few taxpayers; describing the types of taxpayers that benefit from each tax expenditure; and explaining the purpose of the various categories.

The CBPP report comes at a time when the issue of tax expenditures is receiving growing attention at both the federal and state levels. The first step in addressing the issue is knowing how much these practices really cost, and that makes the need for thorough tax expenditure budgets all the more urgent.

South Carolina says Good-bye to Amazon but Hello to even more Wal-Mart stores

May 5, 2011

(A follow-up to a story on sales tax exemption for Amazon in South Carolina from May 3, 2011, You can find everything on Amazon, except sales tax)

Small retailers in South Carolina must be asking themselves: if the enemy of my enemy is my friend, and then we win, and then my “friend” resumes life as another huge enemy, should taxpayers subsidize our demise?

In an announcement that some called a political “payoff,” Wal-Mart and South Carolina Gov. Nikki Haley announced this week that the company will open dozens of new stores employing as many as 4,000 people in South Carolina over the next five years (of course, research suggests that Wal-Mart destroys 3 retail jobs for every 2 it “creates). It already has significant presence in the state with 74 stores, two distribution centers, and nine Sam’s Clubs.

The announcement came just a week after the South Carolina House rejected a bill that would give the online retailer Amazon an exemption from collecting sales tax on the state’s residents (as part of a larger subsidy package). One of the active opponents to the Amazon deal was Wal-Mart.

During the Amazon sales tax exemption debate, Wal-Mart, along with other big-box retailers, joined organizations representing small businesses in South Carolina to actively lobby against the deal. Besides its seven lobbyists  pressing the House, Wal-Mart encouraged its South Carolina employees to communicate their opposition to state representatives.   The retailer argued the Amazon exemption would be harmful and unfair to bricks-and-mortar stores. After the House rejected the deal, Amazon cancelled plans to open a distribution center in the state.

Reacting to this week’s Wal-Mart announcement, supporters of the Amazon deal said that Wal-Mart wanted to reward the Governor for her hands-off approach and the House for opposing the Amazon deal, calling the announcement “suspect,” a “shell game,” and “a payoff.”

Over the years, critics of Wal-Mart have pointed to the retailer’s low-wages, unaffordable benefits, lack of career paths for the majority of workers, contribution to sprawl,  and anti-unionism. Some in South Carolina point out now that the same small retailers that Wal-Mart “partnered” with against Amazon will likely become Wal-Mart’s victims as it gains market share by opening more supercenters. 

Wal-Mart’s rhetoric on the Amazon deal was quite ironic. It  argued that Amazon should not be granted sales tax exemption because it would give Amazon unfair advantage over other retailers. But Wal-Mart and developers who build for it are not shy about asking public officials for economic development subsidies that small retailers often consider an unfair advantage. In  Shopping for Subsides: How Wal-Mart Uses Taxpayers Money to Finance Its Never-Ending Growth, Good Jobs First documented that the retailer benefitted from $1 billion in such subsidies (later updated to $1.2 billion) from state and local governments. In South Carolina, for example, Wal-Mart enjoyed a $10 million deal from the City of North Charleston for infrastructure improvements at its supercenter, and a distribution center in Pageland got a deal worth of $28.2 million in various subsides.  (For a national compilation of such deals, see Good Jobs First’s Wal-Mart Subsidy Watch webpage).

Will locally owned retailers now remind Wal-Mart and elected officials about unfair advantage, whether it applies to Amazon or Wal-Mart? Or will the enemy of their enemy cash in as South Carolina subsidizes Wal-Mart’s new facilities?