Archive for the ‘Corporate relocations’ Category

Colorado Governor Doesn’t Buy Sales Tax Giveaway

May 10, 2012

Westernaires and Color Guard in Downtown Denver opening the National Western Stock Show

Advocates of accountability and fiscal responsibility in Colorado recently achieved a major victory when Governor John Hickenlooper vetoed a controversial economic development bill.  SB 124 was designed to amend the state’s existing Regional Tourism Act, which allows Colorado’s Economic Development Commission to award portions of sales tax revenue as a subsidy to projects deemed important enough to attract out-of-state tourism dollars.  If signed by the Governor, it would have increased the number of allowable projects this year from two to six.

The bill was made all the more contentious by the fact that the Economic Development Commission is currently in possession of an application for the existing Regional Tourism subsidy from Gaylord Entertainment Co., which is constructing a massive hotel-convention center complex in Aurora, Colorado.  The complex, located close to Denver International Airport, has been criticized for its potential to leech convention center business from Denver.  Confirming these fears, the announcement by the Western Stock Show–a Denver institution for over a century–of its intent to relocate to Aurora gave the issue a public symbol in the media.  The Gaylord complex is already approved for a tax increment financing (TIF) subsidy by the city of Aurora and has applied for an additional $170 million in sales tax TIF subsidies through the state’s Regional Tourism Act.

Concerns over intra-regional competition for jobs and tax revenues was not lost on Gov. Hickenlooper, who in his veto letter stated: “the [Regional Tourism Act] does not contemplate…projects that are likely to serve only the interests of a particular community.”  The Governor’s decision also reflected his concern that politicizing subsidy-awarding process would reduce the program’s effectiveness and accountability.  “This [veto] will help ensure the state sales tax increment revenue is used appropriately, and that the EDC is awarding projects that will in fact drive tourism and economic development…we want to ensure that the RTA process remains competitive, resulting in the most ‘unique’ and ‘extraordinary’ projects being approved,” he wrote.

TIF subsidies derived from property tax are used liberally in Colorado by local governments, but the use of sales tax revenues as a subsidy has been restricted thus far.  Recent years have brought multiple ill-informed efforts to deregulate and loosen rules on the TIF-ing of sales tax.  Many of these proposed tax giveaways have been beaten back by a coalition of groups led by the Colorado Fiscal Policy Institute, which successfully defeated a number of wasteful business tax credit and subsidy bills this session.

Congratulations to our allies on their hard-earned victory!

Diebold Pushes Ohio Down the “PIT”

April 24, 2012

The recent announcement that Diebold, Inc. would be laying off hundreds of employees from its Ohio headquarters despite having received massive job retention subsidies designed by the state specifically for its benefit came as little surprise.  (We’ve seen it before with Sears, Dell, Boeing, ad naseum.)  The same day, Good Jobs First released “Paying Taxes to the Boss” a report in which we describe the disquieting economic development practice of states allowing employees’ personal income taxes (PIT) to be leveraged as corporate job subsidies.

Among the 22 programs we analyzed in our report is Ohio’s Job Retention Tax Credit (JRTC), which underwent controversial changes last year under the Kasich administration.  At that time, both American Greetings and Diebold were considering relocating their corporate headquarters out of the state.  In response to this job blackmail, Ohio legislators tweaked the JRTC rules to make the credit refundable for companies with a written offer of subsidies from another state.

In the end, Diebold signed a $55 million subsidy agreement (including $30 million in JRTCs) with the state in exchange for a promise to retain 1,500 workers and construct a new headquarters facility.  The catch?  Diebold employed 1,900 people in Ohio at the time the subsidy agreement was finalized.  One year ago our prescient friends at Plunderbund correctly predicted what would come next – the state would be subsidizing Diebold while the company slashed its workforce.  Last Thursday the company announced its intent to move 200 jobs to India, bringing its total state employment down to approximately 1,550 workers.

Diebold’s reasoning for seeking job subsidies from other states is a perfect example of how PIT-based programs accelerate the race to the bottom.  The company claimed it was unable to compete after its chief rival, NCR Corp. relocated to Georgia with the assistance of the state’s Mega Project Tax Credit, yet another PIT subsidy spending program.  (For descriptions of Georgia’s many personal income tax diversion subsidies, see “Paying Taxes to the Boss.”)

The use of workers’ personal income taxes as corporate giveaways fuels already rampant interstate job piracy.  PIT diversions negate the benefits that economic development projects should have on diminishing state tax revenues.  At this rate, it’s not even helping retain jobs in Ohio.  The Diebold situation is proof of that.  Lawmakers should not need more evidence that this is failed economic development policy.

Unfortunately, its failure to generate real economic development hasn’t stopped more states from adopting this foolhardy practice.  Last year Oregon created the Business Retention and Expansion Program, a subsidy that will allow recipient businesses to receive the taxes of workers as forgiveable loans.

Connecticut Economic Development Subsidies Are Costly and Poorly Monitored

October 24, 2011

Connecticut’s major economic development expenditures are high in cost, poorly monitored and may be undermining the public goods that actually constitute the state’s competitive advantage for jobs.  These are the findings of a new Good Jobs First report released today.

The report entitled, Connecticut Economic Development Subsidies: Costly and Blunt, found that corporate income tax credits can have high cost-per-jobs figures (one cost taxpayers $169,667 per job) and that some companies getting subsidies don’t meet job creation promises. The report recommends that the state’s existing programs be thoroughly evaluated and that the state adopt better online transparency of costs and benefits before considering new spending.

Among the findings, we found:

  • Two-thirds of the state’s economic development dollars ($173 million in FY 2011) are spent outside the purview of the Department of Economic and Community Development (DECD) which, although it needs improvement, has more rigorous oversight standards than the other controlling agencies.
  • Some of the most expensive subsidies (such as research and development tax credits, the electronic data processing equipment property credit, and the fixed capital investment tax credit) are structured as uncapped, as-of-right subsidies and their eligibility requirements prevent the state from attaining the biggest bang for the buck.
  • Even for those programs that do officially have clawbacks, their application is unknown. An analysis of DECD’s 2010 annual report reveals that 31 business assistance contracts (out of the 70 contracts total) which underwent a DECD audit failed to meet their job creation targets. Combined, these companies were awarded nearly $86 million in subsidies. Unfortunately, DECD has not disclosed whether these companies, all failing state job audits, repaid subsidies. Taxpayers have a right to know whether a clawback occurred, and if so, how much money was recaptured.
  • Tax credits can have high cost-per-job figures and result in job losses. One subsidy cost taxpayers $169,667 per job created. The top ten most expensive subsidy packages cost taxpayers an average of $98,672 per job. Worse, in 2005 Connecticut’s Finance, Revenue and Bonding Committee commissioned a study which found that 14 out of the 24 studied tax credit programs led to net job losses.  For instance, the fixed capital investment credit created a net loss of 226 jobs.
  • DECD does not disclose the wages and benefits paid by each company utilizing subsidies. Annual reports, however, show that some companies received subsidies for promising to create low-wage jobs causing hidden taxpayer costs for employees which must rely on the public safety net system.
  • Most job creation promises made by companies receiving subsidies are not creating new jobs in Connecticut. Eighty percent of the job promises relate to retaining jobs from existing Connecticut businesses threatening to leave the state or shut down. Studies on job creation tax credits show that 70% or more of the credits awarded to recipients paid companies for jobs that would have been created anyways.
  • Many “new” Connecticut jobs are actually relocating a short distance from adjoining states. For instance, Starwood Hotels received $75 million to move less than 20 miles down the road into Connecticut from Harrison, New York. Some affected workers simply commute from out-of-state and therefore don’t pay Connecticut state income taxes, local property taxes, or state and local sales taxes. Shifting jobs in the same metropolitan area doesn’t grow regional economies.

Colorado Stock Show Wants Bucks to Sprawl

September 1, 2011

The location of the future Gaylord convention center complex.

The already controversial proposal to construct a massively subsidized convention center complex outside Denver has become even more divisive following an announcement by the city’s long-running National Western Stock Show that it was considering relocating to the site.

The new hotel-convention center complex in Aurora County, currently under development by Gaylord Hotels, is located near the Denver International Airport.   It is receiving up to $300 million in development subsidies via tax increment revenues from Aurora, whose City Council just approved a blight designation for the 125-acre site, now completely vacant land.  The company has also applied for a raft of state subsidies that include $170 million in sales tax rebates over a 30-year period.

Concerns that the 1,500-room complex will leach convention center and hotel business and tax revenues away from Denver are turning out to be well-founded in light of the National Western Stock Show’s announcement that it is considering a site adjacent to the new development for its annual events.  The show, which is celebrating its 106th anniversary this January, is considered a Denver institution.  (Its Centennial celebration drew 727,000 people.)   Denver voters will need to approve $150 million in general obligation bonds to finance the show’s move to Aurora.  Complicating matters further is the fact that the show benefited from $30 million worth of voter approved bonds in 1989 to upgrade its current facilities at the Denver Union Stockyards.  Under the terms of that contract, the organization is required to stay at its current address in Denver until 2040.

The stock show’s announcement has roused a series of accusations from Denver electeds that the organization is in breach of its existing bond contract.  The contract stipulated that the stock show must maintain the upkeep of its facilities, which have fallen into disrepair according to city council members.   The stock show was additionally required to submit annual reports to the city.  Stock show officials state that these were submitted annually to the city’s Theatres and Arenas Department, but this has not stopped City Auditor Dennis Gallagher from accusing the organization of failing to provide his office with financial reports.

Gallagher recently released a statement lambasting the organization:  “I refuse to see our city, our downtown business, our convention center, our historical heritage and the welfare of Denver taxpayers sold down the river because of over-arching greed.”  Other officials have reacted in kind.  City Council President Chris Nevitt accused the show of “fail[ing] to live up to [its] end of the bargain.”  The heart of the issue was best expressed by Aurora resident Shirley Ney:  “As I look at this land out there, I do not consider this land as blighted,” she said. “I think it’s very valuable land … valuable agricultural land is being eaten up by urban sprawl across this country. This proposal adds to that sprawl.”

Sadly, the wisdom of this sentiment may be lost on the National Western Stock Show, which represents an entire industry dependent on agricultural land.  The problem of subsidizing the development of greenfields is twofold.  It exacerbates the problem of sprawling growth and its associated regional costs, while simultaneously providing an unnecessary financial incentive for businesses to withdraw from the urban core.  A stampede of Denver’s urban businesses to Aurora may become unavoidable when such extravagant development subsidies are involved.

Some 9/11 Subsidy Recipients Fail to Meet Job Goals; New York State Recaptures Funds

September 1, 2011

Pie Chart 1: The Largest JCRP Recipients

As the 10th anniversary of September 11th attack on the World Trade Center approaches, it is a good time to review what happened with the subsidies that were allocated to large firms to help them deal with the effects of that tragedy. It turns out that some companies that received those subsidies, including Goldman Sachs, failed to meet their job retention or creation goals, and some have had to repay funds to New York State.

Good Jobs New York has just completed an analysis of the Job Creation and Retention Program (JCRP), which was created in the wake of 9/11 to encourage major employers in Lower Manhattan to remain there and to encourage others to relocate to the area. JCRP, which is administered by the Empire State Development Corporation (ESDC) and its subsidiary the Lower Manhattan Development (LMDC) Corporation, has awarded about $304 million in Community Development Block Grants to 91 companies. These funds come from a special $2.7 billion allocation for various rebuilding efforts in Lower Manhattan after 9/11.

Here are some of the highlights of our analysis:

  • Goldman Sachs which received $22.9 million of a $25 million JCRP grant, has not complied with its commitment to retain 8,100 jobs.  The state has not clawed back funds, but it will most likely not allocate the remaining $2.1 million the firm is due.
  • Approximately $13.4 million was recaptured from firms for not being in compliance with their agreements with the Empire State Development Corporation, (see Table 1).
  • Nine firms that were especially hard hit by the attack received a special allocation of $33 million in CDBG funds under the “New York Firms Suffering Disproportionate Loss of Workforce Program” (see table 2).

Table 1: Firms that had JCRP funds recaptured

As part of our analysis we obtained copies of 19 JCRP agreements between firms and ESDC. JCRP grants were allocated by the (ESDC) and/or its subsidiary, the (LMDC) but compliance falls under the ESDC. We have posted these documents here and have summarized their content in our Database of Deals along with summary information about the other recipients.

We also requested copies of the applications firms submitted for the JCRP funds, but some of them were unavailable because they had been destroyed, we were told, in a flood at ESDC offices. Missing applications included those of Goldman Sachs and American Express.

It is interesting that the applications submitted by HIP and Deloitte Consulting said the firms were under no immediate pressure to move but they received the grants anyway. Nearly all the applications we reviewed warned that the firms were considering moving their facilities to neighboring states; many said they might remain elsewhere in the city.

Goldman’s Subsidy Reach: Goldman Sachs, one of the largest beneficiaries of post 9/11 resources, has received $22.9 million of a promised $25 million grant. Goldman benefited tremendously from government incentives after 9/11, including Liberty Bonds and a special lease agreement with the Battery Park City Authority for its new office tower.  Details on Goldman’s subsidies are here. However, as of December 2010 Goldman was not in compliance with it job commitments. Employment was 8,100 in 2005 when its agreement was made but in 2010 the firm’s employment was 7,472. As of the end of 2010, ESDC had yet to recapture funds from Goldman Sachs but the firm will most likely not receive the remaining $2.1 million it was promised.

Whether Goldman Sachs needed subsidies to finance its move from one side of Lower Manhattan to the other no longer remains a mystery. Goldman’s agreement with the ESDC notes: “Goldman was not significantly impacted by the attacks of September 11th” and “The remainder of its facilities were not severely damaged or destroyed and no lives were lost.” However, the firm notes that it had to temporarily relocate employees and “experienced significant losses directly related to the overall economic impact of the attack…”

Banking on the Bank of New York: The largest JCRP grant of $40 million went to the Bank of New York. The Bank also benefited from a $90.8 million allocation of Liberty Bonds to FC Hanson for its building above Atlantic Terminal in Brooklyn. Details are available in our Database of Deals.

Deal with Deutsche: On 9/11 Deutsche Bank occupied two buildings impacted by the attack: 130 Liberty Street, directly across the street from the WTC and 4 World Trade Center. In return for keeping employees in Lower Manhattan, it received a $34.5 million JCRP grant. The redevelopment of the 130 Liberty Street site has hit several bumps, including the need for the negotiation skills of former US Senator George Mitchell to forge an agreement with the various interests (Deutsche Bank, New York State via the Lower Manhattan Development Corporation and insurers). In the end, the Lower Manhattan Development Corporation bought the building in 2004 and has spent approximately $277 million for acquisition, demolition and developing 130 Liberty Street with the expectation of turning the property over to the Port Authority of New York and New Jersey.

Demolition of 130 Liberty Street raised the ire of residents and local elected officials who were concerned that if it is not done properly, the contaminated building could be an environmentally hazardous project. In 2007 a fire killed two firefighters at the site.

Recaptures and Clawbacks

Chart 2: Percentages of JCRP allocations recaptured

Each JCRP agreement includes a clawback provision that requires firms to return part of the grant if it does not create the jobs promised or if it moves jobs and/or operations out of New York City. Penalties are generally strongest in the first and second years of the deal. GJNY has long pushed for strong clawback provisions in economic development deals and is pleased to see this first public evidence of recaptures by ESDC. However, as chart 2 indicates, the actual percentage of money clawed back is low in many cases.

 

Grants for Employees’ Loss of Life: Ten firms received $33 million from a special allocation of CDBG funds from the New York Firms Suffering Disproportionate Loss of Workforce program. The lion’s share has gone to Cantor Fitzgerald; after merging with another JCRP program recipient, the firm is eligible to receive approximately $6.8 million more in JCRP funds. To be eligible for the program, firms have to have had “suffered a loss of life equal to at least six permanent employees AND at least 20% of its permanent workforce OR at least 50 permanent employees located in New York City.” Learn more about the program on the Lower Manhattan Development Corporation’s website.

Table 2: Recipients of the Disproportionate Loss of Workforce program. *Note: Recipients of this program were required to provide jobs data only for 2004 and 2005. Information for those that provided jobs data beyond these years can be found in our Database of Deals.

Jobs Reporting

GJNY has long advocated for an accountable and equitable use of economic development funds and believes, like many fiscal watchdogs and CEOs alike, that subsidies do not persuade location decisions of large firms in the finance and real estate industries. For companies to move or expand operations and create jobs, access to workforce, transportation and infrastructure, and a cluster of like-minded businesses guide location decisions more than taxes.

With that caveat and due to weak transparency on the state level, GJNY finds that a concise figure of job impacts remains elusive. A December 2010 report to the U.S.  Department of Housing and Urban Development claims 30,000 jobs were created or retained by 40 JCRP recipients that benefited from the LMDC allocation. This job count corroborates data we received from ESDC that tallies job totals for both agencies, approximately doubling the jobs cited in the HUD report. (Prior to the creation of LMDC, the ESDC allocated JCRP grants.) We encourage New York State to emulate recent transparency efforts like those at the New York City Industrial Development Agency.

Grants continue: In early August of this year, ESDC announced a $3 million JCRP grant for Oppenheimer & Co. Because this grant was announced so recently it is not in our database. More information about the proposal is available here.

See more: Information on other CDBG-funded economic development programs created after 9/11 – including several thousand recipients of the Business Recovery Grant (BRG), Small Firm Attraction and Retention Grants (SFRAG) and the special $8 Billion allocation of Private Activity Bonds (aka “Liberty Bonds”) –  are available in the Database of Deals and our Reconstruction Watch section of our website. There you will also find descriptions of various incentives being offered in Lower Manhattan from the City and State commercial subsidy program known as “the Marshall Plan.” In addition, in August 2011 the New York City Independent Budget Office released a summary of Federal Aid to New York City after 9/11.

Job Blackmail Pays

May 19, 2011

According to the FBI, the typical bank robber escapes with about $7,600. It would take more than 13,000 such capers to reach the amount that some individual corporations are netting in their own holdups, though of a legal variety.

This year has seen a series of cases in which large companies secure big subsidy packages by hinting that they may move their corporate headquarters to another state, and in several instances those packages have turned out to be worth an eye-popping $100 million.

The fact that state and local governments around the country continue to face severe budgetary shortfalls has not prevented them from offering—and companies from taking—these huge payoffs. Here are some new members of the $100 Million Club:

Motorola Mobility Holdings—one of the two spinoffs from the split-up of the old Motorola Inc. earlier this year—recently extracted $100 million in EDGE tax credits from Illinois as the price for keeping its headquarters and approximately 3,000 employees in the Chicago suburb of Libertyville. EDGE credits normally apply to corporate income tax payments, but the state legislature allowed the smart-phone company to keep employee income tax withholding payments instead. Motorola Mobility was awarded several million dollars more in job training and other grants.

When Panasonic Corporation of America let it be known it was considering moving its headquarters out of New Jersey, the state offered the company a tax credit worth just over $100 million to stay. But it couldn’t remain at its existing site in Secaucus. The Urban Transit Tax Credit required a relocation, so the state’s Economic Development Authority got the Japanese electronics firm to agree to move a few miles down the road to Newark. The arrangement was expected to provide a big boost in tax revenue for Newark (money in effect poached from Secaucus), but the struggling city for some reason decided it was necessary to give back a portion of that to Panasonic in the form of more subsidies, the amount of which has not yet been determined.

After raising the possibility of moving out of state in response to an increase of one half of one percent in local income taxes, American Greetings agreed in March to keep its corporate headquarters in northeast Ohio. All it took was a state package of grants, tax credits and low-interest loans worth an estimated $93 million over 15 years. Once the greeting card company settles on the exact site, it is likely to get additional local assistance that will put its total subsidies above $100 million.

A few weeks after the American Greetings deal, ATM manufacturer Diebold, which had made similar noises about a possible move to another state, was also induced to keep its headquarters in northeast Ohio. It, too, is slated to get total subsidies of about $100 million—$56 million in refundable tax credits from the state and anticipated local “incentives” of more than $40 million.

Sears Holdings could soon join the club as well. Actually, Sears is already a leader in it. Back in 1989 it got a subsidy package of $178 million for moving its headquarters from downtown Chicago to exurban Hoffman Estates, 29 miles away. The state and local tax subsidies from that deal are set to expire next year. Playing the we-might-move-out-of-state game, Sears has set off a frantic effort by Illinois officials to extend the company’s subsidies for another 15 years. No deal has yet been announced.

It is frustrating to see one company after another get away with job blackmail. If only we could get the FBI to take an interest in this kind of stickup.

Reposted from the Dirt Diggers Digest.