Archive for the ‘Job Piracy’ Category

Colorado Proposal Would “STIF” Taxpayers

March 4, 2011

Buckingham Square Mall, Aurora, Colorado

The Colorado Senate is evaluating a risky new development subsidy proposal that passed in the House last week.  House Bill 1220 would, for the first time, allow the diversion of incremental state sales tax revenues to back bonds used to finance road construction for new retail projects.  Specifically, the bill would permit sales tax increment financing (STIF) to be used for projects that have been approved by the state department of transportation but lack dedicated state funding to secure federal highway matching funds.

The policy problems inherent in this bill are many.  STIF is designed to subsidize retail projects, ignoring the fact that they are not a very effective form of economic development.  Building new stores doesn’t grow the economy – it only shifts consumer spending from one place to another.  Providing subsidies to move low-wage retail jobs around a metro area is a waste of taxpayer funds.  The East-West Gateway Council of Governments (St. Louis metro region) found in its January 2011 study that the region had spent $4.6 billion subsidizing retail development between 1990 and 2007.  During that period, 5,700 new retail jobs were created in the metro area, at an apparent cost of $370,000 per job.

STIF makes a poor economic development tool for other reasons as well.  Sales tax receipts are unpredictable, especially during leaner economic periods.  Determining the value of the incremental increase in sales tax revenues is nearly impossible if assessors attempt to estimate how much retail spending is “new” and how much was merely cannibalized from nearby retail establishments.  STIF also promotes the fiscalization of land use—the unwise practice of letting tax revenue considerations control planning decisions.  California repealed STIF in 1993 to avoid this problem.  Colorado’s proposal is worse because it would only subsidize new retail developments that rely on highway access, making it biased against existing retailers in urban centers.

Another important consideration is that Colorado can’t afford to sacrifice the existing sales tax revenues that it would lose to STIF-subsidized development.  As a TABOR (Taxpayer Bill of Rights) state, Colorado cannot raise new revenues without statewide voter approval.  This is likely the reason that the development lobby is seeking this subsidy in the first place.  As a result of the economic recession and TABOR, Colorado’s fiscal crisis is so dire that the state cannot afford to fund highway transportation projects despite the fact that federal matching funds are on the table.

HB 1220 would sidestep the appropriations process for funding highway construction, shortchange the state’s sales tax revenue collection, subsidize the relocation of low-wage jobs in suburban fringe areas, and contribute to the growing list of dead malls in Colorado.

Study: States Should Grow Their Own High-Tech Jobs, Shun the Tax-Break “War Among States”

January 20, 2010

Pennsylvania and six other states vying with one another to grow their high-tech economies will best succeed by focusing on their existing employers and shunning the “economic war among the states” involving costly tax-break competitions.

That’s the finding of a major study released today by Good Jobs First. Ohio, New Jersey, New York, Maryland, North Carolina and West Virginia are the states compared.

As states experience their most severe revenue crisis in post-war history, the study charts a positive alternative strategy for the most effective job-creation investments.

The study draws its conclusion from two unique analyses of Pennsylvania. One details where the state’s high-tech jobs have come from since 1990; the other reveals the effective tax rate for high-tech companies in all seven states. It finds only minimal differences among tax rates—even when the states’ most lucrative economic development incentives are accounted for.

“Over time, all the growth in Pennsylvania high-tech jobs comes when existing workplaces expand and new ones are born—not from smokestack-chasing,” said Greg LeRoy, executive director of Good Jobs First and primary author. “We believe the same analysis would find similar results for the six other states.”

Instead of competing with each other for specific companies, states’ resources will best be spent strengthening small, young and locally owned businesses, and improving the skills of workers to match industry needs, the study concludes.

Although interstate movement of high-tech jobs is almost negligible, offshore job flight is a far more significant issue. The study recommends redress be sought through federal trade policy, not to be confused with state tax policy. The study provides eight case studies of big-ticket incentive deals including Dell, Google, AMD, Westinghouse, two pharmaceuticals, a plastics factory, and a research lab.

The study was funded by the Pittsburgh-based Heinz Endowments, a regional philanthropic leader in developing strategies to spur high-tech job growth. The public announcement of the study came just before a meeting sponsored by the Endowments to discuss implications of the findings with participants from the seven states and other economic development organizations. Good Jobs First is a non-profit research center based in Washington, DC promoting best practices in economic development. The study is online at www.goodjobsfirst.org/PAhightech.cfm.

More States Yell “Cut” on Film Tax Credits

October 6, 2009

show businessA decade ago, the main challenge to California’s dominance in the movie industry came from north of the border. Toronto and Vancouver lured film shoots with the cheap Canadian dollar and government subsidies.

Eventually, changes in currency rates diminished Canada’s allure, but Hollywood then found itself contending with a domestic threat: More and more states were modifying their tax codes to provide incentives for film companies.

Economic development officials across the country took as their motto: “There’s no business like show business.”

Now, however, with states suffering runaway costs, mediocre benefits and recurring abuses, the great film tax-incentive gold rush is losing steam. Various states are eliminating, cutting back or at least debating their film subsidies. In one state, Iowa, evidence of mismanagement in the tax credit program has created a political uproar and prompted a criminal investigation.

The first wave of film subsidies were sales-tax exemptions on the goods and services purchased by film crews while on location. But then states, led by Louisiana, began to sweeten the pot by rebating a share of in-state costs via corporate income tax credits.  States such as New Mexico even began making interest-free loans to film production companies.

As more than 40 states jumped on the film incentive bandwagon, there was growing competition for the limited number of projects taking place.  States began boosting the portion of costs they would rebate or convert into tax credits, with Michigan jacking its level up to 40 percent (or 42 percent in some cases) and Iowa later topping that with 50 percent.

Since film companies typically don’t owe any one state much income tax, states increasingly allowed producers to sell the credits to in-state businesses or wealthy individuals. Last year, Louisiana ended up paying out more than $27 million for the Brad Pitt movie “The Curious Case of Benjamin Button.”

While tax and budget watchdog groups often criticized the subsidies from the start, only recently have film incentives begun to lose their star appeal.  Here is a rundown of the main controversies:

IOWA. The state adopted film incentives in 2007 and expanded them earlier this year, allowing movie companies to recoup up to 50 percent of their costs. The projected annual cost of the program jumped to $300 million, which would make it the state’s largest economic development expense. Last month, amid reports of irregularities and poor record-keeping in the program, the state’s economic development director resigned, the head of the state film office was fired, and the tax-credit program was suspended. Now a criminal probe has been launched, and some legislators are warning that the whole program may be scrapped.

MICHIGAN. As the state grapples with the country’s highest unemployment rate, there is growing debate on the wisdom of its generous film subsidy program. Earlier this year, a state budget analyst told the state Senate Finance Committee that the incentives would never pay for themselves. Recently, Gov. Jennifer Granholm proposed scaling back the credit to help fill the state’s budget gap.

WISCONSIN. Earlier this year, Gov. Jim Doyle proposed eliminating the 25 percent refundable tax credit and replacing it with a program to encourage the creation of permanent film-industry jobs in the state. Subsequently, the state Department of Commerce issued a report arguing that the credits provided little net economic benefit for the state. The legislature capped the program at $3 million a year, and then Gov. Doyle used his veto power to lower the annual ceiling to $500,000.

CONNECTICUT. In June, the fiscal watchdog group Connecticut Voices for Children released a report showing that the state’s film tax credits have largely been subsidizing out-of-state personnel and businesses. The report thus found that the state’s costs far exceeded its economic benefits.  Subsequently, the legislature debated several methods of restricting the credit. In her latest budget proposal, Gov. M. Jodi Rell called for capping the credits at $25 million a year.

MASSACHUSETTS. In July the state Department of Revenue released a report finding that only 16 percent of the wages paid by subsidized film productions went to Massachusetts residents. It also found that of the $166 million in credits approved since 2006, $149 million were sold to third parties, “primarily insurance companies, financial institutions, and corporations.”

LOUISIANA. Unlike Iowa, where the uproar over irregularities came to light after legislators expanded the incentive program, lawmakers in Louisiana boosted the film tax credit (and made it permanent) this year despite earlier revelations that the state’s film commissioner had accepted bribes from a film producer in exchange for inflated tax credits. The official, Mark Smith, was sentenced to a two-year prison sentence in July. Now it turns out that members of the New Orleans Saints football team were victims of another film tax credit scam. So far, the scandals have not prompted calls for ending the tax credits, but they have seriously tainted the program.

Despite this parade of bad reviews, some states still have stars in their eyes. Alabama, New York, North Carolina, Ohio and Utah are among the states that have adopted or expanded film tax credits in the past 18 months. Even California finally joined the club. Yet the worsening fiscal crunch and the growing body of evidence that the incentives don’t pay off will likely cause more states to consider halting the tax credit gravy train.

Struggling Chicago finds $25 million for United Airlines

September 3, 2009

Last month, the City of Chicago offered a substantial tax increment finance (TIF) subsidy of $25 million to an ailing United Airlines (UAL) if it promised to relocate its operations center to the Willis Tower (formerly the Sears Tower). Use of TIF as a relocation incentive is problematic given net new jobs are not being created and TIF is intended to help revitalize downtrodden areas, not encourage occupancy in skyscrapers.

The TIF subsidy encourages UAL to leave its current operations center next door to Chicago’s O’Hare Airport, shifting commutation patterns for 2,800 employees –employees who probably use airport facilities.  The operations center used to house UAL’s headquarters between 1961 and 2006 until the city gave tax breaks and incentives to UAL for a new office in the Loop. Why would an airline relocate its operations center 19 miles away from the world’s 4th busiest airport?

Historically, Chicago and outlying suburbs use incentives in controversial ways. In 1989, Sears, Roebuck & Co. announced that it was seeking to relocate from the Sears Tower to cut costs (see page 36 of our 2003 report, A Better Deal for Illinois). The State of Illinois feared losing $411 million in income taxes (from 5,400 jobs) and 2,200 ripple-effect jobs if they left Illinois. An affluent suburb 29 miles northwest of the Loop put together what was the largest subsidy package ever in Illinois history at $178 million. The state not only chipped in but expanded the definition of ‘blight’ in Illinois’ TIF law so that the wealthy suburb could buy 786 acres of land with TIF bonds to be repaid out of Sears’ property taxes.

Although Sears promised to make up shortfalls in the property tax revenues (and did in 1998 and 2001), missing was a clawback relating to the 5,400 jobs which the state based its incentive rationale on from the get-go. Sears never approached the original employment number, which begs the question: did it move out of necessity or to avoid paying for mass layoffs and the negative media attention?

The City of Chicago is in a pinch. Two recent winters have threatened the city’s budget to the brink of collapse and forced the mayor to lease the city’s parking meters to a private entity for 75 years. Despite city coffers in ruin, TIF funds overflow. A new report by the Chicago Coalition for the Homeless shows TIF-funded units are disproportionately sold or rented to high-income households. Recent investigations indicate that TIF dollars are awarded on dubious basis in lieu of need in a city full of questionable zoning practices. Moreover, a recent $10.4 million TIF deal fell through, leaving the city without the jobs it paid for. Despite this, the city resists passing TIF sunshine laws.

Chicago’s 158 TIF districts covering 30 percent of the city are diverting revenues that would otherwise keep schools solvent, plow streets, maintain public transit, and fix potholes. TIF has strayed from revitalizing distressed communities and is instead being used to shuffle tax base across the region. Moving jobs does not create new jobs. TIF reform is long overdue in Illinois.

Will the Stimulus Be Frittered by Job Wars Among States?

June 30, 2009

In a perversion of President Obama’s intentions, there are troubling signs that the “economic war among the states” is threatening to fritter away the stimulus act.

If ever there were a time for the states to stop using taxpayer funds to chase smokestacks (and big-box retail and biotech and sports franchises and…), it would be now. Suffering their biggest budget deficits in decades, states have been slashing everything from healthcare for poor children to services for seniors.

Recovery Act dollars have staunched some of the bleeding: dozens of vital public services are being propped up by the Recovery Act’s $177 billion in fiscal relief, plus $129 billion for safety net aid and training, plus $62 billion for energy and environment, plus $48 billion on transportation, etc.)

Surely, President Obama does not intend for the states to take these funds, turn around and dole out massive giveaways to sweepstakes competitions or for job piracy. Yet despite state budget woes, companies still feel entitled to game the system, and the states are passively returning to jobs wars as usual.

Consider these familiar story lines: a company “whipsaws” states against each other for a massive subsidy package; a state reacts to “losing” a competition by announcing it is enacting costly new giveaways; a local government makes a big gaffe and asks for Recovery Act dollars for a job-consolidation deal; and a state cynically labels a giveaway to developers as the “Economic Stimulus Act of 2009.”

  • The Recovery Act includes $2.4 billion from the Department of Energy for the development of hybrid lithium-ion automotive batteries. A multi-company consortium, NAATBat, gets six states to compete for a 2,000-worker facility, and Kentucky “wins” in April with a package valued at $200 million, or $100,000 per job (before the DOE grant).
  • Michigan responds to this news the next day with $555 million worth of subsidies for several battery facilities. Soon the governor of blames his Senate for the loss of an expansion to Michigan, saying it failed to enact enough subsidies.
  • Multinational NCR (formerly National Cash Register) pits a few states against each other for its 1,250 headquarters jobs; the company has been based in Dayton, Ohio for 125 years. Georgia “wins” with a bid valued at almost $100 million; the jobs will move to the Atlanta suburb of Duluth. Ohio officials of both parties sharply criticize the move, saying NCR never gave them a serious chance for retention.
  • To qualify for Georgia’s “Mega Job Tax Credit,” NCR simultaneously announces it will consolidate more than 800 ATM manufacturing in Columbus, Georgia. The jobs will apparently come from multiple locations (perhaps including some from overseas). In a major gaffe, local officials ask for about $5 million in Recovery Act monies as they prepare a vacant plant for the deal.
  • GM (majority-owned by U.S. taxpayers and the beneficiary of almost $21 billion in TARP funds) approaches the governor of Tennessee seeking $200 million or more in “front-end money” to produce a new small car in Spring Hill, Tennessee (pitting it against Janesville, Wisconsin and Orion Township, Michigan). To his credit, Gov. Phil Bredesen complains publicly about the cost and the front-loading. (But then, the Volunteer State set a new record last year for auto assembly-plant subsidies when it awarded Volkswagen a package worth $577 million.) GM chooses Michigan.

Finally, New Jersey: a bill there would create the nation’s most radical Tax Increment Financing (TIF) law, and it was cynically named the Economic Stimulus Act of 2009. The bill, apparently headed soon to Gov. Jon Corzine’s desk, would subsidize developers by allowing the diversion of 22 different revenue sources—that is not a typo, yes 22 revenue sources. Yet the bill has no fiscal note estimating its cost, and the state does not comply with its law requiring disclosure of such giveaways. So taxpayers won’t be able to see how much money is taken away from schools and other public services.

The issue here is simple—money is fungible—so federal taxpayers have every right to question states throwing around such huge sums of it.

In most cases, the connection between Recovery Act dollars and sweepstakes subsidies is one step removed. Most states and cities got that memo long ago: use your own money when pirating jobs from one another, so that technically, legally it cannot be claimed that Uncle Sam is directly paying for interstate job piracy. And with Recovery Act dollars flowing through dozens of state agencies, direct connections are blurred.

But because money is fungible, states are more able to grant these giveaways because the Recovery Act has partially stabilized their coffers.

Cynics might say: what should we expect? Federalism means it is okay for large, footloose corporations to play states and cities like a fiddle so that small businesses and working families get stuck with higher taxes and lousier public services. (And home rule means it is okay for companies to do the same thing to cities and suburbs, fueling sprawl and stretching local tax bases so thin they become unsustainable.)

My cease-fire proposal: the U.S. Chamber of Commerce and the National Governors Association should jointly announce for the next two years, as the Recovery Act plays out, a moratorium on the economic war among the states. To borrow a phrase from Seattle activists: It’s Time for More Important Things.

President Obama: don’t let your Recovery Act investments get frittered away by corrosive, zero-sum, unbridled federalism!

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.

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.

Is Bridgestone Driving Akron to Provide the Kind of Subsidy Deal Given to Goodyear?

February 4, 2008

The tire industry in Akron, Ohio—traditionally known as the rubber capital of the world—is a shadow of its former self. And now Bridgestone Firestone is threatening to relocate its 600-person technical center to Tennessee unless the city comes across with a juicy subsidy deal. A couple of days ago, the Cleveland Plain Dealer quoted deputy mayor Dave Lieberth as saying that the size of the package would be decisive in the company’s decision on whether to move.

As is typical in these situations, a Bridgestone official made it seem as if the money was the last thing on the company’s mind. “We are looking at quantitative and qualitative factors. One is the historic ties the company has with Akron,” a Bridgestone VP told the Plain Dealer. Those ties did not prevent Firestone from moving its headquarters to Chicago in the 1980s nor did they prevent Bridgestone from moving them again to Nashville after the Japanese company acquired Firestone.

It is not yet clear whether Bridgestone actually plans to stay in Akron and is using the threat to leave as a way of pressuring the city to offer the subsidies—or whether it has made up its mind to leave and is letting the city go through the motions of putting together a retention package.

Recently, Bridgestone’s competitor Goodyear got Akron to put up some $50-60 million in subsidies in exchange for a commitment to build its new headquarters in town rather than accepting one of various out-of-state offers.

Both Goodyear and Bridgestone received controversial subsidies in North Carolina that are the target of a lawsuit filed by the North Carolina Institute for Constitutional Law. That case, filed in December, is pending in state court.