Archive for the ‘Property Taxes’ Category

Taxing the Tax-Exempt

March 5, 2012

Tax Day is approaching, and we will soon hear a rising chorus of criticism of large corporations such as Verizon and General Electric that don’t pay their fair share.

That’s as it should be, but there is another group of big entities that also dodge taxes but receive a lot less scrutiny: major non-profit institutions such as universities and hospitals.

Strictly speaking, giant non-profits are not dodging taxes, since they are largely tax-exempt. But that’s precisely the problem. These rich and powerful institutions increasingly behave like for-profit corporations yet are given privileged status under the tax laws. At a time when governments at all levels are desperate for revenue, that privilege is no longer a given.

The latest battleground over non-profit tax exemption is Providence, Rhode Island, where Mayor Angel Taveras has been trying to get local institutions such as Brown University to do more to help the struggling city. The Ivy League college has been making voluntary payments to the city, but Mayor Taveras wants Brown, which has an endowment of about $2.5 billion, to play a greater role in averting the possibility that Providence could end up in bankruptcy. Brown’s facilities in Providence are reported to be worth more than $1 billion, which would mean $38 million in revenue for the city if they were taxed at the commercial rate. Brown is paying about one-tenth of that amount. The mayor’s effort has won support from students at Brown, who have recently held rallies calling on the university to pay its fair share (photo).

It probably comes as a surprise to many that Brown is paying anything at all to the city. Providence’s arrangement with Brown is part of a limited but growing trend among cash-strapped local governments to persuade big non-profits to make voluntary payments in lieu of property taxes, or PILOTs. These are cousins of the PILOT agreements that for-profit companies often negotiate with localities when they are receiving large property tax breaks but want to be sure (often for public relations purposes) they are contributing something to vital local services such as schools and fire departments.

A 2010 report by the Lincoln Institute of Land Policy found that localities in at least 18 states have negotiated PILOT deals with non-profits. This often occurs quietly, but Providence is not the only city that has gotten into a high-profile tug-of-war with large tax-exempt institutions. Perhaps the most contentious case is Boston, home to numerous universities and hospitals with deep pockets.

Boston, where more than 50 percent of the land is tax-exempt, has made limited use of voluntary PILOTs for several decades. Although the city’s program was said to be the largest in the country, it was generating modest amounts of revenue.  In FY2008 the total was about $30 million, but half of that came from the Massachusetts Port Authority, which runs Logan Airport and the Port of Boston; the rest came from about two dozen healthcare and educational institutions.

In 2009 Boston Mayor Thomas Menino decided to shake things up by forming a PILOT Task Force. The group issued a report in December 2010 recommending that the city seek to enlist all non-profits owning property worth at least $15 million into the PILOT system with payments equal to 25 percent of what their tax bills would be if they had no exemption. The city eagerly agreed, and last year it began sending letters to several dozen major non-profits asking them to pay up.

Boston inspired other Massachusetts cities such as Worcester, home of Clark University, to join the PILOT bandwagon. (Cambridge did not need inspiration; it has been collecting voluntary payments from Harvard, whose assets now exceed $40 billion, since 1929).

The Boston approach has also generated a lot of criticism from those who argue that sending out letters pressuring non-profits for specific sums is not exactly voluntary and may be tantamount to putting those institutions back on the tax rolls, albeit at a discounted rate.

As much as non-profits may grumble about PILOTs, these payments are quite benign compared to the fate that has befallen some hospitals: the complete loss of their tax-exempt status. For years, healthcare activists have charged that many non-profit hospitals were not functioning as true charitable institutions and should thus not enjoy the privilege of tax exemption.

In 2004 officials in Illinois sent shock waves across the hospital industry by revoking the tax-exempt status of Provena Covenant Medical Center in Urbana. Six years later the state supreme court upheld that determination. In the intervening period, some other Illinois hospitals lost their exempt status and the question of whether non-profit hospitals were doing enough to deserve tax exemption became an issue at the federal level, thanks to relentless efforts by Iowa Sen. Chuck Grassley.

The issue flared up again recently in the wake of a front-page New York Times article reporting that major New York non-profit hospitals have been providing little in the way of charity care, even though on top of their tax exemption they are allowed to tack a 9 percent surcharge on their bills to pay for such care.

Whether as the result of PILOTs or loss of exempt status, increasing numbers of large non-profits will probably find themselves paying more of the cost of government. This is good news for revenue-starved public officials, but how long will it be before these non-profits decide to follow the lead of their counterparts in the for-profit world and begin seeking subsidies to offset those obligations?

Cross-posted from the Dirt Diggers Digest

NYC Unleashes Decades of Subsidy Data

February 1, 2012

After years of nudging by Good Jobs New York and others, subsidy transparency in the Big Apple took a giant leap forward yesterday.

Thanks to the New York City Council and a bill sponsored by Brooklyn’s Diana Reyna, the New York City Industrial Development Agency released data on 623 discretionary subsidy deals. The new report – which includes data as far back at the 1980’s – is trend-setting for being in excel (not just in PDF format) and for including all currently subsidized firms. Previous reports were only required to include project for a seven-year window. Previously, GJNY transcribed this data from PDF’s to create its “Database of Deals” and we will merge the two databases giving New Yorkers of all stripes: advocates, community organizers, elected and public officials, journalists and academics a unique tool that shines a light on how discretionary subsides are allocated.

As we explained in October of 2011 when the bill was passed, New York City is on an up- swing with regards to subsidy transparency. The report, formally known as the Annual Investment Projects Report, includes 126 fields of data including:

  • Current employment, promised employment and employment at time of deal
  • The amounts and types of city subsidies used to date and remaining
  •   Amount of subsidies recaptured
  • Percentage of employees that are city resident
  • Percentage of employees offered health benefits

Combining new subsidy deals, extensive company-specific data in a downloadable, excel format makes what we believe, to be the country’s best local subsidy disclosure report. Though, as reported last month, New York State still has plenty of room for improvement.

Good Jobs New York will be reviewing the data in the weeks ahead and will report back our findings. In the meantime, we encourage you to do the same!

Tough Love for California TIF

February 25, 2011

California Gov. Jerry Brown is proposing extraordinary revenue- raising plans to tackle the state’s $28 billion budget deficit.  The Brown Administration has proposed that the state dissolve the state’s community redevelopment agencies (CRAs), regional quasi-public bodies charged with administering redevelopment dollars.  Tax increment financing (TIF – the mechanism through which redevelopment is funded) is an enormous expense in California, representing $5.8 billion in diverted tax revenues a year.  The current proposal would retire current redevelopment debts with agencies’ existing funds, allowing the $1.7 billion to be applied towards the state budget.  Remaining funds would be returned to local governments and school districts.

Unlike the Enterprise Zone program, also slated for elimination by the Brown Administration, redevelopment in California actually does provide some clear benefits to the state.  TIF plays a significant role in providing affordable housing in California:  twenty percent of all TIF revenues must be set aside for affordable housing projects.  When properly harnessed, redevelopment can spur equitable revitalization.  Some of the most successful community benefits agreements in the country come from Los Angeles, where LAANE and other organizations have leveraged redevelopment funds to provide good jobs and affordable housing to underserved communities.   Madeline Janis, executive director of LAANE, Vice Chair of the Los Angeles CRA Board, and board member of Good Jobs First has argued that reform – not elimination – of CRAs is the best way to advance economic recovery in the state.

Reform would help to address the overuse of redevelopment dollars in California.  A February report by the Legislative Analyst’s Office found that CRAs in some counties have created so many projects that more than 25 percent of all property tax revenue is allocated to the agency.  One needs to look no further for examples of irresponsible use of TIF funds than San Jose and Oakland.  Both cities are scrambling to assemble and approve new subsidized professional sports stadium plans before the state can move to recapture redevelopment funds.  Cities throughout California are moving decisively to spend or otherwise encumber their accumulated redevelopment funds.

California’s $28 billion budget gap is unparalleled, but budget pressures are bringing tough love to the economic development-industrial complex around the country.  Getting back to basics is critical. Programs that pay companies to do what they would have done anyway – that fail to meet the definition of the word incentive, that don’t correct market failures – are deservedly vulnerable.  It’s only fair, given deep cuts being proposed for aid to children, seniors, students and the unemployed.

Finally, Subsidies are Sexy in New York City

November 17, 2010

National retailers get it. Commercial office towers in Midtown Manhattan get it. But nothing seems to have grabbed the attention of New Yorkers like subsidies for strip clubs. Last week, Juan Gonzalez of the Daily News revealed – in true tabloid form on the paper’s front page – that a handful of strip clubs benefit from the Industrial and Commercial Incentive Program.

The Industrial and Commercial Incentive Program (ICIP) program provides property tax breaks to companies that construct or renovate property in most areas of New York City. For years GJNY has urged officials to rethink this program. Then, thanks mostly to a 2008 report by Manhattan Borough President Scott Stringer’s office, ICIP was reauthorized as the Industrial and Commercial Abatement Program or ICAP in 2008. Now utilities are exempt and benefits for some retailers and property owners in parts of Midtown and Lower Manhattan are have been reduced for future applicants.

But even with these reforms the program has moved far from its 1970’s original intent to help manufacturers expand in the outer boroughs, the Bronx, Brooklyn, Queens and Staten Island. “This is one of the weirdest exemption programs ever devised,” Borough President Stringer told the Daily News after learning about the strip club subsidies.

Additional proof that the program has been watered down, beneficiaries not only include Penthouse Executive Club west of Times Square and Starlets Gentleman’s Club in Queens but also office buildings on Park and Fifth Avenues and several luxury hotels.

ICAP is up for renewal by the New York State legislature next year. These revelations will most assuredly mean a new set of eyes on this subsidy program and hopefully lead to more substantial reforms.

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.

Opening Week Problems for New York Yankees Go Beyond Blowin’ in the Wind

April 24, 2009

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There’s more going on in The Bronx at the new Yankee Stadium opening week than just the now infamous wind tunnel that’s left fans aghast. Here’s a run down of news that’s probably kept the team’s public relations staff team very busy:

 

            The City’s Economic Development Corporation released job figures for the stadium but they raised more questions than answers. For example, how many Bronx residents were hired? What are the wages and benefits? As expected, most of the new non-construction jobs are seasonal so what is the economic impact of those short-term jobs in contrast to the billion dollar subsidy price tag?

             Assembly Members Richard Brodsky and James Brennan asked the New York State Supreme Court to have the Yankees comply with a subpoena as part of the Assembly’s investigation into the $1.3 billion the team received from the New York City Industrial Development agency in tax-free financing the new stadium. It seems the subpoena is having an effect as the Yankees might have to turn over documents.

             South Bronx residents and advocates joined clamoring Yankee fans on opening day to demand officials move more quickly to replace the over 22 acres of parkland where the new stadium now sits.

             New York City Comptroller William C. Thompson, Jr. released another audit showing the Yankees owe the city $68,000 in rent. Not paying the rent is a disturbing trend for the Yankees as previous audits by Thompson show they have underestimated the rent by about $3 million since 2002.

             And finally, the already dubious economic multiplier effect of the new stadium is in serious doubt since the priciest seats are empty.  What are the restaurants, parking garages and concession stands in the stadium to do without rich fans?

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.

RAD-ical TIF Deregulation a Cause for Concern in NJ

December 17, 2008

or any city services, for that matter...New Jersey’s Revenue Allocation Districts (RADs—the Garden State’s version of tax increment financing) may soon undergo severe deregulation. Senate Bill No. 2299, passed by the Senate Economic Growth Committee, loosens up RAD regulations on multiple fronts. The proposed legislation expands the types of revenue that municipalities may direct within RADs, expands the types of areas eligible to become RADs, and eliminates the requirement that local finance boards approve RAD plans.

The bill expands the permissible sources for incremental revenues. Under the proposed RAD revisions, allowable revenue sources would encompass, among other things, (take a deep breath here) incremental payments in lieu of taxes, payroll and wage taxes, lease payments made to the municipality, sales and hotel taxes, 95 percent of the property tax increment, and income from operation of public facilities. (Full list available here.)

The bill would also allow the creation of RADs in “areas in need of rehabilitation” as well as redevelopment areas. Moreover, under the former RAD Financing Act, proposals were required to undergo two levels of approval—one local and one state. The proposed legislation eliminates the requirement that local finance agencies authorize new RADs. The staggering lack of municipal oversight over the financial impacts of new RADs allowed by the proposed bill is a dangerous turn for local finances. Especially so when one considers that the state legislative fiscal estimate of the bill’s effects on municipal revenue losses and gains is entirely “indeterminate.”

The legislation is supported by the New Jersey Business and Industry Association, the state Chamber of Commerce and the National Association of Industrial and Office Properties, all of whom know a good deal when they see one. “Now is not the time…to worry about upsetting apple carts or to be timid” with economic development strategies, said Senator Raymond Lesniak, chairman of the Senate Economic Growth Committee and the bill’s sponsor.

We’re not so sure about that. In the current economic climate, TIF is proving to be an unwieldy burden for many cities, especially those faced with tight budgets and outright shortfalls. According to Jon Shure, president of New Jersey Policy Perspective, a nonprofit research organization, “This is like going on a diet because you’re starving. While needs are growing, revenue will shrink. Once more, we’ll prove that giveaways are a poor substitute for building prosperity through public investment.”

“Smoking Gun” found in NYS Investigation of New Yankee Stadium

December 17, 2008

smoking-gun1Juan Gonzalez of the Daily News reports today that an investigation into the public financing of the new Yankee Stadium project by Assembly Member Richard Brodsky, (Chair, Committee on Corporations, Authorities and Commissions) has uncovered emails that show City officials inflated the land value under the new stadium, allowing the team to obtain a higher amount of tax-free bond financing.

This new revelation comes into play as Brodsky and Rep. Dennis Kucinich (D-Ohio) chair of the House Domestic Policy Subcommittee have been pushing the city to release all email exchanges among city agencies on the issue. This past summer, Brodsky reported that his initial investigation suggested that the city Department of Finance boosted the value of the land from $26.8 million to $204 million. 

While it would be out of character for Brodsky to end his quest for all the documents he’s requested, this newest finding he claims is the “smoking gun”.

But don’t think this recent news would cause city officials to reconsider a new round of public financing for the Yankees or the Mets. Yesterday, the New York City Industrial Development Agency posted a public hearing notice on a proposal to give the Yankees an additional $371 million in tax exempt financing (of which $111.9 million would be federally taxable) in addition to the $942 million approved in 2006. The Mets, which got $547 million at the same time the Yankees got their financing, are requesting $82.2 million more.

In the past few months, the new Yankee Stadium project has taken more twists and turns than any time since the project was announced in 2005.  In addition to this week’s news, other emails made public recently showed that City Hall considered withholding its support for public financing if the City didn’t get a luxury suite with free food.

The news of more giveaways to rich baseball teams at a time when Gov. Paterson proposed a doomsday budget yesterday, we hope, will encourage New Yorkers to make their voices heard at next month’s IDA hearing.

Kansas City Forced to Bail Out TIF Districts

December 5, 2008

piggybank_sm11In Kansas City, subsidized development projects designed to pay their own way with “guaranteed” revenue streams are requiring local government bailouts and cash advances to stay afloat. The city—already strapped for cash and expecting a $60 to $80 million budget shortfall next fiscal year—just received more bad news for city finances. A recent memo addressed to the City Council and Mayor Mark Funkhouser projects a $9.3 million shortfall in tax revenue dedicated to debt service for tax increment financing (TIF), sales tax increment financing (STIF), and Super TIF projects in the city.

Of the fourteen development projects described in the memo, ten are failing to meet financial performance expectations. The underperforming projects include retail and hotel developments, parking garages and a manufacturing facility. The Power and Light TIF district alone is falling short of break-even revenues by $4 million. The city has no choice but to make up the difference in stopgap funding and appropriations from the city’s general fund.

Despite many warning signs (also here and here) Kansas City has continued to subsidize even development projects deemed “high risk” by its own Tax Increment Finance Commission. In addition to the problems of weakening tax increments, developers are encountering obstacles to obtaining private financing. The developer of Citadel Plaza recently turned to the city for a cash advance after losing private funding due to destabilized bond markets. With the support of Mayor Funkhouser (who, by the way, ran on a platform of reining in TIF abuse in the city) the council recently approved a $20 million cash advance for the project, in addition to the $40-plus million TIF funds already approved by the city.

We’re seeing headlines from all over the country describing troubled TIF districts. Cities and towns in Texas, Indiana, Illinois, Ohio and California, just to name a few, are being forced to foot the bill for TIF-ed projects that aren’t paying out as planned.

Given current economic conditions, you’d think local governments would reevaluate their heavy reliance on the taxpayers’ credit card to fund risky development projects. State and local financial outlooks for this year and next are abysmal and budgets will likely remain highly unpredictable for a while. It’s high time cities questioned the reasoning behind the long term diversion of sales and property tax revenues to subsidize private development, especially when they’re being forced to cut back on services to meet debt service on these projects. Plummeting tax revenues are wreaking enough havoc on local budgets without the additional financial burden of underperforming TIF districts. The use of TIF is risky under good circumstances, and may be completely untenable in the current economic climate.