Archive for the ‘Subsidies’ Category

New ProgressOhio Report: JobsOhio Unaccountable and Ineffective

May 29, 2014

ProgressOhioLogo_transp1

ProgressOhio released a report today questioning the accountability and effectiveness of JobsOhio, the privatized economic development agency created by Gov. John Kasich in 2011.  The organization found that JobsOhio “exaggerated its impact, funneled state money to companies that did not create or retain the promised jobs, and has a pattern of helping companies with ties to its politically potent governing board.”

The report was released in conjunction with a discussion hosted by the American Constitution Society.    ProgressOhio Executive Director Brian Rothenberg told the event audience that “JobsOhio is secret because it is private. But we still get glimpses of the toxic mix of public money and private gain.”

Read the full report here.

The Latest from Subsidy Tracker

May 28, 2014

detectiveEarlier this year, my colleagues and I at Good Jobs First introduced a major overhaul of our Subsidy Tracker database. The big change in Tracker 2.0 was the addition of parent company information for entries representing three-quarters of the total dollar value of the dataset. This allowed us to document for the first time the outsized share of subsidy awards received by big business.

In the past three months we have been enhancing the enhancements. We have increased from 965 to 1,294 the number of matched parent companies, which together are linked to more than 31,000 individual awards with a total value of more than $113 billion. Our parent coverage now extends to the full Fortune 1000 as well as the Fortune Global 500, the Forbes list of the largest privately held companies, the Private Equity International list of the top 50 private equity firms (and their portfolio companies) and the Uniworld list of the 300 largest foreign firms doing business in the United States.

Each parent company has its own summary page, which can be accessed through a drop-down menu at the top of the Tracker search form. These pages include cumulative totals for the subsidies received by the company and all its units and subsidiaries; the states in which it has received the most awards; and a list of all the individual awards that went into those totals. Those lists are sortable and downloadable, and they include links to pages with details on the individual entries.

Since the release of 2.0 we have added a variety of new features to the parent summary pages, including indications of the time period covered by the data and the following identifying information: the company’s ownership structure, the location of its headquarters and its primary industry group. (See below for a summary of what these identifiers show.) We have also begun to add other key info sources on the companies, beginning with links (where available) to the firms’ CTJ-ITEP Tax Dodgers pages and to our Corporate Rap Sheets.

Along with the parent pages, we’ve created summary pages for each of the states and the District of Columbia. They show cumulative totals, the parent companies with the most awards and a sortable and downloadable list of all the listings for the state. The top states in terms of cumulative disclosed subsidy awards are New York ($21 billion), Washington ($13 billion) and Michigan ($10 billion).

We have not neglected the task of gathering new data. Led by my colleague Kasia Tarczynska, our effort to find new online and unpublished data has during these past three months resulted in 13,000 new listings, bringing our total to 258,000. Kasia is getting ready to implement a plan for systematically filing FOIA requests for missing data with state and key local agencies.

NEW CUMULATIVE SUMMARY DATA FOR SUBSIDY TRACKER PARENT COMPANIES

Top Parent Companies:

  • Boeing: $13.2 billion
  • Alcoa: $5.6 billion
  • Intel: $3.9 billion
  • General Motors: $3.6 billion
  • Ford Motor: $2.5 billion

Top Industry Groups:

  • Aerospace & military contracting: $14.3 billion
  • Motor vehicles: $13.9 billion
  • Steel & other metals: $8.2 billion
  • Semiconductors: $5.7 billion
  • Oil & gas: $5.3 billion

Top States Based on the Location of Parent Company Headquarters:

  • Illinois: $16.2 billion
  • New York: $13.6 billion
  • Michigan: $8.4 billion
  • California: $8.0 billion
  • Texas: $4.5 billion

Foreign Countries Whose Companies have Received the Most Subsidies for their U.S. Affiliates:

  • Japan: $5.3 billion
  • Germany: $2.4 billion
  • Netherlands: $2.2 billion
  • Italy: $2.1 billion
  • Canada: $1.8 billion

Subsidy Tracker 2.0 has a wealth of new information. Check it out today.

Rhode Island Considers Defaulting on Bonds for Notorious 38 Studios Deal

May 22, 2014
Embed from Getty Images

The aftermath of Rhode Island’s biggest economic development scandal isn’t over yet. In 2010 the state’s privatized economic development agency loaned 38 Studios—a video game company founded by former major league pitcher Curt Schilling—some $75 million in subsidies which the state borrowed to provide. The firm soon failed, apparently leaving taxpayers with an obligation that has risen to $89 million (with interest), including a $12.3 million payment due next year.

Those payments are now in question. Rhode Island’s House Speaker Nicholas Mattiello has scheduled meetings with Moody’s and Standard & Poor’s to discuss the consequences of failing to pay. While these bonds are not backed by the full faith and credit of Rhode Island, a previous consultant to the state made dire warnings about failure to pay, claiming that the move would degrade Rhode Island to junk bond status.

Mattiello became Speaker two months ago after the FBI raided the office of his predecessor Gordon Fox, who had played a significant role in approving the loan to 38 Studios. According to recent news reports, Fox’s lawyer moved to quash a subpoena for documents related to 38 Studios, citing his client’s Fifth Amendment right against self-incrimination. No charges have been filed pursuant to the raid.

Fox also had connections to a Providence lawyer named Michael Corso, who was involved with the 38 Studios deal.  Leaked documents show that Corso was paid $300,000 by 38 Studios to interact with state agencies and officials. Additional revelations show Corso was paid $485 an hour by 38 Studios to evaluate potential incentives for the company. Corso failed to register as a lobbyist on behalf of 38 Studios. This revelation launched an additional investigation this May by State Police into potential lobbying violations.

Corso is also a tax-credit broker. His company, Preservation Credit Fund, had a contract with 38 Studios to allow it to sell tax credits secured by the company. According to Corso’s LinkedIn page, “Preservation Credit Fund works closely with developers and advisors to maximize tax credit benefits, advise on tax credit issues and provide syndication services.” Corso has been dubbed the state’s leading film tax credit broker and has even claimed to be the primary draftsperson of Rhode Island’s Historic Preservation Tax Credit.

In another strange development, the state recently hired First Southwest, a financial adviser it is simultaneously suing for “fraud, negligence, and legal malpractice” in connection with the 38 Studios loan. According to the state’s lawsuit and reported by the Providence Journal, First Southwest was paid $120,000 to pitch the 38 Studios’ loan subsidy to the privatized economic development agency’s board of directors and bond rating agencies.  The lawsuit accuses First Southwest of withholding vital information about the deal, primarily that the company was under-capitalized, thus making the loan appear less risky than it was. The company denies these allegations. New emails made public this week reveal internal discussions amongst 38 Studios executives about downplaying the under-capitalization issue.

It is a little-known fact that states and cities sometimes cover debt obligations for failed or troubled economic development transactions (including tax increment financing districts), even though they are not technically obligated to do so. But the fear of paying usurious interest rates on future deals causes them to reluctantly pay. Good Jobs First has observed that in the Great Recession, some development agencies apparently became very lax in their deal-vetting standards, as politicians were desperate to appear aggressive on jobs.  For performance-based subsidies, at least taxpayers won’t suffer from such deals; but when public debt is floated on insufficient collateral, as in the Studio 38 deal, taxpayers stand to suffer no matter what Rhode Island officials decide to do.

It’s a Teachable Moment about celebrity entrepreneurs, tax-credit consultants, and anxious politicians.

Supersizing New Jersey’s Subsidies

April 8, 2014

What a waste

Economic development incentives are making headlines again in New Jersey.   Following a massive legislative overhaul of the state’s business subsidy programs last year, Good Jobs First predicted that the state would quickly lose control of spending through the expanded programs.  It took less than a year for the state Economic Development Authority (EDA) to prove us right.

The (Bergen) Record revealed this weekend that under the new subsidy structure the EDA has awarded twice the amount of business incentives as it did during the first quarter of last year:

“The grants so far, awarded in the form of tax credits, totaled $355 million. That’s about $89 million a month, compared with about $36 million a month awarded under the state’s main incentive programs in the first nine months of 2013, authority data show. The state made about six awards a month under the revamped programs, nearly double the number in the first nine months of 2013.” (source)

Prior to the state’s business subsidies undergoing scrutiny as a result of the ongoing David Samson/Christie-Gate scandal, and even before the structural overhaul that has allowed the current subsidy surge, New Jersey was already facing criticism for its excessive spending on business incentives.  During its first two and a half years, the Christie Administration awarded nearly $2 billion in tax incentives and grants.

All this spending has done little to help the state’s economy.   New Jersey’s employment recovery rate lags behind the rest of the nation and reports that small business owners are still having trouble accessing Hurricane Sandy recovery funds are persistent.  Unfortunately for residents, the Christie Administration has already demonstrated that doubling the state’s already ineffective business incentive spending isn’t likely to have much of an impact.  Supersizing subsidy spending is no recipe for prosperity in the Garden State.

New Report: Putting Municipal Pension Costs in Context: Chicago

April 4, 2014

Have secretive TIF accounts played a significant role in the underfunding of Chicago pension funds?

A new report out today, Putting Municipal Pension Costs in Context: Chicago, focuses on how Tax Increment Financing or TIF seems to be undermining the city’s budget and has been for the last decade. At a moment when politicians are talking about cutting retirement benefits for civil servants like Teachers, Firefighters, and Policemen, we think it’s useful to remind the public about what’s been dubbed Chicago’s Shadow Budget, none other than TIF.

There’s been no shortage of troubling issues surrounding TIF. We’ve blogged about them a number of times on this blog.

Nearly one out of every ten property tax dollars collected in Chicago doesn’t end up in the city’s general fund or with other taxing jurisdictions that provide public services. Instead, those revenues are siphoned off into what were once secret TIF accounts controlled almost exclusively by the Mayor.

While this report does not specifically call for the abolition of TIF in Chicago or oppose taking other measures to raise the needed revenues to pay for critical public services, we believe that as a matter of honest accounting and fair budgeting, TIF requires careful consideration.

TIF_Costs_Growth

TIF costs have grown significantly in recent years. They have for years exceeded the City’s annual pension liability. Our analysis shows that property tax diversions into TIF have exceeded pension costs in every year since 2007. For example, the city’s pension costs were about $386 million in 2012, while TIF diverted $457 million in property tax revenues in that same year.

TIF_Rev_vs_PensionCosts

When newly elected Mayor Rahm Emanuel took office, he convened a TIF review process in order to fix this so-called Shadow Budget. Although the City made TIF far more transparent as a result, the review did not make TIF any less corrosive towards Chicago’s budget. Recent new rounds of proposed subsidies for things like basketball stadiums and hotels raise serious doubts about whether TIF reform has actually materialized.

Aides to Mayor Emanuel have acknowledged that about $1.7 billion sits in TIF accounts, though $1.5 billion is obligated to various projects through 2017. But if the city is willing to consider breaking pension commitments, why should TIF spending not receive similar scrutiny?

Indeed, in California, Governor Jerry Brown didn’t rule out TIF spending to shore up budgets. Much like in Chicago, TIF in California was siphoning off an enormous amount of property tax revenue: 12 percent overall. When efforts to reform California TIFs failed, the state dissolved the authority of localities to have TIF districts and began the process of unwinding the existing debt obligations.

In the long run, local jurisdictions in California will see a 10 to 15 percent increase in property tax revenues over what they would have had with TIF still in effect.

Over the past decade or so, observers have noted that the City of Chicago had a revenue problem, but rarely have they noted the corrosive nature of TIF spending. According to a 2010 report on pensions issued under the previous Mayor of Chicago, pension funds began running into issues after the year 2000. It was during this period that the city began making what the report dubbed “inadequate contributions” to pensions. Is it a coincidence that property tax revenues lost to TIF more than doubled between 2000 and 2003 and quadrupled by 2007 to exceed half a billion dollars a year?

It’s hard to ignore the evidence that TIF impacted pensions: TIF costs grew, general fund revenues declined, and the city addressed its budget gap in part by making inadequate contributions to public pensions.

Cutting back on TIF in Chicago can and should play a role in shoring up the city’s financial situation.

Coverage of the report can be found at The Chicago Sun-Times & at PandoDaily.

Good Jobs First is a non-profit, non-partisan research center focusing on economic development accountability. It is based in Washington, DC.

Connecticut’s Open Data Website Leads Nation in Adopting Economic Development Transparency Best Practices

April 1, 2014
Screenshot taken from Connecticut's new Open Data website

Screenshot taken from Connecticut’s new Open Data website

Those looking for a model on how to disclose economic development deals should start their search in Connecticut. No joke: Connecticut is cutting edge when it comes to taxpayer transparency on economic development.

Yesterday, Governor Dannel Malloy launched a new website called Data.CT.gov which aggregates numerous datasets that were previously unavailable or difficult to find. Included in this portal are many economic development programs we have doggedly watched and evaluated for transparency and accountability. Our January 2014 study ranked Connecticut 14th on job subsidy transparency: the states’ new website is a clear improvement that would have boosted their ranking into the top ten nationally had it been in use when we ranked all 50 states.

The Governor’s new transparency efforts came to fruition through two executive orders: one creating the website and the other instructing the state’s economic development agency to compile a searchable electronic database of subsidy information.

What makes the Connecticut website such a great model?

  • Clean Data: Often state agencies put up data in a haphazard fashion. Misspellings, data irregularities, and so forth make the data less useable. Worse, sometimes agencies put up data in static, unsearchable PDFs, not databases which contain the same information. When Good Jobs First imports data into our 50-state Subsidy Tracker database, this sort of messy data requires a great deal of clean-up. It’s clear that Connecticut has taken the time to ensure the data isn’t messy.
  • Relevant Data: The Connecticut portal also includes extremely important data that other states frequently forget to include. These fields include things such as clawback amounts, contract date timelines, job benchmarks, the result of a jobs audit, the amount of a subsidy awarded, the amount of a subsidy disbursed in each year, and the facility address. Including these data fields meets many of Good Jobs First’s best practices recommendations. In fact, the only data that really seems to have been omitted from the database is information about the wages and benefits of subsidized jobs (see here).
  • Data Tools: Another open data best practice is to allow users to easily search through the data. The database includes built-in mapping tools, filters, and charts. As the screenshot above illustrates, taxpayers can now easily see on a map all film tax credit recipients that were issued tax credit amounts greater than $1 million.
  • Downloadable Data: Connecticut doesn’t hamstring users like it used to with a single big PDF. Now the data is available in a variety of easy to download formats including XML, CSV, and, of course, Excel spreadsheets.
  • More Data: Frequently states spend a great deal of time disclosing data about a few major programs, but forget to disclose information about other economic development programs. This database includes tax credits, grants, loans, and other economic development tools. For more discussion about tax credit disclosure, see our previous blog on the topic. Connecticut’s data also includes previously undisclosed data about programs. For instance, it includes street addresses for film tax credit recipients.
  • Potential taxpayer savings: In the long run, the database will also save Connecticut taxpayers money. Frequently, Freedom of Information Act (FOIA) requests cost the government great resources in responding. But the new website will include frequently requested FOIA data. In addition to staff time saved, the enhanced ability for more citizens to know how their tax dollars are being spent will prevent waste, fraud, and abuse and enhance accountability.

We encourage you to go on the website and give it whirl: https://data.ct.gov/Business/Tax-Credit-Portfolio-Point-Map/megq-7hbv

Accountability Updates in Oregon

March 20, 2014

intel sign

Two new reports released this week by watchdog groups in Oregon show mixed results for accountability of the state’s economic development subsidies.

OSPIRG released Revealing Tax Subsidies 2014, an update to its previous evaluation of how well the state is complying with its three year old transparency law.  While the state has improved its disclosure since OSPIRG’s last assessment, especially for large controversial programs, the group found that the state is still failing to report key information for 14 of the 19 subsidies covered by the law.  In particular, many of these under-disclosed programs are missing information about the economic outcomes (e.g. jobs, wages, or investment) ostensibly generated by these subsidies.

Lacking such information, it is impossible to know whether the colossal corporate tax subsidies documented this week by the Institute on Taxation and Economic Policy and Citizens for Tax Justice are actually doing the state any good.  The Oregon Center for Public Policy announced yesterday that at least 24 (and probably many more) of the state’s most profitable corporations included in that report have paid no state income tax in recent years.  Oregon has a minimum corporate tax, but companies are able to dodge their tax responsibility with economic development subsidy tax credits.

Read the full OSPIRG report here and see OCPP’s reporting on corporate tax dodging here.  The ITEP/CTJ national study is available here.

New Jersey’s Economic Development Incentives Face Scrutiny with Christie Administration

March 5, 2014

Christie troubleAs the Christie Administration faces intensifying scrutiny over the Governor’s relationships with his political appointees, the state’s economic development incentive awards have also come into question.  This week The New York Times revealed that David Samson, Chairman of the Port Authority and the central figure of “Bridge-gate,” also played a critical role in expanding the scope of New Jersey’s subsidies through his law firm Wolff & Samson.  In addition to lobbying for tax breaks for Honeywell, the firm also served as counsel for the state’s bond deal on the controversial Panasonic relocation, and represented the infamous Xanadu (now American Dream) project when it sought a new set of subsidies from the state.

New Jersey Policy Perspective revealed a year ago that the volume and value of special tax breaks given to companies mushroomed under Gov. Christie’s leadership, rising to a record $2.1 billion in the first three years of his term.  But the subsidy blowout hasn’t demonstrated a positive effect on New Jersey’s employment rate, according to Jon Whiten at NJPP.  Compared to the national average, the state has recovered half as many jobs following the recession.  We may now be getting a better understanding of how these subsidies were used, if not for job creation.

Read the full article “In Job, Appointee Profits and Christie Gains Power” at The New York Times website.

New Jersey’s Big Money Clearing House

February 25, 2014

-money-houseLast week the Huffington Post revealed another chapter of the still evolving Christie-Gate saga (now including economic development subsidies!).  The New Jersey Governor’s mansion, used extensively by the Christie Administration for fundraisers and state business, is maintained by the Drumthwacket Foundation – a non-profit of modest means until the current administration.  That is no longer the case, as Christina Wilke exposed last week.  Donations to the Drumthwacket Foundation have skyrocketed in recent years, many of them made by businesses and individuals seeking economic development incentives, high profile appointments, and government contracts.

Chief among these donors are John Strangfeld, the chairman of insurance giant Prudential, and his wife, Mary Kay Strangfeld – now also chairman and vice chairman, respectively, of the Drumthwacket Foundation.  A year after the Strangfelds assumed leadership of the foundation, Prudential received a jaw-dropping $250 million tax subsidy deal from the state Economic Development Authority that didn’t even require the company to create any new jobs.  (Prudential is massively subsidized in other states as well – see our new Subsidy Tracker 2.0 database for more information on awards to the company’s subsidiaries across the nation.)

Head on over to the Huffington Post for more details on the Strangfeld/Prudential deal and the rest of the story – it deserves to be read in its entirety.

Privatized State Development Agencies Create Scandals Rather than Jobs

October 23, 2013

scandalnotjobs_box

Report: Privatized State Development Agencies Create Scandals Instead of Jobs

Analysis of Arizona, Florida, Indiana, Michigan, North Carolina, Ohio, Rhode Island, Texas, and Wisconsin gives other states roadmaps to avoid

Washington D.C. – Three years ago, newly elected governors in several states decided to outsource economic development functions to “public-private partnerships” (PPPs). Together with a handful of other states’ PPPs, these experiments in privatization have, by and large, become costly failures characterized by misuse of taxpayer funds, conflicts of interest, excessive executive pay and bonuses, questionable subsidy awards, exaggerated job-creation claims, lack of public disclosure of key records, and resistance to basic oversight.

Those are the cautionary conclusions of a study issued today by Good Jobs First, a non-profit, non-partisan research center.  The report looks at eight states with existing PPPs and one more proposed.  “Creating Scandals Instead of Jobs: The Failures of Privatized State Economic Development Agencies” is available at www.goodjobsfirst.org/scandalsnotjobs. It is a follow-up to a study issued in February 2011 when four states moved to create new PPPs.

“Things have gotten demonstrably worse in the past three years. We conclude that privatizing a state development agency is an inherently corrupting move that states should avoid or repeal,” said Greg LeRoy, executive director of Good Jobs First and lead author of the study. “Taxpayers are best served by experienced public-agency employees who are fully covered by ethics and conflicts laws, open records acts, and oversight by auditors and legislators.”

“In 2007 we consolidated Wisconsin’s economic development efforts, including terminating a state-created private economic development entity, Forward Wisconsin, in order to reduce political favoritism and misuse of public funds,” said State Senator Mark Miller. “Unfortunately we reverted to old-style cronyism in 2011 with the creation of the Wisconsin Economic Development Corporation which has been plagued with predictable ethics improprieties and gross mismanagement.”

“Enterprise Florida is our state’s most glaring example of cronyism and institutional corruption,” said Dan Krassner, executive director of the nonpartisan government watchdog group Integrity Florida.  “The organization engages in pay to play: it sells seats on its board to corporations for $50,000 and then gives away taxpayer-funded subsidies and vendor contracts to them in return.”

“Public dollars should be controlled by accountable and transparent public agencies, not handed off to private interests with looser standards and less oversight,” said Donald Cohen, executive director of In the Public Interest.

The report finds that:

  • Enterprise Florida faced new questions about shortfalls in the job creation performance of the companies it has recruited. There have also been controversies over a performance bonus paid to its CEO and subsidies awarded to companies represented on its board.
  • The first chief executive of the Arizona Commerce Authority was given a three-year compensation package worth $1 million, and even though he resigned after a year he received a $60,000 privately-funded bonus.
  • The Wisconsin Economic Development Corporation (WEDC) was accused of spending millions of dollars in funds from the U.S. Department of Housing and Urban Development without legal authority, failed to track past-due loans, and hired an executive who owed the state a large amount of back taxes.
  • JobsOhio received a large transfer of state monies about which the legislature was not informed, intermingled public and private monies, refused to name its private donors, and then won legal exemption from review of its finances by the state auditor.
  • The Indiana Economic Development Corporation has faced continuing criticism over its job creation claims. Triggered by tenacious investigative reporting by Indianapolis TV station WTHR, a state audit found that more than 40 percent of the jobs promised by companies described by IEDC as “economic successes” had never materialized. IEDC was also rocked by allegations that its representative to China solicited bribes from companies.
  • The Rhode Island Economic Development Corporation is still litigating the biggest economic development scandal in Rhode Island history: its $75 million loan to the now-bankrupt 38 Studios.

Based on this persistent pattern of abuses, the report concludes that the privatization of economic development agency functions is an inherently corrupting action that states should avoid or repeal. With the “economic war among the states” already dominated by corporate interests and bargaining dynamics made worse by a long-term drop in job-creation deals, taxpayers are best served by experienced public-agency employees who are fully covered by ethics and conflicts laws, open records acts, and oversight by auditors and legislators.

-30-

Editor’s note: Good Jobs First is a non-profit, non-partisan research center founded in 1998 and based in Washington, DC. In the Public Interest is a comprehensive resource center on privatization and responsible contracting. www.inthepublicinterest.org