Archive for the ‘Taxes’ Category

Nike Runs Away with New Oregon Tax Giveaway

December 20, 2012

NikeTown, OR, USAOregon Gov. John Kitzhaber must have missed this month’s major New York Times investigative series on business subsidies.  Less than a week after the nation’s paper of record reported that such subsidies are a “zero sum game,” Gov. Kitzhaber called the Oregon legislature into a one-day special session to pass the Economic Impact Investment Act, a corporate tax giveaway custom-tailored for Beaverton-based sportswear retailer Nike, Inc.  The rushed deal and special session were announced last Monday, just four days before the legislature was to consider the bill, and a publicly available version of the proposed legislation was not made available until Tuesday.

HB 4200, which passed the legislature handily on Friday and was signed by Gov. Kitzhaber this week, allows Nike to determine its tax responsibility to the state through the controversial Single Sales Factor (SSF) apportionment method for the next 30 years, whether or not Oregon enacts tax reform during that period.  Nike had expressed interest in expanding in Oregon, but the company reportedly expressed to the Governor that it needed “tax certainty” to commit to growing in the state.  (Make sure to see the Oregon Center for Public Policy’s excellent take on what would constitute true “certainty” when it comes to taxes.)

In its original form, the legislation would have allowed the state to grant guaranteed SSF tax breaks through the Economic Impact Investment Act for a ten-year period, and those deals would have lasted for up to 40 years.  The few accountability amendments passed during the one-day session shortened the amount of time the governor has to strike these tax deals to one year, while also reducing the period during which the tax break lasts to 30 years.

While the bill requires that Nike and any other company vying for the special tax deal invest $150 million and create 500 new jobs, it is silent on wages and other job quality standards.  Significantly, the new law fails to set a meaningful term during which qualifying jobs must be retained by Nike or any other company approved for the sweetheart deal.  It appears that the last 20 years’ worth of basic accountability reforms – now standard practice for most states – are unknown to Oregon’s lawmakers.

The lack of accountability provisions are not the only controversial aspect of the new giveaway.  The Oregonian reported this week that despite the extraordinarily compressed period the legislature was given to consider the bill, the state has been secretly negotiating the deal, termed “Project Impact,” since last July.  You can read the state’s non-disclosure agreement with a company called EMK (presumably a site location consulting firm contracted by Nike to pressure the state) here.

Oregonians are not the only constituency to express concerns about the new law.  Intel, Oregon’s other major corporate employer, was reportedly involved in several heated exchanges with Nike over a particular provision of the original legislation that would have prohibited it from benefiting from the same deal based on the fact that it is already receiving considerable subsidies through Oregon’s Strategic Investment Program.  Unsurprisingly, that provision was removed from the bill.

Oregon, unfortunately, has no such guarantees that economic conditions and fiscal obligations will remain exactly the same in the decades to come.  There are no promises the state can make that protect its residents from change, and this new giveaway means that Oregon cannot rely equally on all businesses and individuals to contribute fairly in the future.

Striking Chicago Teachers Highlight TIF

September 14, 2012

This past week, the Chicago Teachers Union (CTU) strike has been making national headlines. But what major media outlets have overlooked is the role of tax increment financing (TIF) in worsening the fiscal situation for the Chicago Public School (CPS) system. The strikers, however, are making an issue of it. As Good Jobs First has documented time and again, TIF and other subsidies frequently divert property taxes away from school districts.

In Chicago, as well as Illinois generally which has about 1,000 active TIF Districts diverting over $1 billion each year, the problem is particularly severe: 10 percent of Chicago property tax revenues are diverted into TIF coffers. The CTU estimates that at the end of 2011, Chicago had $831 million in unallocated TIF funds sitting in bank accounts. Nearly half that money would have otherwise gone to schools. That number is also far bigger than the $700 million budget shortfall CPS had for the 2011-2012 school year which remains relatively unchanged for 2013. Instead, TIF monies are frequently utilized as subsidies for corporations.

Yesterday, thousands of teachers picketed a Hyatt hotel which had received $5.2 million in TIF subsidies chanting “give it back.” Speakers gave impassioned arguments against the use of TIF. The choice was not a coincidence: Penny Pritzker, a billionaire whose family owns the Hyatt chain, is also an appointee to the Chicago Board of Education.

Protestors contend that the TIF money used on the hotel would have been better spent on improving the education system. As one protestor commented, “I think it’s really important to bring awareness to the fact that, according to what I found out, $5.2 million has been given to developers [to build the Hyatt hotel]… That’s money that could have gone to classrooms, and computers, so many other things.”

Ultimately, all Illinoisans should also care about TIF in Chicago and elsewhere. The burden of school funding lost because of TIF property tax diversions is likely being made up for by all Illinois taxpayers.

Pritzker’s role on the board of education and Hyatt’s TIF funding are not the only reasons that labor is unhappy with Hyatt. A Unite Here campaign called Hyatt Hurts has been calling attention to what it alleges are unfair labor practices at the company and calling for a boycott.

We hope investigative journalists everywhere take notice: TIF has caused serious budgetary harm in Chicago and deserves more serious scrutiny in every school district.

New Study: Massachusetts Business Tax Breaks Doubled

August 8, 2012

A new study released this week by the Massachusetts Budget and Policy Center reports that the annual cost of the state’s business tax breaks has doubled to $770 million this year from $342 million in 1996.  “Business Tax Breaks in Massachusetts” found that “sector specific tax breaks” (for particular industries) were largely to blame for the sizeable increase in cost.  Of the specific industry tax expenditures, two in particular demonstrated rapid and substantial growth over the study period: Single Sales Factor tax breaks for manufacturers and mutual funds companies and the state’s Film Production Tax Credit.  The authors further found that the spending through special business tax expenditures has increased by 60 percent, while during the same period total state budgetary spending has fallen by 5 percent.

The MBPC prudently concludes that the value of each of the state’s business tax breaks needs to be “weighed against other types of economic development investments the state might make using these dollars, including various on-budget expenditures, for things like public education and transportation infrastructure.”  Read the full report here.

Shell “Cracks” Pennsylvania’s Tax Code

July 3, 2012

Pennsylvania Governor Tom Corbett’s controversial plan to award an estimated $1.7 billion in corporate tax credits to Royal Dutch Shell became law with the passage of the state’s budget late Saturday night.  The 25-year deal—one of the largest subsidy packages ever awarded to an individual company in the United States—is for an ethane refinery that Shell plans to build north of Pittsburgh in Beaver County. Known as a “cracker,” the facility will break down ethane into other petrochemical products.

The legislation did not name Shell but limited the new credit of 5 cents for each gallon of ethane purchased for processing to crackers that create at least 2,500 jobs and make a capital investment of $1 billion, which is what Shell plans to do.

It is no secret that the Corbett Administration cooked up the new credit in order to land the Shell project, which the company also shopped to Ohio and West Virginiain search of the best subsidy deal. The $1.7 billion price tag of Gov. Corbett’s package shocked Pennsylvania residents and made national news.  Astonishingly, the final signed law contains no annual or cumulative cap on the total value of credits that ethane refineries can claim, meaning the cost may be even larger than Gov. Corbett’s original proposal.

Because the Shell cracker will be located inside a virtually tax-free Keystone Opportunity Zone, the immediate value of its state tax credits will be derived from the cash value of selling them to other firms for an estimated 15 years.  The state changed an existing KOZ boundary to accommodate Shell’s project, despite the fact that the township never requested that the boundary be expanded.

The Corbett Administration, Shell and the American Chemistry Council trade association sought to justify the sweet deal with a contentious claim that the project would create a total of 20,000 new jobs, a figure composed of direct, indirect, induced, and temporary jobs such as construction positions.  The jobs figure was repeated by industry parties and notably, Administration officials, who were later forced to quietly revise the laughably rosy jobs estimate to half that amount, after admitting under pressure that no independent job creation analysis had been performed.  The Administration’s revised 10,000 new jobs figure remains no less preposterous, given that the ACC estimates just 400 to 600 permanent jobs will result from the new refinery.  (For more information about calculating “ripple effects” of job creation, see this report by the U.S. Economic Development Administration.)

Any legitimate economic analysis would have difficulty showing how the state could recoup a quarter of a century of huge giveaways to Shell.  Pollution concerns notwithstanding, the state needs to consider the potentially short life span of an industry based on depletion of limited resources such as natural gas.  Fortunately for Gov. Corbett, he will be out of office long before a final accounting of the deal can be made.

Abatements and TIF: Worse Than Ever for Schools

June 22, 2012

A study just released by the Census Bureau helps explain why property tax abatements and TIF are growing issues for people who care about public education.

For the first time in 16 years, it reports, local funding (65 percent of which comes from property taxes) provided the greatest share of school funding. That reverses a long-term trend in which state funding has become a larger share of the pie (with federal support accounting for only a small share).

But with states balancing their budgets in part by slashing aid to school boards and other local government bodies, local revenue matters more than ever.

That’s why costly long-term property tax abatements, routinely granted to large companies in the name of economic development, hurt schools more than ever. The same can be said for tax increment financing (TIF) districts, which can divert huge sums of property taxes (and sometimes others) for decades.

And that is bad news for real economic development that benefits all employers currently in a community. Schools also matter a lot for expansion and attraction. Because when an employer considers relocating to an area (and moving key personnel), the first thing those key employees want to know is: how good are the schools?  And the HR director wants to know: we will be able to hire well-educated new-hires? And they will also ask: has school quality been supporting strong home values?

Now more than ever, protecting the local property tax base from costly and unfair abatements and TIF matters for long-term economic development and a sound business climate.

See also Stateline’s coverage here.

Massachusetts Joins States with Tax Credit Transparency

June 5, 2012

Congratulations, Massachusetts!  As of this week, the Commonwealth has officially joined the ranks of states that disclose the recipients of economic development subsidies. Transparency legislation enacted in 2010 required the state Department of Revenue to begin posting this year the names of recipients of certain transferable or refundable tax credits, along with the value of those credits. Included on this list are the Film Tax Credit, the Economic Development Incentive Program, and refundable research credits aimed at the biotechnology and life science industries. The data, which include a total of 736 individual entries, can be viewed here.

This was all made possible through the efforts of groups such as MassPIRG, Common Cause Massachusetts, and One Massachusetts that spearheaded the campaign for the legislation.

Having long anticipated this advance in transparency, we at Good Jobs First wasted no time adding the new Massachusetts info to our Subsidy Tracker, which now contains more than 154,000 listings from all 50 states and the District of Columbia.

Sears, Tax Breaks, and Job Loss: Like We Said

January 5, 2012
Image

Credit: Made available through a creative commons license from Flickr user gardener41

For the latest evidence that unaccountable tax breaks fail to promote investment for job creation, shop at Sears—while you still can.

Gov. Pat Quinn’s signature had barely dried on the Illinois legislature’s lavish new tax-break deal to retain Sears Holding Corp.’s headquarters when the company announced store closures and layoffs. The deal, valued at up to $275 million in property and income tax breaks, was signed into law on December 16. Yet on December 27, the company announced that it would close between 100 and 120 Kmart and Sears stores.

Cynically, we note that the initial list of 80 closures does not include any Illinois stores, nor have any headquarters layoffs been announced… yet. But with Sears still losing market share, and reporting another decline in same-store sales (down 5.2% late 2011 over late 2010), how safe can Illinois jobs be?

We hate to say we told Illinois so. But as we forecast in our blog of last August: when a company is ailing and it asks for a tax break, the wisdom of the plant-closings movement tells us: tax avoidance can be one form of disinvestment, another early warning sign of job loss.

Put another way: if a company doesn’t see a future in the community or the state, why should it keep investing in the schools or roads or universities?

Indeed, inadequate reinvestment in Sears has been a major theme since hedge fund manager Eddie Lampert took control of the company. As the New York Times’ Floyd Norris pointed out in a December 29 column, between February 2005 and October 2011, Sears Holdings spent only $3.2 billion on capital expenditures (i.e., physical improvements) while taking $6.6 billion in depreciation charges (i.e., physical wearing-out).

A consumer behavior consultant with America’s Research Group told the Los Angeles Times: “They are not fixing their problems. The Sears apparel strategy is still not what the Sears customer wants. They have not spent the money to refurbish their stores to make the modern and contemporary for the under-35 shopper.”

Instead of reinvesting, Sears Holdings is reportedly soon to allow some its prize jewels, such as Kenmore appliances and Craftsman tools, to be sold by other chains such as Costco and Ace Hardware. Won’t that just further reduce traffic into Sears and Kmarts?

In lowering Sears Holdings’ credit rating, Fitch warned of “a heightened risk of restructuring over the next 24 months.”

Meanwhile, Illinois taxpayers, after giving Sears a retention package worth about $178 million in 1989 when it threatened to run away, have pledged up to $275 million more after a second runaway threat.

Fool me once, shame on you…

$100 Billion Verizon is one of Country’s Most Aggressive Tax Dodgers

November 15, 2011

A new report released today reveals how Verizon Communications achieves a negative federal tax rate to avoid paying its fair share of taxes, and aggressively uses tax loopholes and subsidies to cut its tax bills even more.

Unpaid Bills: How Verizon Shortchanges Government Through Tax Dodging and Subsidies,” was produced by Citizens for Tax Justice and Good Jobs First, and released by the two organizations and the Communications Workers of America. The report shows that Verizon, a $100 billion dollar corporation, paid an effective federal tax rate of –2.9 percent between 2008 and 2010. For the year 2010 alone, Verizon’s federal tax rate was -5.7 percent. While most Americans are struggling to make ends meet and pay their fair share of taxes, Verizon actually received a federal tax rebate of nearly $1 billion rebate from the United States Treasury.

The report is especially timely as the congressional “super committee” meets on budget and tax issues. Verizon has put the “Reverse Morris Trust” tax loophole to extensive use, avoiding $1.5 billion in taxes on the sale of its landlines and other assets, said CWA chief of staff Ron Collins.

“Verizon doesn’t use its tax avoidance gains to keep up its copper network or extend its fiber optic technology to cities like Boston, Baltimore, Buffalo or other communities or create quality jobs. It isn’t negotiating a fair contract with the workers who have made this company so successful but instead is demanding nearly $1 billion in givebacks and making sure that its top executives stay in the top 1 percent of Americans. That’s why we say ‘the 99 percent’ are picking up Verizon’s tax tab,” Collins said.

Earlier this month, CTJ placed Verizon as one of the nation’s top tax avoidance offenders, manipulating state revenue rules, seeking economic development subsidies, and structuring its business and tax affairs to produce a negative federal income tax rate. Verizon has received state and local tax subsidies in at least 13 states.

Robert McIntyre, director of CTJ and the report’s lead author, said the billions of dollars that companies like Verizon receive are simply “wasted dollars, that could have gone to protect Medicare, create jobs and cut the deficit. Too many corporations are gaming the system at the expense of the rest of us.”

Philip Mattera, research director of Good Jobs First, said Verizon and other tax dodgers “aren’t using these tax givebacks to create good jobs or invest in their companies in ways that would improve our communities. Ordinary Americans are struggling to pay their own taxes and are picking up the tab for these corporations as well. It’s a system out of control.”

Large, Profitable Corporations Get Huge Federal Tax Breaks

November 4, 2011

The most consistently profitable companies in the Fortune 500 only pay about half the statutory federal income tax rate—a fourth pay less than 10 percent. Some even get refunds from Uncle Sam—30 companies have enjoyed a negative income tax rate the past three years despite making $160 billion in pre-tax profits.

It’s the definitive study that punctures calls for a cut in the federal income tax rate on corporations, provided yesterday by Citizens for Tax Justice and the Institute on Taxation and Economic Policy (CTJ and ITEP) in “Corporate Taxpayers and Corporate Tax Dodgers, 2008-2010.”

Looking at shareholder filings for those Fortune 500 companies that reported profits in each of the three years, CTJ and ITEP found that 280 companies paid an average effective rate of just 18.5 percent and for the last two years only 17.3 percent, less than half the statutory rate of 35 percent.

The study catalogs the underlying causes, many of which have eroded progress in the federal tax code made in the 1986 reform act that plugged many loopholes: accelerated depreciation, stock options, industry-specific tax credits, and offshore tax sheltering.

Bottom line, it’s why federal corporate income taxes have plummeted as a share of GDP from almost 4 percent in the 1960s to just over 1 percent today. And a key reason, CTJ director Bob McIntyre argues, why any corporate tax reform should not be “revenue neutral” but should instead plug loopholes and restore balance.

For those of us who follow companies that aggressively seek state and local economic development subsidies, including avid users of Subsidy Tracker, there are familiar names among the low-tax rate/high-tax break crowd, like Boeing, Walmart, and Goldman Sachs.

Indeed, CTJ and ITEP will soon release a follow-on study looking at state taxes paid by the Fortune 500. Although publicly traded companies only report such taxes in one aggregate 50-state number, the finding will show how tax exemptions and credits cut the actual tax rate companies pay (along with loopholes like Passive Investment Companies and failed giveaways like Single Sales Factor).

For a primer on how companies dodge state income taxes, see chapter 4 of The Great American Jobs Scam, and for a summary of how corporate tax dodging has shifted the burden for public services onto working families, see chapter 8.

Finally, the study also punctures the argument that the U.S. has to lower its corporate tax rates because of lower rates offshore. Of those companies among the 280 with significant foreign profits, they paid foreign tax rates almost a third higher than their domestic rates. It argues that “closing the loopholes will have real benefits, including a fairer tax system, reduced federal budget deficits, and more resources to pay for improving our roads, bridges and schools — things that really are important for economic development here in the United States.”

Amen.

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.