Arizona Curbs Phoenix-Area Retail Subsidies

Arizona Gov. Janet Napolitano has signed into law a bill that blocks cities in Maricopa and Pinal Counties (Phoenix area) from providing subsidies to retail developers. That's big news: chasing precious sales-tax revenues, cities in the two counties have staged costly bidding wars to attract retailers: Phoenix recently awarded $100 million in sales tax rebates for the City North retail project, and Surprise offered $240 million for the Prasada retail development.

In her signing message Gov. Napolitano stated: "the use of tax incentives that pit cities in Maricopa County against each other is not in the interest of Arizona or its taxpayers." The new law bans cities from offering tax breaks as an inducement or in exchange for locating or relocating to those areas and establishes a penalty, in the amount of the tax incentive offered, to any municipality that violates the law.

Although the mayors of Phoenix and Tempe are strong supporters the new law, suburban leaders may be looking for ways to skirt it. Citing the city of Goodyear's recent $85 million deal for a for-profit cancer hospital, the Phoenix Business Journal (August 6, 2007) speculates that municipal land lease-back deals -- which make a facility property-tax free -- may become the new back-door retail subsidy.

Buffalo News Exposes Costly Niagara Electricity Giveaways

Western New York, a region plagued by disinvestment and high unemployment rates, is giving away billions in low-cost power to industry according to an investigative series by Buffalo News Reporter Jim Heaney. Operated by the State Power Authority, a Niagara Falls hydro-power plant supplies discounted power to 98 companies which saved an estimated $180 million last year alone.

Although companies must create jobs in exchange for the discounted electricity, the five biggest subsidy winners which received roughly half the low-cost power accounted for only 7 percent of the total workforce of participating companies. The 78 companies with the smallest power allocations accounted 52 percent of the total workforce but received only 19 percent of the subsidies.

For the biggest winners, per job subsidy totals are staggering: Alcoa is renegotiating a 30-year deal that could work out to $148,000 per year per job ($5.6 billion total) while Occidental Chemical Corp. and Olin Corp. last year alone received $111,000 per job ($28.6 million total) and $150,000 per job ($24.1 million total) respectively. Compare those to two major federal government programs that cap total per job subsidies at $35,000 for the multi-year life of the deal.

Despite the billions of dollars at stake, the State Power Authority rarely penalizes companies which fail to meet job requirements. Although an estimated 20 percent of subsidized companies do not meet job quotas; less than a quarter of companies out of compliance have faced power allocation cuts.

Google's N. C. Subsidies Challenged in Court

The North Carolina Institute for Constitutional Law (NCICL) has filed a lawsuit challenging the constitutionality of state tax exemptions and an almost $5 million Job Development Investment Grant awarded to Google for a new operations center in Lenoir.

As reported previously in EOS, North Carolina "won" a 200-employee Google server farm with a subsidy package that could total $242 million over the next three decades. Despite the possible cost of $1.2 million per job, the deal does not even require any set level of job creation or local hiring!

Business Week (July 23, Nanette Brynes) recently dissected the deal: Google played hard-to-get, using a site location consultant, operating anonymously at first, and demanding secrecy from local officials. Lenoir's mayor assembled more than 50 parcels of land; the city even paid for a couple's divorce to clear a title. And the state legislature passed a bill exempting the energy-guzzling facility from utility tax.

NCICL argues that tax incentives are not a fair or acceptable use of public money under the state constitution. Executive Director Dean Webster told the Charlotte Observer: "It puts the government in the ill-advised position of trying to pick the next big thing in terms of where investment should go." NCICL also argues that North Carolina is attractive to companies without the lavish giveaways. Lenoir, for example, had Google's business basics: cheap land, cheap electricity and surplus water capacity.

The tax breaks challenged in the suit represent only a fraction of the millions Google will get, and the suit's chance are unclear: a similar suit filed by NCICL against a deal for Dell in Winston-Salem was dismissed.

New York State's Brownfield Cleanup Subsidy Failing

New York passed a brownfield development law in 2003 to encourage cleanup and construction on blighted sites across the state. However, the law does not limit the subsidies to the clean up costs. Instead, developers can write-off up to 22 percent of the total cost of a project, from clean-up to completion. As a result, the state is almost four times over budget on this program, according to the state Department of Environmental Conservation.

Already, the state is committed to $574 million in tax breaks, but it has only budgeted $150 million to cover the cost. Moreover, these commitments are to just four projects in economically robust areas, while polluted sites upstate remain untouched. Fifty-four more projects have been approved for the tax break and 123 projects await approval.

Gov. Eliot Spitzer is proposing to reform the program to cover only the cleanup of the brownfields, and to cap the credits at $5 million per project. Defending the runaway status quo are lobbyists for the New York Business Council, one of whom told Gannett News Service that "Any reduction in incentives should be matched with less rigorous cleanup standards."

Chicago Exchanges Merge, Announce Layoffs, Get Subsidies

Announcements from CME Group, Inc. (the newly merged Chicago Mercantile Exchange and Chicago Board of Trade) that it has no plans to leave the city and will lay off 450 workers (over 20 percent of its staff), hasn't stopped Chicago and Illinois officials from offering the new exchange millions of dollars in subsidies.

Signaling how far tax increment financing (TIF) has strayed from its original anti-blight mission, Mayor Richard M. Daley offered it to the combined exchange. CME Group Inc. will rehab both spaces to accommodate shifting use in a project budgeted at $200 million; it would be eligible for $40 million in tax increment financing subsidies. To boot, Illinois Gov. Rod Blagojevich's economic development chief has also offered an unspecified additional subsidy to the exchange.

The Mercantile Exchange paid $11.9 billion for its longtime rival; they reported a combined profit of $185.4 million in the first quarter of 2007.

Jet Set Subsidies for Honda Jet Engines

Seeking to cash in on the high-growth market in private aviation, North Carolina awarded Honda a tax incentive package worth up to $1.76 million for a facility in Burlington projected to create 70 jobs manufacturing jet engines for small planes commonly used by corporate executives. The Alamance County Airport Authority also borrowed $11 million dollars to acquire land and expand a runway.

The subsidies came despite the fact that Honda has many business basics in North Carolina: it already has another engine factory in the state; it recently received a $6.6 million subsidy package to locate its jet production and headquarters in Greensboro; and partner GE Aviation has a plant in the state. But the generous administration of North Carolina Gov. Mike Easley didn't want to take any chances, so it sweetened the deal with tax breaks and land giveaways anyway.

Easley cooed in the announcement statement: "It proves we are still first in flight more than a century after the Wright Brothers took off from Kitty Hawk." At least the state has some crash insurance: Honda must meet job creation and investment benchmarks to claim any of the money.

Buffalo News Exposes Costly Niagara Electricity Giveaways

Western New York, a region plagued by disinvestment and high unemployment rates, is giving away billions in low-cost power to industry according to an investigative series by Buffalo News Reporter Jim Heaney. Operated by the State Power Authority, a Niagara Falls hydro-power plant supplies discounted power to 98 companies which saved an estimated $180 million last year alone.

Although companies must create jobs in exchange for the discounted electricity, the five biggest subsidy winners which received roughly half the low-cost power accounted for only 7 percent of the total workforce of participating companies. The 78 companies with the smallest power allocations accounted 52 percent of the total workforce but received only 19 percent of the subsidies.

For the biggest winners, per job subsidy totals are staggering: Alcoa is renegotiating a 30-year deal that could work out to $148,000 per year per job ($5.6 billion total) while Occidental Chemical Corp. and Olin Corp. last year alone received $111,000 per job ($28.6 million total) and $150,000 per job ($24.1 million total) respectively. Compare those to two major federal government programs that cap total per job subsidies at $35,000 for the multi-year life of the deal.

Despite the billions of dollars at stake, the State Power Authority rarely penalizes companies which fail to meet job requirements. Although an estimated 20 percent of subsidized companies do not meet job quotas; less than a quarter of companies out of compliance have faced power allocation cuts.

Jersey City NAACP Challenges Goldman Sachs Tax Break

The Jersey City NAACP and Rev. Kevin Agee of Calvary CME Church stood up to financial powerhouse Goldman Sachs earlier this month when the company was awarded a $4 million per year property tax break to build a second tower on the Jersey City waterfront. They reminded the Jersey City Council that Goldman Sachs has not fulfilled its first-deal commitment to hire 51 percent local residents as pledged in a "Project Employment and Contracting Agreement" signed with the city. They also questioned the wisdom and morality of awarding tax breaks with no guarantee that they will result in a minimum number of jobs for local residents -- especially when Goldman's heavily subsidized first tower currently stands half-empty.

Goldman Sachs is deeply entrenched in the NYC metro area and the Jersey City waterfront is an attractive development site without incentives, yet only one city council member, Viola Richardson, opposed the deal, saying she no longer supports incentives for development along the Jersey City waterfront.

Alabama Grants Another Mega-Subsidy

Just two months after granting ThyssenKrupp at least $810 million in subsidies for a steel mill in Mobile, Alabama has announced a $140 million package to Canadian company National Steel Car for a railcar factory with up to 1,800 jobs in Colbert County. Both projects enabled by Alabama's newly increased borrowing limit for industrial incentives. The state can now borrow up to $400 million.

Alabama's focus on winning mega-projects helped the state's development office earn Site Selection magazine's award as the top department in the country. While Alabama's economy is indeed chugging along at a pace that exceeds national economic growth, the downturns in the furniture, textile, and apparel industries have depressed some rural areas in the state where the new mega-projects are unlikely to locate.

Atlanta-County Lawyers Vet, Profit from Bond Deals

Fulton County, Georgia has been very generous lately, approving a record $1.7 billion in bond financing in 2006 and $1.3 billion already this year. But then, the county has an odd arrangement: the lawyers who vet the deals for the county development board are also paid by the companies requesting the financing. And the companies will not pay the lawyers' fees until a deal is approved. The board's two attorneys each collected more than a million dollars in fees in 2006.

County commissioner Robb Pitts calls the board "dysfunctional" and has his board appointee, builder Jim Garcia, agitating. Garcia recently criticized a $70 million bond issue for an existing office building, saying in the Atlanta Business Chronicle, "If the building's already built, we're just giving them a 50 percent tax break." Garcia has also been a vocal opponent of board chairman Bob Shaw, who has vigorously defended the arrangement with the lawyers, and praised their service.

Job Return on Subsidies Inadequate in Three States

FLORIDA: County and state subsidies in Miami have not produced the high wage jobs expected, according to a Florida International University study. The Center for Labor and Research Studies at FIU found widespread problems in performance and reporting in four incentive programs offered by Miami-Dade County

The study found that traditionally low-paying retail, manufacturing, and food service industry companies received 70 percent of the enterprise zone subsidies since 1989. It also found that only 7 percent of employees at tax-abated companies lived in the enterprise zone in 2005 -- despite the 20 percent minimum required by the program. Study authors Bruce Nissen and Marcos Feldman also report that 21 percent of subsidized companies in enterprise zones between 1989 and 2004 lost their subsidies for gross underperformance in promised job creation.

NEW YORK: In what could turn into the largest tax break cancellation episode in U.S. history, the Spitzer administration in New York State recently issued warning letters to about 3,000 companies located in Empire Zones (the state's name for enterprise zones), citing shortfalls on thousands of jobs and billions of dollars in capital investment.

The 3,000 letters cover about 30 percent of all EZ companies. They were issued by Empire State Development (ESD) and triggered by the companies' 2005 compliance reports. They warn that, based on an upcoming review of 2006 compliance reports, companies may have their EZ certifications revoked, so that companies would lose future EZ tax credits. They went to every company that, as of the 2005 report, had not met at least 60 percent of its job or investment goals

WISCONSIN: A Milwaukee Journal Sentinel investigation found that Wisconsin does not track the millions of dollars it hands out in business subsidies each year and that many large companies are not living up to their promises. The Journal Sentinel examined deals with 25 big companies that were awarded about $80 million in state subsidies over a 6-year period. Overall, the companies fell about 40 percent short on job creation. What happens to such companies? The Journal Sentinel reports that the state often lowers its requirements rather than canceling the subsidies or seeking repayment.

Striking Kentucky Steelworkers Protest Subsidy Deal

Arguing that Kentucky should not reward union-busting companies, striking Steelworkers from the Ohio Valley Aluminum Co. (OVACO) are protesting a $1.5 million subsidy for Metal Sales Manufacturing, a subsidiary of OVACO's holding company. Representatives from United Steelworkers Local 1693 testified in opposition to the proposed subsidy deal before the Kentucky Economic Development Finance Authority.

OVACO's foundry workers voted to unionize in August 2006. The strike began June 1, when the company insisted on an open shop (so that paying union dues would be optional). The $1.5 million subsidy would be awarded through the Kentucky Jobs Development Act as a reward for the company's relocation from Indiana to Kentucky.

Texas Property Tax Breaks Hurt Schools

This just in! Texans for Public Justice today issued a scathing investigative report on property tax abatements and how they harm school funding. Originally designed to foster investment in property-poor districts, TPJ finds that in practice, these tax break agreements are used primarily by property-rich districts. Worse, the districts can use the agreements to circumvent the state's "Robin Hood" school revenue redistribution formula and secure millions of dollars in kickbacks from the companies that are not subject to the state's school finance equity program. The giveaways involve real money: the Texas Comptroller estimates that the 2001 state law allowing school districts to cut such deals could cost the state's public school fund over $800 million in lost revenue by 2011. See the report at: http://www.tpj.org/watchyourassets/robinhood/index.html