Tussling Over TIFs: Pros and Cons

April 13, 2014, 8:25 a.m.

NOTE: For 40+ additional discussions of these issues, 2006-2015, see "TIFs: Links to Blog Essays."

Tough TIF Talk

Introduction: For years, TIFs have been controversial. ("Tax Increment Financing," by reducing a developer's property taxes, or directing them solely to his or her project, has the effect of transferring taxpayers' money to the bottom line of private, for-profit ventures.) Proponents cite a "benefit" -- essentially the existence of the developer's project -- while skeptics list a rather substantial list of the costs and burdens they believe more than outweigh any such benefit under any rational benefit-cost analysis.

The Gazette for Sunday, April 13, 2014, led its "Insight & Books" section (editorials, guest columns) with two guest columns taking opposite sides regarding the merits of TIFs: "Weighing the Pros and Cons of Tax Increment Financing; Talking TIF" -- found on the Opinion Page of The Gazette's Web site, and in hard copy as: Nicholas Johnson, "Costs Outweigh Possible Benefits," pp. A9, A12, and Chad Heiman, "TIF a Necessary Tool for Growth" pp. A9, A12.

Talking TIF: Costs Outweigh Possible Benefits

Nicholas Johnson
The Gazette
April 13, 2014, pp. A9, A12
http://thegazette.com/costs-outweigh-possible-benefits-20140413
[Submitted as: TIFs’ Multiple Costs Outweigh Any Possible Benefit]

There are many reasons why further enriching the backers of for-profit, private ventures with taxpayers’ money is a really bad idea. [Photo credit: Patrick McDonough.]

In 2006 I began a blog. Dozens of its 1000 essays deal with reasons to oppose TIFs. See “TIFs: List of Blog Essays,” http://fromdc2iowa.blogspot.com/2014/03/tifs-links-to-blog-essays.html.

Any one of them is reason enough to reject a TIF. To approve it, proponents need to show why none applies.

The issue is not whether a TIF has a single benefit. Benefit-cost analysis requires we total all the costs and burdens of that TIF and weigh them against its individual benefit.

Few if any can pass that test.

Ideological hypocrisy. How can those supporting free private enterprise, capitalism, and marketplace forces, who think “government is the problem” and want it “off their back,” justify taking money from the public collection plate?

Anti-democratic. City councils need voters’ approval of bonds for legitimate government projects. Yet they can give our money to their friends’ private projects on a whim.

Lowered credit rating. TIFs can impact credit ratings. Coralville went from a Moody Aaa credit rating, the highest, to a “lower medium grade” Baa2 in two years.

Opportunity costs. Spending money on one thing costs the lost opportunity to spend it elsewhere. Johnson County Supervisor Rod Sullivan once found a diversion of $700 million of property off the tax rolls. As a result, either we pay more taxes or Supervisors cut needed programs.

Unfairness to neighbors. The TIF-granting body’s neighbors often lose out as well – other communities and school districts with less money in their budgets.

Unfairness to competitors. TIFs tilt the playing field. They unfairly upset a free market, punishing honest competitors and benefitting no one except the TIF recipient.

Risky business. Money’s always available for good deals. If an entrepreneur, family, friends, investors, venture capitalists, and banks aren’t willing to fund a project, maybe taxpayers shouldn’t either.

TIFs complicate taxes. We don’t deserve more tax complexity and even less transparency.

“Money can’t buy love.” Why compete with bribes? A business that needs port access to the Pacific Ocean isn't coming to Iowa. If it did, it would leave for a bigger bribe. Maytag, offered $100 million to stay, left anyway.

TIFs are unnecessary. The Corridor is one of the fastest growing, lowest unemployment areas of Iowa. We already have what businesses want: skilled labor, transportation and communication infrastructure, quality education, cultural attractions and outdoor recreation.

TIF grantors’ poor skills, record. The subsidy-grantors' record is not great. Elected officials are more skilled at keeping contributors and constituents happy than at evaluating taxpayer-funded business proposals. TIFed projects have gone belly up, missed deadlines, and new jobs goals. With reasonable follow-up and transparency we’d know about many more. But TIFs in Iowa have more lenient provisions, and less oversight, than in most other states.

“Need” is unknowable. Many projects will go ahead without subsidy. If tax breaks are available, of course developers will say they need them. Maybe this is blackmail. Maybe they need to look harder for funding. There’s no way to know.

At a minimum, here are questions to ask before approving TIFs:

What is this government’s past record, when we compare promised results with ultimate return or loss?

Why is this project needed?

Why does that need exceed all conventional needs for public funds?

What will other government units lose? How much more will their taxpayers have to pay?

Of all possible TIF projects, why is this one a top priority?

Who benefits: all citizens, a small segment or primarily the recipient?

How much money is involved?

Why are those who will profit unwilling to invest what is needed? Are their reasons equally applicable to taxpayer funding?

Does the business plan indicate financial success, or reveal risks of failure?

If and when the recipient fails, skips town, goes bankrupt, or misses deadlines, how will taxpayers be protected?

What relationships are there between the potential recipient and the officials approving the funding?

How will the recipient’s unfunded private competitors be harmed?

TIFs shouldn’t be used at all. If used anyway, let’s do the wrong thing better:

Leave the tax code alone. Taxes are taxes, gifts are gifts – through appropriations, fully disclosed and audited.

Don’t privatize profits and socialize losses. It’s our money. Don’t give it. Loan it or invest it. Earn us some interest – with a City or State Bank. Invest our tax money; take an ownership share. Give us at least a gambler’s chance at occasional profit. Publicize the details.

We don’t have a fascist state, just a fascist economy, government and private enterprise blended to more resemble a purée than a stew with identifiable ingredients.

In Washington, D.C., it’s billions of tax dollars; in Des Moines hundreds of millions; in Iowa’s cities, TIFs. Without a taxpayer revolt, it’s unlikely to change.
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Nicholas Johnson of Iowa City maintains www.nicholasjohnson.org and http://FromDC2Iowa.blogspot.com.

# # #
TIF a necessary tool for growth

Chad Heiman
The Gazette
April 13, 2014, pp. A9, A12
http://thegazette.com/tif-a-necessary-tool-for-growth-20140413
The 21st century global economy we live and work in is consistently evolving. The rapid pace by which business owners must adapt to meet market demands has never been more challenging.

As a community and region it is critical that we promote public policy that allows companies the option to not only operate their business under the status quo, but create an environment that promotes capital investment, company expansion and job creation.

MISINFORMATION

On the local level, the key tool to aid in doing this is Tax Increment Financing (TIF). There has been misinformation about TIF; specifically, how it works and the side effects of the tool being used. Marion has chosen to be forward thinking and responsible in using TIF as an incentive for companies to do business in our community.

It has been written that TIF incentives are awarded by a City Council without any public approval process; this would violate Iowa Code. A public hearing before the City Council is required for any new TIF project before it gets approval.

An additional public hearing must take place before an amendment to the Urban Renewal Area (designated area in which TIF project occurs) is approved. The process is public and allows for citizen involvement.

How do cities protect their investment? TIF incentives are financed through new property taxes that are generated by the development; current public funds are not used to finance the TIF incentive. An estimate is provided in the development agreement, but the actual TIF award is determined by the assessor. Taxpayers are protected because whoever has title to the property will be subject to pay the associated property taxes. With new development, no existing revenues are lost because of TIF.

ESCO GROUP’S TIF

The ESCO Group in Marion was awarded a TIF incentive package for construction of its new corporate headquarters in Marion’s Tower Terrace Road corridor. The ESCO Group is a Marion-based company that provides plant automation, electrical construction, power engineering, testing and safety training. The City of Marion provided ESCO with a $200,000 grant and an annual 60 percent rebate on their property taxes starting in 2013 and expiring in 2022, The total rebate will not exceed $1 million, per the agreement.

Because of this incentive package, ESCO chose to locate in Marion and brought a capital investment of $5.8 million for the community. The expansion is leading to the creation of 25 new, highly technical, quality jobs in the corridor. A law of economics states that people respond to incentives. The ESCO Group responded by building in a newly developing region in Marion and the commercial property tax base is expanding because of it. Many projects would not have happened without the economic development tool of TIF.

Before the development of the ESCO headquarters, the 2.85-acre piece of ag-land that ESCO now sits on would bring an estimated $4,000 in property taxes. Following development of this land, the estimated property tax bill will stand at an estimated $130,000 annually. I think we can all agree that a 1,315 percent increase in assessed value is a quality return on investment for Marion, our schools and our citizens.

The return on investment is magnified when one considers that new employees in the community will need places to live, stores to shop and restaurants in which to dine. Existing private business benefits because of TIF. The positive impact of this economic development tool is felt well beyond the brick and mortar involved with new construction.

ESCO CEO Ray Brown told us: “By opening up this valuable development area, Marion has great opportunity to expand its tax base to more commercial-light industrial, helping ease the tax burden of residential while also creating quality of life opportunities within this development.”

FAIR PLAY DEALS

Positive community development is everyone’s goal. One recent opinion was that “trying to move businesses from one community to another with competing TIF bribes is a lose-lose game,” and I would agree with that assessment.

That is why the communities in the Cedar Rapids metro area have signed fair-play agreements with each other establishing guidelines for communities when creating TIF incentive packages in the Corridor. When Marion experiences expansion, the Corridor as a whole benefits; the same can be said about business growth in the entire Cedar Rapids metro area.

Marion is one of the fastest-growing communities in Iowa, and that presents challenges, but we are growing our commercial and industrial tax base in a responsible manner. Making policy decisions or sweeping generalizations about TIF without facts, and based on one occurrence or anecdotal evidence, is dangerous.

TIF is anything but a lose-lose tool — it is the tool that allows private enterprise to flourish while giving communities the opportunity to realize its true economic potential. It’s a win-win for everyone.
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Chad Heiman is Communications Manager for Marion Economic Development Company. Comments: chad@medcoiowa.org

# # #

TIFs: Too Many Negatives

March 25, 2014, 9:25 a.m.

Introduction: There has been a little spurt of TIF (tax incremental financing) stories and comments recently.

On March 18 an op ed column of mine was published by the Press-Citizen: Nicholas Johnson, "TIF: If You Can't Beat 'Em, Insist on More Transparency," Iowa City Press-Citizen, March 18, 2014, p. A7, embedded in "TIF Apology," March 18, 2014. Its assertions regarding the categories of reasons to oppose TIFs were supported by the earlier, "TIFs: Links to Blog Essays," March 16, 2014. [Photo credit: Patrick McDonough.]

The point of the March 18 blog essay/column was that TIFs are merely a natural instrument within a fascist economy. The reason they are the wrong thing to do lies within the nature of our economy rather than the nature of TIFs. Like other mixes of government and private money, however, they can better protect the interests of taxpayers (whose money it is that funds grants to business) if the money is loaned and invested rather than gifted -- thereby producing a return of interest and dividends, like any other conventional transaction.

The Gazette continued with articles that, in part, were efforts to justify TIFs and tax breaks to for-profit buinesses as a legitimate part of a capitalist economy. Chelsea Keenan, “The Benefits of Tax Breaks,” The Gazette, March 23, 2014, p. D1, online as “Are Tax Incentives an Effective Economic Development Tool?.” Rick Smith, "The Upside of TIFs," The Gazette, March 15, 2014; online as "TIF Incentives Can Bring Happy Endings; New Jobs, Infrastructure Improvements, Advancement in Shovel-Ready Sites Grow with Help of Incentive Programs."

I continued to take issue with those arguments for TIFs in the following letter to the editor:

Too Many Negatives, Too Little Upside to TIFs
Nicholas Johnson
The Gazette
March 25, 2014, p. A6
Your “The upside of TIFs” (March 15) needed what Paul Harvey used to call “the rest of the story.” No one I know argues there has never been any benefit from any tax increment financing deal, anywhere, at any time.

But that’s not the issue in a rational benefit-cost analysis.

There are 10 to 20 categories of reasons why all TIFs are a bad idea (See http://fromdc2iowa.blogspot.com/2014/03/tifs-links-to-blog-essays.html). And I have yet to see any TIFs benefit that could begin to outweigh all of those categories of disadvantages.

Here’s an example:

There would be “a benefit” to letting elementary school students simply roam freely throughout the community without parental supervision or need to attend school. They might better develop their natural curiosity and sense of self-reliance.

But the costs of that proposal — lack of student safety and education among them — would so heavily outweigh its potential benefit that no one seriously would propose it.

So it is with TIFs. An occasional “upside?” Of course. But hardly ever enough to outweigh the multiple downsides.

Nicholas Johnson
Iowa City

# # #

TIF Apology

March 18, 2014, 7:20 a.m.

Note: And see "Addendum: If North Dakota Can Prosper from a State-Owned Bank, Why Not Iowa?" at the bottom of this blog essay/op ed column; and "TIFs: Too Many Negatives," March 25, 2014.

Note: The following was submitted to the Iowa City Press-Citizen with the headline, "TIF Apology," and was published this morning with the headline below. That headline's use of the word "transparency" is somewhat misleading. The column is not calling for governments to be more forthcoming and transparent regarding the details of their gifts to for-profit enterprises under the current system. [See, e.g., "TIFs: Too Many Negatives," March 25, 2014.] It is calling for a different system, a recognition of the reality that ours is a blended corporate-government economy, one that should substitute investments by taxpayers for what are now simply gifts. Taxpayers should get an ownership share, and a return on their investments. (The hard copy version also had a link to a nonexistent site. As reproduced in this blog essay the link is correct.) -- N.J. [Photo credit: Patrick McDonough.]

TIF: If You Can't Beat 'Em, Insist on More Transparency
Nicholas Johnson
Iowa City Press-Citizen
March 18, 2014, p. A7
I now realize that the dozens of my columns and blog essays over the years, itemizing in detail the evils of TIFs, grew out of a faulty premise.

It is not easy to admit a mistake, especially when one has made it so often. But you are owed that admission – along with a fuller explanation.

We’ve heard that “seeing is believing.” However, it is also true that “believing is seeing.” And what my upbringing and early education imbedded in my brain was a belief that colored my vision like the rainbow from a prism in the sun.

And what was that belief? It was that we have a capitalist, free private enterprise, market economy. Oh, sure, we had socialist enterprise as well: the Interstate highway system, national and state parks, libraries, public schools and universities. But business did business and government did government.

Now comes the realization that what I once saw so clearly was but a child of the ignorance born of ideology. It was the believing that made possible my seeing -- like the lines from the poem, “Last night I saw upon the stair/A little man who wasn't there.” (Hughes Mearns, 1899.)

I was believing in, and seeing, an economy that wasn’t there.

That’s why TIFs were seen to be an aberration, a cancer simultaneously attacking both capitalism’s foundation and taxpayers’ pocketbooks. (For numerous links to sources, see “TIFs: Links to Blog Essays,” http://fromdc2iowa.blogspot.com/2014/03/tifs-links-to-blog-essays.html.)

Like "Amazing Grace," I was blind, but now I see: We don’t have a capitalist system. We probably never did.

So how should we describe our economy? The word “fascism” carries too much baggage from World War II -- dictators, suppression of opposition, aggressive nationalism, and even racism. “Fascism” doesn’t describe America today. But from Washington, D.C., to cities, counties and states all across America, in terms of an economy, ours is the economy of fascism.

The more acceptable word today, “corporatism,” is less accurate. Because the economy we have is a blend, more resembling a purée than a salad or a stew with identifiable ingredients.

Cities’ taxpayers who cannot afford the tickets to an NFL, or even college football game, invest billions in stadiums, given as gifts to attract the billionaires who own teams of millionaires.

States have multiple funds of taxpayers’ money used to compete with other states by giving it away to attract businesses.

Washington is essentially an open bazaar, awash in money gladly given and generously rewarded.

Is this system corrupt? Of course. Welcome to the real world. All economic systems can have corruption – communist, socialist, capitalist, or our fascist.

Is our fascist economy less efficient than a true capitalist economy? Absolutely. Everybody is handling other peoples’ money. Is it less humane than a socialist system might be? Of course. When it comes to minimum wages or safer working conditions, our fascist economy is still driven by the character Gordon Gekko’s belief, in the movie "Wall Street," that “Greed is good.”

Folks, in the words Walter Cronkite used to sign off the CBS Evening News, “And that’s the way it is.” That’s the system we have. Get used to it. The beneficiaries love it. The victims don’t revolt.

What can we do? Tweak the system. Insist our governments invest our money rather than giving it away; that they take a share of the ownership – and the profits. Insist on detailed accounting of the return on our money they’re investing.

If a fascist economy is wrong, but intractable, we can at least try, as John Carver bemoans in another context, to “do the wrong thing better.”
_______________
Nicholas Johnson maintains the website www.nicholasjohnson.org and blog http://FromDC2Iowa.blogspot.com.

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Addendum: If North Dakota Can Prosper from a State-Owned Bank, Why Not Iowa?
It only makes sense, so long as we're committed to a fascist economy, that we should try -- as the last line of the op ed column suggests -- "to do the wrong thing better."

One of the most obvious positive tweaks to our fascist economic system would be for governments to enter the banking business. (a) Instead of putting such balances as cities, counties and states have into commercial banks, or credit unions, they could earn more on our money by doing the banking themselves. (b) As a part of a proposal that financial aid to business favor loans over gifts (or what would hopefully become "investments" earning a return) the governmental unit could make loans to the favored businesses from the government's own bank.

Think this is a crazy idea? Think again. It's a fascist economy that's the crazy idea. City, county and state-owned banks are a big improvement over what we have, in our effort to do this "wrong thing better."

But who would ever do such a thing? How could you ever find a government willing to take on its local, commercial bankers?

Take a look at North Dakota: Robb Manelbaum, "What North Dakota’s Public Bank Does for Small Businesses," New York Times, March 13, 2014

North Dakota uses the bank to funnel deposits from state agencies back into the state’s economy through . . . loans, teaming with local private banks that initiate the transactions with borrowers. The state-owned bank typically takes half of a business loan, and the interest rate on the state-lent portion is normally one or two percentage points below the market rate.

In January, the Bank of North Dakota played a bit part in an ideological skirmish in the blogosphere after a young activist, Jesse A. Myerson, suggested putting a public bank in every state as one of “Five Economic Reforms Millennials Should Be Fighting For.” The piece led to some interesting discussions, including this response that Mr. Myerson’s suggestions were actually conservative reforms — and that the state-owned bank was responsible for there being more small-business loans in North Dakota than in neighboring states. . . .

[P]ublic banking advocates point most hopefully to efforts in Vermont. Last week, 15 Vermont towns passed resolutions urging the state legislature to establish a public bank. It could be very beneficial to the small community banks and the state. Even big cities could do this . . ..

North Dakota, Vermont -- why not a "City of Iowa City Fascist Economy Public Bank"? How about it Councillors? # # #

TIFs: Links to Blog Essays

From the time this blog began, in 2006, a recurring topic of the blog essays has involved the variety of ways in which governments transfer taxpayers' money to the bottom line profit of various businesses.

Categories of reasons why these transfers are bad for taxpayers, consumers, competitors of the recipients, the general economy, neighboring communities and governments have been repeatedly identified and illustrated -- all with about as much impact as an oak leaf in October, falling upon a lake, and slowly drifting to the bottom. Nonetheless, it seems worthwhile to maintain this single site of titles and links for any who share the author's concern. -- Nicholas Johnson, March 16, 2014.

2015
"Chauncey's TIF," June 8, 2015

"TIFs -- Chauncey -- For the Record," May 25, 2015

2014
"Sycamore TIF Unnecessary," Iowa City Press-Citizen, November 23, 2014, p. A5, embedded in "Lucky's Gets Lucky: $1.7 Million of Taxpayer's Money," November 23, 2014

"From Earmarks (D.C.) to TIFs (I.C.): America's Fascist Economy; TIFs -- Therrre Back!," July 15, 2014

Nicholas Johnson, "Talking TIF: Costs Outweigh Possible Benefits," The Gazette, April 13, 2014, pp. A9, A12 [submitted as "TIFs' Multiple Costs Outweigh Any Possible Benefit," and embedded in "Tussling Over TIFs: Pros and Cons; Tough TIF Talk," April 13, 2014

"TIFs: Too Many Negatives," March 25, 2014

"TIF Apology," March 18, 2014

2013
"A TIF Discussion; Evolution of a Family's TIF Policy Position," June 9, 2013

"TIF Towers; Giving TIFs the Sniff Test," April 9, 2013

"Crony Capitalism's Failures: Iowa City Style; Gone With the Wind," April 8, 2013

"First Step to Reducing National Debt; Sunlight is the Best Disinfectant," April 4, 2013,

"Repealing Corporate Welfare: Step One; The Journey of a Trillion Dollars," March 25, 2013

2012
"Big Boxes, Little Bookstores and Taxpayers; We'll Leave the Prairie Lights on For You," June 6, 2012,

2011
"TIFs Wealthy Relatives; $7 Trillion Secret Giveaways to Banks; Marlins' Stadium," December 6, 2011

"TIF Impact Statements; The Questions We Should Insist Officials Ask First," November 29, 2011


"SSMIDs, Taxes and TIFs: The Lessons; Say 'No' to Tax Increases, 'Yes' to SSMIDs?!" November 3, 2011

"The True Price of TIFs," October 1, 2011

"The Religious Indictment of Republicanism; Catholic University Professors Say Republican Budget Violates Basic Catholic Moral Teachings," May 14, 2011,

"Brother, Can You Spare a TIF? TIF Helps the Rich Get Richer," April 25, 2011

2010
None.

2009
None.

2008
"Taxpayer Rescue; The Way Free Private Enterprise is Supposed to Work: Thinking and Acting Globally and Locally," September 15, 2008

"Growing Iowa's Economy the Right Way," April 27, 2008

"Bush and Giveaways to Sheraton; Who's Best Bush? And, Raising Taxes to Increase Corporate Profits," April 25, 2008

"Call the Cops, Robbery in Progress," April 24, 2008

"Golden Rules & Revolutions: A Series - VIII," April 19, 2008 (with links to prior 7)

"Football, Skating and Corporate Welfare," January 25, 2008

2007
"Understanding TIFs," October 5, 2007

"Courage, Councilors," October 3, 2007

"TIFing Your Doctor," September 12, 2007 (with TIF lyrics for "Folsom Prison Blues")

"Public Money, Private Profits," August 24, 2007

"Cable, Coralville, Coal and Consultants, August 17, 2007 (subsection headed "Desperately Trying to Put a Good Face on TIFs")

"The Terrible TIFs; They're Back: The Terrible TIFs," July 26, 2007,

2006
"Riverside's Deeper Gambling Debt," November 11, 2006

"Riverside's Tax to Nowhere," October 31, 2006

"It's Not About 'Taxes,'" October 24, 2006

"More on Corporate Welfare from 'Hat's Off' Winner," October 22, 2006

"Call the Cops: $3.755 Million Robbery in Progress," October 18, 2006

"Why Do They Hate America?" October 4, 2006

"Press-Citizen Says 'Tough TIF,'" September 22, 2006

"Supervisor Sullivan Says 'TIF, TIF, Tsk, Tsk,'" September 16, 2006

"TIF-ing My Toolshed," September 2, 2006

"Coralville's Hotel: 'Trust But Verify,'" August 16, 2006

"Are TIFs 'Corporate Welfare'?" July 22, 2006

"More: Justifying Corporate Welfare," July 13, 2006

"Neutral Principles, Anyone? Justifying Corporate Welfare," July 12, 2006

# # #

Governor Branstad's 'Transparency'

January 5, 2011, 7:00 a.m.

Making "Transparency" in Government Meaningful
(bought to you by FromDC2Iowa.blogspot.com*)
The Press-Citizen has requested and run a series of 500-word op ed columns on "Issues to Watch: State Government." Here's mine from this morning's paper on Governor Terry Branstad's promises of "transparency."

Branstad and Public Transparency
Nicholas Johnson
Iowa City Press-Citizen
January 5, 2011, p. A7
Governor-elect Terry Branstad thinks transparency in government is a good idea.

As a general proposition, most agree. Indeed, to borrow from the bumper sticker: "It's not just a good idea; it's the law."

The difficulties come, not from the generalization, but from the specific applications and exceptions. Moreover, many public officials are unaware of their obligations.

It's called the Freedom of "Information" Act. However, as communications scholars remind us, there are dramatic differences between data, information, knowledge and wisdom. Without raw data nothing more is possible. Wisdom may be too much to hope for, let alone legislate. But it's knowledge that we need.

Few citizens rummage through the yellowing paper records in all of Iowa's 99 county courthouses. We depend on the media to tell us what our public officials are up to -- from Congress in Washington, to agencies in Des Moines, to the local school board.

Too often, public records, even with the media's reporting, provide us little more than data.

Do Iowans really want government transparency, a "government in the sunshine"? If so, we need to follow the advice "Deep Throat" gave Bob Woodward and Carl Bernstein, the Washington Post's Watergate break-in reporters: "Follow the money."

Much of what governments do is transfer taxpayers' money to the bottom line of for-profit corporations. Indeed, my research indicates the payback on large campaign contributions can run 1,000-to-one, or more. In Washington that means, "Give a million, get a billion." What's the ratio in Des Moines?

Paybacks can take the form of government contracts, price supports, direct subsidies and earmarks, and fraudulently named "jobs" and "economic development" programs. One of the most invisible and invidious forms of payback are "tax breaks."

There are serious issues of political ideology, public policy and finance when officials hand over taxes to for-profit corporations. One would hope those who think "socialism" is a swear word, and insist a deregulated marketplace solves all social ills, would oppose such giveaways. One would hope in vain.

So let's put those issues aside, recognize the corruption will continue, and address what improvements might help.

• First, recognize that $100,000 not paid in taxes has the same private benefit and public cost as a $100,000 corporate subsidy.

• Second, without cutting a single dollar from the taxpayers' largess put all the money on the table. Start with the worst problem: the virtually invisible and untraceable tax breaks.

• Third, identify those that exist, however deeply buried in the Iowa tax code, and repeal them.

• Fourth, make the money available, to the same recipient in the same amount, but as an identifiable appropriation for a named corporation or individual.

• Fifth, require reports, and encourage media presentation of them, that associate those appropriations with the legislators who voted for them, and how much those legislators received in campaign contributions and lobbying expenses from the recipient of the appropriation.

That's how you turn data and information into knowledge.

It remains to be seen if that's what Branstad means by "transparency."

_______________
Nicholas Johnson, a former FCC commissioner, teaches at the University of Iowa College of Law and maintains www.nicholasjohnson.org and FromDC2Iowa.blogspot.com.

# # #
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* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source -- even if I have to embed it myself.
-- Nicholas Johnson
# # #

Housing for the Wealthy Unemployment for the Poor

October 21, 2009, 6:15 a.m.

"It's the Unemployment, Stupid!
(brought to you by FromDC2Iowa.blogspot.com*)
Washington's corruption of our economic recovery efforts is painful, embarrassing and so obviously benefiting the rich while ignoring the poor and middle class that it's coming to be as depressing emotionally as it is economically.

Yesterday Tom Ashbrook's "On Point" program from WBUR offered one more example in, "The Housing Wild Card," October 20, 2009. Guests included Diana Olick, real estate correspondent for CNBC; Karl Case, Wellesley College professor of economics and co-author of the Case-Shiller Home Price Index; Thomas Lawler, housing economist and founder, Lawler Economic & Housing Consulting; and Mark Zandi, chief economist and co-founder of Moody’s Economy.com.

The show provided just one more example of corporate greed and a Congress favoring America's wealthiest -- and most generous campaign contributors.

Housing is where a lot of our current economics problems began. Remember?

It's like the story of the doctor who asks, "Have you ever had this before?" The patient nods, and the doctor provides the diagnosis: "Well, you've got it again."

We're about to get it again.

(1) While we took our eyes off of the Federal Reserve last March they went and put another $1.25 trillion into the housing market. ("To provide greater support to mortgage lending and housing markets, the [Federal Open Market] Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year . . ..") Press Release, Federal Reserve, March 18, 2009.

(2) Add to this the mortgage interest deduction that constitutes a $69 billion subsidy to help boost home sales -- a subsidy enjoyed by only 23% of taxpayers, and a disproportionate share of which goes to the wealthiest 1%, given that it applies to homes worth as much as $1 million.

Note that this means that Congress is willing to spend twice as much subsidizing housing for the wealthy as it's willing to spend on low income housing for the poor -- a program it says "we can't afford." Danilo Pelletiere, "Mortgage Interest Deduction," National Low Income Housing Coalition, May 6, 2009. ("In FY08, the Joint Committee on Taxation calculated the cost of the [MID] subsidy to be $67 billion. Though developments in housing markets may put downward pressure on the trend, the cost of the MID is expected to increase to as much as $112 billion by 2012.").

(3) Not satisfied with that largess, the housing profiteers got Congress to give them enough taxpayers' money to provide an $8000 cash subsidy to potential "first time buyers" -- some 355,000 individuals as it turned out who are sufficiently well-off to even contemplate buying a home at a time like this. It can fairly be assumed many of them would have bought homes without this additional $3 billion designed to further help the housing industry. Now the program is about to expire, so they're back with their hands out demanding it be extended, increased to a $15,000 subsidy per buyer, and opened to all (not just first-time) home buyers. And while most economists oppose the plan as folly at best and wasteful corruption at worst, the housing industry may well get its wish.

But where are all these houses coming from? Why, foreclosures, of course. So more of the unemployed, those facing bankruptcy because they've lost their health insurance, or those otherwise too financially strapped to pay their mortgages, will be out on the streets.

And how is this "housing program" going to help our recovery when 70% of the economy is driven by consumer spending? It won't, of course. But we will have wealthier real estate brokers and mortgage lenders, just as we have wealthier Wall Street bankers enjoying million-dollar bonuses as a result of our generosity.

The Wall Street Journal quotes Thomas Lawler's analysis as to why this level of subsidization is folly: "Of course, in the current environment home prices have . . . in most areas of the country, finally adjusted back down to more 'normal' levels . . .; the government is providing massive resources to ensure that mortgage rates remain low; and the biggest obstacle to a rebound . . . is the job outlook. The housing tax credit is an enormously inefficient use of government resources, and it does not really focus on what the economy needs: more job creation, and a return to “normal” growth of households." Nick Timiraos, "Weigh In: Should Congress Extend the First-Time Buyer Tax Credit?," Wall Street Journal, October 1, 2009.

New York Times columnist Bob Herbert agrees about the need for jobs:

[I]ncreasingly important is the idea of direct government job creation. The recession has absolutely crushed employment opportunities for unskilled, undereducated young people — not just in big cities and rural areas, but in suburban communities as well. Without direct government intervention, the recession is never going to end for them.

During the first half of this year in Illinois, to take one wretched example, just one in four black men in the age group of 20 through 24 had a job.

Nationally during that period, according to the Center for Labor Market Studies at Northeastern University in Boston, “the employment rate of males 16-19, 20-24, and 25-29 were at their lowest values over the past 61 years for which national employment data are available.” That’s for men of all ethnic groups.

“The past,” as William Faulkner told us, “is not dead. It’s not even past.” The lessons of the Works Progress Administration and the Civilian Conservation Corps of the 1930s are right in front of us, ready to be studied, analyzed, updated and applied to the present-day needs of the country.

Bob Herbert, "Igniting the Growth of Jobs," New York Times, October 10, 2009, p. A23.

It was a theme I'd advocated nearly a year ago when I urged a jobs program as the most efficient and effective "stimulus package." Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery; Why America Needs a Jobs Program: Because When Your Automobile (Industry) is in the River It Makes More Sense to Go For the Shore Than to Continue Bailing it Out," November 8, 2008.

My own view -- buttressed by [reports regarding] (1) the automobile industry (especially General Motors), (2) retail sales, and (3) unemployment -- is that the best interests of the business community, as well as the American people, will be served by providing public jobs programs, and economic support to the unemployed, rather than continuing to pour billions of dollars into failed and failing businesses. . . .

[A] major part of GM's problem is that laid-off GM workers, and the 10 million other unemployed Americans, don't have the money to buy anybody's cars right now . . ..

Enabling auto executives to have tens of billions of additional dollars to spend at their discretion in postponing bankruptcy doesn't strike me as a solution to anything . . ..

Another problem with Washington's willy-nilly giveaways, aside from the fact that they are unfair, don't work and will ultimately bankrupt our nation, is that they are irrational. . . .

[I]f Obama is looking for economic sectors to which to transfer taxpayers' money, wouldn't the one that represents "two-thirds of the nation's economic activity" make more sense in a recession/depression than bailing out the one that makes $30,000 new vehicles? . . .

Why We Need a Jobs Program

Look at the numbers. There are now over 10 million unemployed. Unemployment stands at 6.5 percent, and is projected to go to 8 percent next year -- 22 percent of whom have been out of work for more than six months, something we haven't seen for a quarter-century. The rates are increasing. Of the 1.2 million jobs lost this year 284,000 were in September and 240,000 in October. [These are, of course, the numbers from a year ago, when this blog entry was written.]

In the 1950s over 50 percent of the unemployed received benefits; today, because of various restrictions, only 32 percent qualify -- more unemployment, more holes in the safety net. . . .

[T]he answers seem, to me, rather obvious.

You can't improve business (profits, returns to shareholders, executive compensation) without improving retail sales; you can't improve retail sales without putting money in the hands, and confidence in the heads, of potential consumers; and unemployed consumers don't have money unless they are provided either unemployment compensation or wages from a public sector job (in an economy with a shrinking private sector). . . .

[E]ither makes more sense than trying to turn an economy around with "trickle down" -- whether tax cuts for the rich, or bailouts for the rich.

Nicholas Johnson, "Jobs, Not Unemployment, Key to Recovery; Why America Needs a Jobs Program: Because When Your Automobile (Industry) is in the River It Makes More Sense to Go For the Shore Than to Continue Bailing it Out," November 8, 2008.

Last July I wrote a blog entry about one American county that is using its money for a jobs program rather than further enriching its wealthy, "It's the Unemployment, Stupid! Perry County: If the Question is Economic Recovery The Answer is Jobs" July 29, 2009:

[If he was still in the wall poster business,] James Carville, the political consultant who once famously tried to keep presidential candidate Bill Clinton "on message" with the wall sign, "It's the economy, stupid!" . . . , I suspect his wall sign for President Obama might well be, "It's the unemployment, stupid!"

We did this in the 1930s and called it the "Works Progress Administration" and "Civilian Conservation Corps" -- the creations of which we are still enjoying to this day (for example, in our state parks).

Why are we not doing it today? Your guess is as good as mine. But my suspicion is that it has more to do with the big money corruption of our political system than with some new, Nobel-prize-winning insight into the mysteries of economic theory.

We may be Number 37 in the world in health care, but by golly we're Number 1 in greed and economic stupidity.
____________

* Why do I put this blog ID at the top of the entry, when you know full well what blog you're reading? Because there are a number of Internet sites that, for whatever reason, simply take the blog entries of others and reproduce them as their own without crediting the source. I don't mind the flattering attention, but would appreciate acknowledgment as the source, even if I have to embed it myself. -- Nicholas Johnson

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Football, Skating and Corporate Welfare

January 25, 2008, 8:15 a.m.

The yellow-gold-brick road of corporate welfare is littered with the wreckage from government gifts to private enterprise. That's because private enterprise and public projects are like speed skating and football. Each works in its own venue, but playing football on ice doesn't work any better than trying to skate on Astroturf.

When, in an op ed column for the Press-Citizen I was identifying a rather long list of categories of reasons why -- notwithstanding the individual benefits of both private enterprise and public projects -- the blending of the two creates mostly disasters for all (excepting, of course, the lucky for-profit corporate beneficiaries), I included the following:

The subsidy-grantors' record’s not great. Public officials are skilled at keeping constituents and contributors happy, getting re-elected, and moving to higher office. They’re less skilled at evaluating taxpayer-funded business proposals – a lot of which go belly up, miss construction deadlines, or new job goals even with our money.

Nicholas Johnson, "Courage, Councillors," Iowa City Press-Citizen, October 3, 2007.

This morning's [Jan. 25] Press-Citizen contains another op ed, by one of those former councilors, that provides yet one more dramatic example of exactly what I was talking about:

That city of 27,000 [Burlington, Iowa] used its power to condemn and to clear 24 acres of residential property known as the Manor neighborhood. The process forced mostly low-income families, many of them elderly, out of their World War II-era homes. The city spent more than $5 million on its plan to replace the old homes with a commercial development they called the Manor Revisited project.

But earlier this month the controversial project exploded in the Burlington officials' faces when the Burlington Hawk Eye reported the city's Minnesota-based developer pulled out of the project.

According to the Hawk Eye, the Minnesota firm "notified the city last week that a 220,000 square-foot shopping complex planned for the 23.7-acre site 'no longer fits within their company goals.'"

According to the same Hawk Eye report, Burlington officials had already spent $5.16 million to acquire the property.

Bob Elliott, "Looking at Hot City Issues," Iowa City Press-Citizen, January 25, 2008, p. A9.

A City government decides to get into the "shopping complex" business -- not to own and operate and profit from it as a way to actually earn and save taxpayers some money -- but as an expenditure of those taxpayers' money, a gift that the City was prepared to watch drop directly to the bottom line profits of a for-profit business. It devastated a 24-acre area, driving residents from their homes, spent over $5 million doing it. And for what? For a corporation that had no real reason to be in Burlington -- except for the bribes -- and no real investment in the community either financially or emotionally, that was then free to turn and walk away (perhaps to another community willing to pay an even bigger bribe).

The yellow-gold-brick road of corporate welfare is littered with the wreckage from government involvement in private enterprise. That's because private enterprise and public projects are like speed skating and football. Each works in its own venue, but playing football on ice doesn't work any better than trying to skate on Astroturf.

Now here's another corporate welfare/subsidy story from last week that is only modestly better, but contains an important lesson all its own:

An international bioproducts development and manufacturing company has been approved for financial assistance from the Iowa Department of Economic Development to expand its Cedar Rapids operation.

Genencor, owned by Danisco A/S of Copenhagen, Denmark, will receive $100,000 from the state’s Community Economic Betterment Account and enterprise zone tax benefits for a $3 million “Center of Excellence” in southwest Cedar Rapids.

The facility, to be built adjacent to Genencor’s bioproducts manufacturing plant at 1000 41st Avem Dr. SW, will be used for final development of enzymes used by the fuel ethanol and corn refining industries.

. . .

[Troy Wilson, vice president of grain processing, said,] “This project supports our mission to continue to provide the most advanced enzyme applications technologies to make grain processing production more efficient and effective.” . . .

Wilson said Cedar Rapids was selected because of its geographic location in the center of the country and its proximity to the fuel ethanol and corn sweetener manufacturing sector.

. . .

The company employs about 1,500 worldwide and generates about $3.7 billion in annual revenue, with 20 percent produced by the Cedar Rapids plant, according to Tjerk deRuiter, chief executive officer of Genencor.

George C. Ford, "Genencor gets state help for C.R. expansion; Facility to be used for enzyme development in grain processing," The Gazette, January 18, 2008, p. B8.

What can we learn from this story?

1. One of the many evils of government use of the "tax breaks" weaponry in its corporate welfare arsenal, is that it can totally obfuscate the amount of money involved. We can understand the $100,000 in cash from the "Community Economic Betterment Account." But was that the lion's share of the corporate giveaway payment or only chump change compared with the "enterprise zone tax benefits"? We'll never know, because the government won't tell us and therefore the media can't.

2. And just how needy is this welfare mother? It "generates $3.7 billion in annual revenue." That's "billion" with a "B."

3. But it was that $100,000 and "tax benefits" that swung the deal, right? Wrong. "Wilson said Cedar Rapids was selected because of its geographic location in the center of the country and its proximity to the fuel ethanol and corn sweetener manufacturing sector." This is most often the case. Businesses choose locations for reasons other than government bribery. In this case "the center of the country" (presumably for reasons of transportation speed and cost), and the accessibility to the raw materials it needs (ditto). (In another case last year, a business spokesperson dismissed the role of bribery, noting that the reason it had picked one of Iowa's Mississippi River towns was because it needed access to River barge transportation.)

4. The good news? However wasteful and unnecessary this government largess with taxpayers' money may have been, it is precisely for that reason that at least the recipient is likely to stay -- unlike the for-profit beneficiary of Burlington taxpayers' money, attracted only by the bribe, who is already long gone.

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