For Sale: New Jersey Tax Breaks

Plus: Help me out with Google!

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A New Jersey task force last week wrapped up a serious investigation into the Garden State’s corporate tax incentive programs, issuing its third and final planned report. (My previous coverage of the investigation can be found here, here, here, and here.)

Like the prior two installments, the report is excellent: It provides loads of details about how companies systematically ripped off New Jersey taxpayers by hiring consultants who specialized in creating false threats to leave the state in order to unlock tax breaks. The task force says it has referred a total of $578 million in improper awards to state officials, law enforcement, or both.

But I want to focus on a small section near the end of the report that deals with a somewhat wonky term: transferable tax credits. Many states, New Jersey included, allow tax credits to be sold if the company that qualified for them doesn’t have enough tax liability to take advantage of its full complement of credits — i.e., they can be transferred. There’s a whole industry around the tax credit market.

The task force reported that a whopping 70-80 percent of New Jersey tax credits are ultimately sold to someone else. This causes a host of problems.

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First, and perhaps most obviously, it means tax incentive programs benefit companies for which they were never intended. In New Jersey’s case, the prime beneficiaries of tax credit sales are banks and big insurance companies. (A separate NorthJersey.com investigation found that between 2014 and 2017, Horizon Blue Cross Blue Shield was the largest purchaser of New Jersey tax credits.)

Lawmakers didn’t intend to give those companies a rake-off on their taxes via these incentive programs; they were simply able to buy up tax breaks from other companies whose tax bills were literally too small to make full use of them. As one person the task force spoke to put it, buying a tax credit is a “backdoor grant” from the state.

Second, transferable credits make state budgeting a nightmare, since companies cash in the credits they bought at different times. As the task force noted, “The State does not control the credit after its sale and does not know who might attempt to use the credit and when.” Thus, “the State cannot accurately predict which revenue streams will decline in any given year, and by how much.”

In my book, I laid out a similar situation in Massachusetts, wherein film and TV tax credits the state had doled out were being sold and then cashed in years later by random companies, creating a massive headache for the state’s bookkeepers. A recent report in Bloomberg detailed how Illinois’ film tax credits are similarly being sold to everyone from Walmart to Apple to Oprah.

Finally, since the state doesn’t track tax credit sales beyond one degree — meaning if a purchaser sells a credit on again, no one knows about it until the final purchaser cashes in — nobody can track the full extent of which industries are being subsidized. The state does have a plan to remedy this in the near future, but it doesn’t intend to make all the sales information public. Like so much in the corporate tax space, this clouds democratic accountability, since voters can’t hold officials responsible for actions they can’t find out about.

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The task force made some good recommendations for fixing this problem, from capping the number of credits a single company can hoover up, to ensuring they use the credits within a set amount of time, to making all sales records public. I’m a bit more of a purist: End the transferability of tax credits entirely and fix the whole mess in one fell swoop.

As I say every time I write about this investigation, yes, New Jersey is a total wreck in the corporate tax department, but it’s not unique. It just bothered to look under the hood of programs that had been tootling along for years with no oversight. Many other states would find the exact same stuff — or worse — if they bothered to check their own programs. For instance, a recent audit of just one tax incentive program in Illinois found nobody at the state was doing, well, anything, to track or verify applications.

So good on the Garden State. Hopefully Gov. Phil Murphy can use this information to push reforms through a legislature that, despite the overwhelming evidence the task force provided, seems to still think the status quo is fine.

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Let’s talk about Google: It looks increasingly likely that there will be a big antitrust case against Google launched sometime this summer. Me and my colleagues at the American Economic Liberties Project are collecting stories and contacts from folks who interacted with Google through their business, or have even worked there and know some of the ins and outs of the company. If that’s you or someone you know, please fill out this form and share it around. We’d love to chat with you. And we’ll never share this info without permission.


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— Pat Garofalo

A Tale of Two Amazon Warehouses

Remember, Amazon's choices are about expanding its power.

Before we start today, a quick favor. It looks increasingly likely that there will be a big antitrust case against Google launched sometime this summer. Me and my colleagues at the American Economic Liberties Project are collecting stories and contacts from folks who interacted with Google through their business, or have even worked there and know some of the ins and outs of the company. If that’s you or someone you know, please fill out this form and share it around. We’d love to chat with you. And we’ll never share this info without permission.

As always, if you liked this edition of Boondoggle and are not currently a subscriber, please click the green button below to sign up. Thanks! And now, onto today’s tale about Amazon.

This is a story about two warehouses in Connecticut. It shows why subsidizing the expansion of Amazon’s fulfillment and distribution system is folly for policymakers.

Amazon is opening two new facilities in the Nutmeg State: One in Windsor and another in Danbury. The first is receiving $8.8 million in property tax breaks. The second, according to local officials, is receiving no incentives or subsidies of any kind.

New Amazon warehouses are constantly popping up all over the country and are key to Amazon’s growing monopoly power, as it uses distribution services not just to speed up its own package delivery capabilities, but as a key way to extract money from those who want to sell on its platform. It accomplishes this by giving Prime Eligibility to sellers who pay for Amazon to handle their distribution. (Buyers are much, much more likely to purchase items that are Prime eligible.)

Because these facilities are so key to Amazon’s growth, the company places them very strategically, as Good Jobs First noted on these maps. Warehouses go where there is a concentration of disposable income, Amazon Prime subscribers, and easy access to highways and airports — all of which makes sense, as the whole point of expanding the warehouse network is to get stuff to people who are likely to buy things from Amazon faster.

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Which brings us to Danbury and Windsor: Both are located in areas with high disposable income, a concentration of Prime subscribers, and with highway access. Windsor has more major airport access, being not far from Bradley International Airport. Windsor has a higher median income, by about $10,000 dollars, and about half the poverty rate that Danbury has, according to the Census Bureau. Windsor is also already home to some Amazon infrastructure, another seeming advantage to further investment there.

So why is Windsor providing Amazon with millions of dollars in tax breaks, and Danbury providing nothing?

Well, Windsor is a lot smaller than Danbury — but it’s also not far from Hartford, so that would seem to come out in the wash. Danbury’s mayor was a, shall we say, very enthusiastic seeker of Amazon’s HQ2, so maybe that helped. The planned Windsor facility is also much bigger.

It’s also possible that more details will come out about hidden subsidies for Danbury’s facility — but the mayor on a radio show mocked people who thought that was the case, so for now let’s assume good faith and that Amazon is paying full freight.

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The likeliest explanation, then, is also the simplest one: Amazon wanted to be in both places and took money that was offered, but that wasn’t a dealbreaker.

While Amazon will certainly accept incentives and subsidies, it doesn’t need them to keep expanding its empire. It’s proven time and again that it will happily pay for warehouses and other facilities that meet its strategic plans — it also recently announced an incentive-free Texas facility, for instance.

And remember: Research has shown that Amazon warehouses aren’t a boon for local jobs. According to the Economic Policy Institute, new warehouses don’t bring wider employment growth, meaning they either blunt other economic activity or have too small of an impact to even measure.

Amazon initially asked for a bigger subsidy from Windsor, but settled for the $8.8 million. I’d bet it would have accepted even less than that too. Local officials just got starstruck and paid Amazon for something it was likely going to do no matter what.

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One more thing: This made me chuckle.


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— Pat Garofalo

Federal Reserve to States and Cities: Drop Dead

The Fed went all out for big business. For states and cities, not so much.

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Today I’m going to write about something a little different: Instead of explaining how a state or city is ripping off taxpayers, I’ll be looking at how states and cities have been left out to dry by the federal government during the pandemic, and especially by the Federal Reserve.

While the pandemic response adopted by Congress does include aid for states and cities to bolster their health care systems to deal with coronavirus patients, it’s patently clear more support is needed to prevent an economic catastrophe at the state and local level.

State and cities, remember, have to balance their budgets, and the combination of plummeting sales tax revenue due to coronavirus-related lockdowns, plummeting income tax revenue due to coronavirus-related joblessness, and, for many places, a complete vaporizing of any tourism revenue, means there are huge fiscal gaps to address.

According to the Economic Policy Institute, without further aid, 5.3 million state and local workers will lose their jobs by the end of next year. The National League of Cities reported this week that more than 700 cities have canceled or halted critical infrastructure projects because they’re no longer affordable. During the 2008 recession, job losses at the state and local level were a huge drag on the recovery, and the same thing is going to happen again this time absent intervention.

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Congress is, at the moment, kinda sorta talking about another round of aid, but Senate Republicans seem in no hurry to produce anything, which is a real dereliction of duty.

Down the street at the Federal Reserve, meanwhile, there’s a program explicitly designed to help states and cities access funds: the Municipal Liquidity Facility. Great, you might say. The Fed can do what Congress won’t. But not so fast.

While the Federal Reserve’s programs to help big business have been super effective in letting them access money in a whole host of ways, the program to help states and cities has been used, per the latest report, exactly once, by the state of Illinois. No other state, city, or county has even bothered.

Why is that? As this report from the Center for Popular Democracy explains, the municipal lending program is designed to fail. It’s terms are so onerous and its eligibility requirements so ridiculous that only a few locales could feasibly benefit from it. In the whole country, only two states, three cities, and two counties would find the program useful.

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The Fed is actually demanding higher prices for investment grade debt from states and cities — which is a pretty safe bet — than it is for some corporate debt that is rated as junk. In just one example, the city of Nashville found that it would cost more than $4 million more to borrow from the Fed than from private markets on a $200 million borrowing note.

That corporations are getting a better deal than the communities in which we all live isn’t some immutable fact that can’t be changed. It’s a policy choice. And smart folks have suggested fixes that would make the program much more useful for states and cities. The Fed just needs to make them — and it’s shown no hesitation to adjust programs on the fly.

And for those of you who may ask why the central bank should be providing cheap money to states and cities, remember that they had nothing to do with the coronavirus pandemic. In fact, they did the responsible thing — locking down economies — which caused all the fiscal problems they’re facing now. Providing low-cost funds to keep them afloat is the least the federal government can do.

Or, of course, Congress could also do the responsible thing and send funds to states and cities directly. But as things stand now, we’re in the worst of both worlds, with a legislative body unwilling to act and an unaccountable central bank being the only entity with the power to do something, but refusing to use it.

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One more thing: In some good news, one of the California bills I wrote about a couple of weeks ago officially passed the state Senate.


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Finally, if you’d like to pick up a copy of my book, The Billionaire Boondoggle, go here.

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— Pat Garofalo

Palmetto Pilfering

South Carolina audited its corporate incentives. Calls for a resignation followed.

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As I’ve been saying, states and cities should audit their corporate tax incentive programs. Scandalous stuff always turns up.

The latest state to undertake an audit is South Carolina, the results of which were released recently by the state’s Legislative Audit Council. It looked at two major corporate incentive programs: One that gives corporations back a percentage of the money their employees pay in taxes, which is called the Job Development Credit, and another that provides grants to specific companies. Both are run by the state’s Department of Commerce.

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In pretty unsexy audit-y language, the report details a department that is handing out incentives without even basic safeguards for taxpayers, using outdated models that inflate the expected benefits the state economy will receive. Here are a few numbers that jumped out:

2,197: That’s how many indirect jobs — meaning jobs not at the project in question, but connected to it through increased economic activity — the Department of Commerce overestimated would be created by just one project, due to its use of economic models that haven’t been updated since the 1990s. Auditors re-did several projections using newer models and found the Department of Commerce consistently overestimated how many jobs would result from individual projects, making deals look better for taxpayers than they actually were.

$17 million: That’s the amount of money the state should have clawed back from companies that didn’t meet the job or investment targets they promised. However, instead of going after that money, corporations were given a break and their targets were revised. Of the $17 million, the state only attempted to claw back $9 million, and has received $7 million. That’s millions of dollars lying on the table that could be used to provide government services.

95 percent: That’s the percentage of claims for Job Development Credits the South Carolina Department of Revenue says have discrepancies between the amount of money claimed and the number of jobs or amount of investment the company created. But the Department of Revenue is simply overwhelmed and can’t check enough companies claiming credits; it only gets to a couple of dozen out of hundreds of applications. Some companies have literally never had their claims checked.

7: That’s the number of approved applications for credits, out of 13, that the auditors said had red flags showing the company in question might not be in good financial shape, even though the Department of Commerce said it looked for such flags before approving incentives.

Also, here’s a great sentence: “[The Department of Commerce] does not perform any sort of ‘look back’ analysis at the cost-benefit analysis performed prior to an award to determine if the project was successful and actually created the projected jobs and investment stated in the news releases.” Not great!

The department also didn’t bother verifying that companies had actually created the number of jobs they said they did. And even though the credits can only be applied to jobs that pay a certain wage, companies don’t supply wage information, yet get their credits anyway.

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This isn’t the most damning audit of corporate tax incentives I’ve seen, but it’s still not good. The state is spending millions of dollars annually without knowing what it’s getting for them — maybe no jobs, maybe crappy jobs, it’s all a big mystery.

And only two of the state’s incentive programs were examined; there are others — including both a corporate headquarters tax credit and an enhanced corporate headquarters tax credit — that also presumably have issues. Overall, South Carolina has spent some $2.5 billion on corporate incentives dating back to the 1990s (about half of which has gone to Boeing).

Following the audit’s publication, some South Carolina state lawmakers said that the state’s secretary of commerce should resign. I’d certainly like to live in a world in which a damning corporate tax incentive audit leads to changes in state leadership.

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One more thing: Speaking of South Carolina, the state gave a big incentive package to the NFL’s Carolina Panthers in order for the team to construct a new practice facility there. (Yes, a practice facility, not even a stadium.) And now the rest of us get to chip in too, due to the state receiving a federal grant to construct a highway interchange to the new practice spot.


Thanks for reading this edition of Boondoggle. If you liked it, please take a moment to click the little heart under the headline or below. And forward it around to friends, family, or neighbors using the green buttons. Every click and share really helps.

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Finally, if you’d like to pick up a copy of my book, The Billionaire Boondoggle, go here.

Thanks again!

— Pat Garofalo

Baltimore's Big Bond Problem

The largest TIF in the city's history is full of red flags.

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The city of Baltimore on Wednesday approved the sale of $148 million in bonds to help support a new TIF district — the acronym stands for tax increment financing, a subsidy tactic I’ve covered before. It’s the largest TIF subsidy in the city’s history, and had to be run through the state’s economic development agency because the city’s own TIF authorities are tapped out.

The bonds will go to support infrastructure around a new office and apartment development in the Port Covington district, where ground has already been broken; taxes raised within the district will, instead of going into the city’s coffers to pay for services, go toward repaying the bonds.

However, there are several big red flags about the project, which means it may not raise as much revenue as anticipated. That would leave Baltimore stuck tapping other reserves to make bond payments for as long as 40 years.

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Approving the deal during a pandemic that renders the entire Port Covington project economically questionable makes everything worse.

The original plan to float these bonds was adopted by the Baltimore city council back in 2016, a very different time for both the city and the country’s economic picture. As both the Baltimore Brew and the ACLU of Maryland pointed out, the development was based on the premise that Under Armour would move its headquarters there from its current location a few miles away, thus attracting other big companies to the area.

Fast forward to today, when the bonds are actually being issued: The pandemic has put Under Armour under severe stress, the CEO who was leading the company back then has since been demoted, and the HQ move is on hold. The lead developer on the Port Covington project has also changed. Very little of the office space available at the site has been leased, and there aren’t a whole lot of people moving to new apartments when there’s so much economic uncertainty.

Put it all together, and there’s real reason to question whether sufficient tax revenue will be raised to cover the city’s bond payments. Already, the TIF district’s taxes don’t cover the full amount for those payments even under the best-case scenario, so some other tax already needed to be raised elsewhere, a problem which the city is currently yadda-yaddaing past.

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There’s one more problem worth highlighting: It’s no sure thing that all the “end of the office as we know it” predictions will come true once the pandemic subsides — but they might! That will mean demand for space in the district will be depressed, perhaps permanently. Older TIF districts are probably already in trouble, too, due to depressed sales at retail outlets and rent moratoriums.

Cities simply still aren’t coming to grips with the fact that the pandemic could change everything from the stores we shop in to the places we work to the ways we get around. Betting on the economy going back to normal is just that, a bet that might not pay off.

And again, if enough revenue can’t be raised from the Port Covington district to cover bond payments, the city is going to have to find that money elsewhere.

According to its 2019 disclosure, Baltimore lost more than $28 million due to corporate subsidy programs. There are plenty of reasons to think that number will go up thanks to this big, bad bond issue.

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One more thing: The first paper I worked on at the American Economic Liberties Project came out recently. It’s called “Ending Our Click-Bait Culture: Why Progressives Must Break the Power of Facebook and Google,” and it’s about, well, that. Check it out here.


Thanks for reading this edition of Boondoggle. If you liked it, please take a moment to click the little heart under the headline or below. And forward it around to friends, family, or neighbors using the green buttons. Every click and share really helps.

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If you don’t subscribe already and you’d like to sign up, just click below.

Finally, if you’d like to pick up a copy of my book, The Billionaire Boondoggle, go here.

Thanks again!

— Pat Garofalo

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