Chicago's Coal Catastrophe Clawback

Plus: A bad California veto and a good Congressional report.

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In April, Hilco Redevelopment Partners, an arm of the financial services company Hilco Global that specializes in rehabbing industrial sites, was supposed to demolish an old coal plant smokestack in Chicago, where the company is based. The demolition indeed happened — and sent a colossal dust cloud across surrounding neighborhoods, which was definitely not part of the plan.

“A massive plume of dust drifted across this area, dropping dirt and particulate matter across homes, cars, businesses, trees and every other inch of this community,” Mayor Lori Lighfoot said. Residents complained of burning lungs, and had to seek out medical treatment for respiratory ailments during the coronavirus pandemic.

Hilco is going to receive $19.7 million in property tax breaks for the site where the botched demolition occurred, and there’s nothing the Chicago can do to get that money back. But on Wednesday, the city council passed a new law that will allow it to recoup future tax breaks given to bad corporate actors.

The council voted unanimously for a bill proposed by Alderman Michael Rodriguez allowing the city to claw back tax breaks given to companies that subsequently fail to meet the investment or job creation targets, fail to submit required reports, or violate environmental regulations.

“Applicants for tax incentives requiring City Council approval should be held to account for betraying the public trust by engaging in egregious violations of law or acts that jeopardize the health, safety, and welfare of the surrounding community and the City as a whole,” the new law states.

If this sounds familiar, that’s because it’s similar to the situation regarding General Motors and Ohio that I wrote about recently, wherein GM was forced to repay a portion of a tax break package it received after it closed a plant in Lordstown.

That Chicago didn’t have a law allowing clawbacks before now is unfortunate, of course, and means Hilco will get off for its mess with just a fine. I actually asked around about this in April, right after the smokestack debacle occurred, and was told by Ralph Martire, the executive director of Chicago’s Center for Tax and Budget Accountability, that “There is state legislation that permits the claw back of tax expenditures for economic development that are shown to be completely ineffective — my organization actually drafted that legislation years ago — but I haven’t heard of an instance where Chicago took advantage of it.”

That was a big mistake, because clawbacks are incredibly useful. They’re a way for officials to hold corporations accountable for not following through on their economic promises, or for profiting off of harming a community. They should be in every economic development contract a government signs with a corporation. These deals, if cities and states insist on engaging in them, should be a two-way street, not a situation in which the government is unable to act if a corporation shatters its end of the bargain.

And it doesn’t take an environmental catastrophe or other headline-grabbing incident for a city to justify revoking giveaways: For instance, last year, Lightfoot complained that Target broke promises regarding investments in underserved communities after receiving tax breaks. Again, the city was left powerless. (Completing the doom loop here, the site where Hilco’s demolition went awry is slated to be a Target distribution center.)

Corporate interests always argue, and Chicago was no exception, that clawback provisions will deter companies from investing in the places that demand them. Even if that’s true — and there’s no empirical evidence it is — being averse to an accountability mechanism should be a big warning sign for cities and states, no matter the investment level promised. The sort of corporations that balk at a clawback provision shouldn’t be receiving taxpayer dollars, full stop. Spend that money on something more likely to bring actual economic benefit, like schools or infrastructure, instead of setting taxpayers up for heartbreak.

That it took a clear catastrophe for Chicago to do something about this problem isn’t great, but acting now is certainly better than never. Other locales that don’t allow for clawbacks shouldn’t wait for their own Hilco incident to occur to change their laws. Do it now, and potentially save taxpayers from being hosed later.

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Update: One of the corporate tax disclosure bills I wrote about here, SB 972, recently passed out of the California state legislature, albeit in a watered down form. But even that watering down was not good enough for Democratic Gov. Gavin Newsom, who vetoed it. Ugh.

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One more thing: The House antitrust subcommittee this week released an important report on its investigation into digital markets — i.e., the power of Facebook, Amazon, Google, and Apple.

It’s worth a read (or at least a skim): Even though it’s long, it uses clear, compelling language, with lots of citations to internal documents, to explain how these companies obtained and then maintained their power through predatory tactics and merger sprees, while federal enforcers just stood by and watched.

The report also touched on many of the themes I’ve written about here and elsewhere: How Amazon uses its fulfillment and delivery services and other unfair and predatory practices to undermine local businesses and hurt workers; how Facebook and Google have killed off local journalism and help spread conspiracy theories; and how Google’s self-preferencing of its own products in search hurts small businesses and consumers.

Seriously, give the report a click. It’s going to be a foundational document for a lot of the battles over corporate power to come.

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— Pat Garofalo