Tag Archives: tax break

Look to the NFL for taypayer funded stadiums, sweet tax deals

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Gregg Easterbrook provides a reminder of the amount of public money funneled to NFL owners in recent decades:

Judith Grant Long, a Harvard University professor of urban planning, calculates that league-wide, 70 percent of the capital cost of NFL stadiums has been provided by taxpayers, not NFL owners. Many cities, counties, and states also pay the stadiums’ ongoing costs, by providing power, sewer services, other infrastructure, and stadium improvements. When ongoing costs are added, Long’s research finds, the Buffalo Bills, Cincinnati Bengals, Cleveland Browns, Houston Texans, Indianapolis Colts, Jacksonville Jaguars, Kansas City Chiefs, New Orleans Saints, San Diego Chargers, St. Louis Rams, Tampa Bay Buccaneers, and Tennessee Titans have turned a profit on stadium subsidies alone—receiving more money from the public than they needed to build their facilities. Long’s estimates show that just three NFL franchises—the New England Patriots, New York Giants, and New York Jets—have paid three-quarters or more of their stadium capital costs.

Many NFL teams have also cut sweetheart deals to avoid taxes. The futuristic new field where the Dallas Cowboys play, with its 80,000 seats, go-go dancers on upper decks, and built-in nightclubs, has been appraised at nearly $1 billion. At the basic property-tax rate of Arlington, Texas, where the stadium is located, Cowboys owner Jerry Jones would owe at least $6 million a year in property taxes. Instead he receives no property-tax bill, so Tarrant County taxes the property of average people more than it otherwise would…

The insertion of professional football leagues into the definition of not-for-profit organizations was a transparent sellout of public interest. This decision has saved the NFL uncounted millions in tax obligations, which means that ordinary people must pay higher taxes, public spending must decline, or the national debt must increase to make up for the shortfall. Nonprofit status applies to the NFL’s headquarters, which administers the league and its all-important television contracts. Individual teams are for-profit and presumably pay income taxes—though because all except the Green Bay Packers are privately held and do not disclose their finances, it’s impossible to be sure.

It is more difficult to justify such public spending when it is laid out like this. But, the money spent is complicated by two factors:

1. Americans like football. What if they wanted to provide taxpayer dollars for football? The assumption Easterbrook and others make who point out the public money spent on football is that people who read the stories will get outraged and demand change. But, football is the most popular sport and the money problems aren’t just present in the NFL – look at how college football continues to be a financial juggernaut even as it struggles with issues of amateurism. If the money isn’t spent on football, would the public be confident that money would be spent effectively elsewhere?

2. Individual cities, states, and other bodies of government are put in tough spots when teams threaten to leave unless they get a good stadium deal. Even with studies that show the economic benefits tend to be primarily in the direction of the team owners and not the taxpayers, losing the team might be even worse. Who wants to be the politician who let the team go? On one hand, spending tax money on sports might be unpopular but so would be politicians who let a source of civic pride walk away.

Just thinking out loud, it seems like the main way politicians and local governments could fight back is to all band together and refuse to spend public money this way. In a time of tough economic competition between communities for jobs and prestige, all it takes is one city to be the escape hatch for teams. Look at how NFL teams in recent years have used Los Angeles as a bargaining chip. Even though no one has moved there, they can all say plans are in the works in Los Angeles unless you give us a better deal. At the same time, politicians across the board could examine cities without major football teams and how they “survive” the lack of a team. How does Portland make it? What about Los Angeles? San Antonio? Las Vegas? In other words, having a football team is not a necessity and there are other ways to spend the money that might go towards sports teams. Individually, cities have a hard time standing up to teams but collectively they might have the ability.

When a suburb doesn’t support the big tax break supported office park

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An interesting story is brewing in Hoffman Estates where the State of Illinois wants to keep the Sears headquarters by continuing a major tax break but the local school district and some in the community don’t want to live with the reduced tax revenue for years to come. Central to the story: the tax break didn’t help fill up the 780 acre office park, leading to less tax revenue than expected even with Sears located there.

Instead, two decades after the special taxing area was created, some 200 acres remain undeveloped in the 780-acre park anchored by Sears Holdings Corp.’s headquarters. A swath of land that was supposed to generate $50 million in property taxes in 2012 raised only $25 million in the past tax year…

The ambitious project’s inception came at the pinnacle of “euphoria” over a booming commercial real estate market, said John McDonald, who teaches land economics and real estate at Roosevelt University. But that party ended with the economic slowdown of the early 1990s, and the market, he said, has not rebounded. There is no “desperate need for office space anywhere right now,” he said…

The inability of the park to pull in the predicted revenues underlies the battle over Sears’ future. The fight has largely centered on Community Unit School District 300, a financially strapped taxing body whose officials claimed it stood to lose more than $10 million in revenue per year under the original plan to extend the taxing area’s term.

The parties and legislators are continuing to discuss whether Sears would be required to keep some 4,000 of the roughly 6,100 jobs at its headquarters well into the future. The potential consequences should the company not meet that condition remain unclear, said Hoffman Estates Corporation Counsel Arthur Janura.

Typically, suburbs are thought to be in favor of these tax breaks as it helps lure new businesses to town. However, this situation is a cautionary tale about tax breaks: just because one is granted doesn’t necessarily mean that businesses will necessarily move in. If everyone is building big industrial or office parks and offering tax breaks, can everyone win? And in an era of falling tax revenue and rising costs, suburbs need to maximize their assets.

Of course, the State of Illinois will look really bad if Sears leaves as it will feed a (growing?) narrative that Illinois is generally bad for business. It will be fascinating to see how the State and Hoffman Estates come to some sort of agreement that everyone can live with.

Whether corporate tax breaks help the average citizen

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Phil Rosenthal tackles an interesting question that pertains to Illinois and Chicago after recent news about certain companies threatening to leave unless they get more tax breaks: do such deals help the average citizen? While the conclusion is unclear, here is a bit about the effect of TIF (Tax Increment Financing) Districts which typically generate funds for localized development and infrastructure:

The TIF has become a fashionable way for a municipality to encourage a business to set up shop in a particular locale it might not have chosen otherwise.  Some, however, see TIFs as too often just a handout for businesses that want to go somewhere.

“They’re a very popular tool for economic development,” Rebecca Hendrick, an associate professor in political science at the University of Illinois at Chicago, whose book, “Managing the Fiscal Metropolis,” is due out in November. “There are a lot of discrepancies in the empirical research as to whether they’ve had the intended effect. Would the steel company have come in but for the TIF, or would it have come in anyway?”…

“But it turns out that tax rates go up in the entire jurisdiction in the city of Chicago as a result of a TIF being created in the city of Chicago because the way the property tax works is kind of a zero-sum game. If someone gets money, someone else has to pay for it. … Plus, it’s also off-budget.”

Chicago has a lot of TIF districts so this is not a small issue. Of course, there are different ways to measure the benefits of such development for the average citizen: should it lead to a smaller property tax bill? Should it lead to more city and state services since they should have more tax dollars? Should it lead to a better quality of life in rebounding neighborhoods? Should it lead to more jobs? The common focus seems to be on jobs, as the recent offer from Amazon.com to the State of California illustrates. But these tax breaks often lead to a very limited number of jobs.

The article also hints that certain kinds of economic change receive press coverage while others do not:

A steel company moving to Chicago gets our attention. One person losing his or her home generally doesn’t. Even 100 people losing their homes might not make the papers.

“One hundred people losing their mortgages may involve the same amount of money as a steel company moving to Chicago,” Bowman said. “One of the reasons that TIF money is provided to these businesses is it does get more attention, and people feel like, ‘Maybe things are starting to turn around if Chicago’s more attractive than Cleveland.'”

So is this more of a journalism problem? If newspapers and other media sources are more interested in the “movers and shakers,” typically politicians, business leaders, and entertainment/celebrity figures, does this help the average citizen? I assume the media would suggest that they are the public “watchdog,” helping inform people about abuses of power. But, the media, often in big corporations themselves, can also easily be cozy with these bigger interests and also want to be boosters and help improve the image of their community.

In these poor economic times, I imagine we will be hearing more about corporate tax breaks and whether local, state, and national governments should be in the business of handing them out.

What’s good for Amazon.com may not be good for California (or America)

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Even though I just used this phrase (“What good for [company X] is good for America”] when looking at the impact of AT&T on American history, I agree that the deal Amazon is trying to offer California, jobs for no sales tax, is a bit strange:

Amazon has spent more than $5 million loading up their More Jobs Not Taxes campaign for a referendum that would repeal the legislation that started charging them taxes. Meanwhile, the latest turn in the political fight has been that Amazon offered to create 7,000 jobs if the state postpones enforcing its sales tax on the company until 2014.
Here’s why that offer is a big deal. It transforms a debate that is fundamentally about a value — fairness — into a numbers game. The next step will be that Amazon’s political operatives will plant the seed that the bill will kill jobs, probably a nice round number like 7,000 of them. According to our calculations, the politicos will say, California is killing the exact number of jobs that Amazon offered to add! Taxes are bad!
I don’t mean to pick on Amazon here. Every company is after as many tax advantages as they can get. Walmart, for example, which pushed the effort to get the Amazon sales tax bill passed, skirts some online sales taxes, too. And every company has realized that it is good politics to say that taxes kill jobs, whether they have real evidence for it or not…
Now, by transforming tax fights into skirmishes over how many jobs this or that tax will “kill,” every single tax becomes something that hurts America. The narrow (and self-serving) interests of every tax-fighting corporation become part of our national project. And the battlefield becomes the competing spreadsheets of political opponents who say that one plan or another will create more jobs, when it’s pretty obvious that no one knows precisely how that whole mechanism works.

Some observations:

1. Perhaps taxes are supposed to be about fairness – but corporations and municipalities have been playing this tax break game for years. Why wouldn’t Amazon think that it has enough clout to pull this off? Many communities and governmental bodies have been more than willing to give in to others.

2. The math is interesting: no sales tax = 7,000 jobs. I haven’t seen many details about this: does the value of these jobs equal the sales tax revenue that would be lost without Amazon? Couldn’t California hold out for more jobs or make this information public to try to worsen Amazon’s hand?

3. It is interesting that this battle about sales tax revenue between California and Amazon is getting attention; a number of states have already gone through this. Granted, California is bigger so perhaps this is about more money than elsewhere. But, additionally, California was home to some of the biggest property-tax revolts in the United States several decades ago, meaning that homeowners, and not just corporations, are interested in paying fewer taxes.

Chicago area businesses looking to move from suburban campuses

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The suburbanization boom after World War II was not just about the movement of residences to the suburbs: it included a large migration of jobs and business headquarters to suburban locations, often large “campuses.” Crain’s Chicago Business suggests this trend may now be going in reverse as Chicago area business look to leave these suburban campuses:

Fleeing urban decay, companies like Motorola Inc., Allstate Corp. and Sears Roebuck & Co. built fortress-like complexes on the fringes of metropolitan Chicago. Jobs and residential development followed, fueling sprawl and congestion across the region.

Today, Sears Holdings Corp. and AT&T Inc. are looking to escape their compounds in northwest suburban Hoffman Estates. A shrunken Motorola has space to let in Schaumburg. Sara Lee Corp. eyes downtown office space after less than a decade in Downers Grove. Companies from Groupon Inc. to GE Capital hire thousands in Chicago while their suburban counterparts shed workers.

All reflect changes in the corporate mindset that spawned the campuses dotting outer suburbia. Empire-building CEOs from the 1970s through the 1990s craved not only cheap real estate but total control of their environments. They created self-contained corporate villages that cut off employees from outside influences.

As the 21st century enters its second decade, many companies are discovering the drawbacks of the isolation they sought. Hard-to-get-to headquarters limit the talent pool a company can draw on and feed a “not-invented-here” insularity that ignores major shifts in industries and markets.

This article suggests more corporations seek the opportunities that cities provide. Chicago certainly has opportunities – it was #6 in Foreign Policy’s 2010 global cities index. I wonder how much of this is driven by different factors:

1. Young people (college graduates, recent graduates) living in the city. We have some evidence that younger generations want denser environments and cultural opportunities. This would seem to go along with Richard Florida’s “creative class” idea that people and businesses move to exciting, innovative, culturally hip places.

1a. As a corollary, suburban places are no longer hip. These campuses are now decades old and involve stodgy suburbanites driving to stodgy workplaces. This is kind of interesting because the technology that would make instant connections possible may still not be enough to keep companies from relocating to the city.

2. Is there a particular business or city that has spurred this new thinking? If this has been shown to “work” elsewhere, it wouldn’t then be too surprising if other businesses followed suit.

3. Some have suggested that some businesses originally moved to the suburbs because their CEOs had already made the move and wanted their workplace to be closer to their homes. Could it be that CEOs and other important people in these corporations are now living in the city?

4. Tax breaks. This has been in the Chicago news recently with several companies, including Motorola and Sears, threatening to leave if they don’t get a better deal. Do these businesses get better incentives from the city of Chicago? Can increased tax breaks keep these campuses in the suburbs?

A-Rod real estate tax flap tied to incentive to construct affordable housing

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It appears that a number of luxury housing owners in New York City, including Yankees’ star Alex Rodriguez, are getting a major real estate tax break. While this is creating a stir, there is more to this story: these luxury units are getting a tax break because the developers have promised to build affordable housing elsewhere in the city.

Rodriguez and all the residents of his posh high rise will get tax breaks for 10 years under the city’s 421A tax abatement program. Luxury developers get tax breaks in exchange for making sure affordable units get built elsewhere. Rodriguez is one of some 45,000 New Yorkers who have scored the tax break.

“I think it’s outrageous,” Lewton said.

When Rodriguez’s moves into his $6 million, five-bedroom penthouse his tax bill will be $1,150. In contrast, Stephen and Phyllis Franciosa pay $3,100 in taxes one their one-family home in the Pelham Bay section of the Bronx…

The councilman said the law needs to be changed because this year alone the program will cost the city $900 million in lost revenue.

A-Rod’s taxes are so low that if he paid the going rate his tax bill would be 50 times higher. He should get such a break when he faces the Red Sox pitching staff.

City officials claim the tax breaks on Rodriguez’ building helped build over 575 units of affordable housing in the Bronx.

This is not an uncommon tactic for communities to encourage affordable housing: grant some tax breaks in exchange for the builder or developer constructing some units of affordable housing. It is often a struggle to get developers and builders to construct affordable units on their own as profit margins are lower. So communities have searched for incentives that would still allow builders to make their money while also providing for the public good.

In the long run, will this story simply be commentary about how the rich and famous get to play by different rules (and New York loves to pick on A-Rod) or can there be a reasonable discussion about how cities go about promoting affordable housing? I am guessing that the first option will easily win out. Why can’t New York news organizations go to those 575 units of affordable housing in the Bronx and talk to the other people who benefited from this tax break?

Illustration of suburban revenue troubles: Brookfield vs. the Brookfield Zoo

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A constant concern of many suburbs is the tax base: how can the community bring in businesses and land uses that will bring in more tax dollars? To do this, some communities may be willing to offer tax breaks to certain land uses. But with the recent economic crisis, some communities have had to rethink their approach.

The source of contention between the suburb of Brookfield and the Brookfield Zoo is how much the water is going to cost for the zoo. For a long time, the community has given the Zoo a break on water, presumably because the Zoo brings in revenue for the municipality. But now with a tighter budget, Brookfield says it needs to charge the zoo a higher rate and perhaps also add an amusement tax to zoo tickets. In cases like these, some businesses might threaten to move – though this may be particularly complicated for a large zoo.

When times are good, municipalities and businesses don’t have as much trouble working out deals. But when there is less money to go around, issues like these become more common.

The results of incentives for movie production

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Michigan Avenue has been a battleground for several recent weekends as Transformers 3 filmed scenes. According to the Chicago Tribune, the producers were partly drawn by the financial incentives offered by the state of Illinois. Though the film will spend more than $20 million in six weeks in the local economy, the state will offer at least a $6 million tax credit.

Illinois is not the only state playing this game:

Illinois is among 45 jobs-hungry states tripping over each other to financially woo movies and television shows. About half, including Illinois, offer tax credits, which cut producers’ costs by tens of millions of dollars at the expense of state budgets.

The pool of rivals has doubled in the past four years, and the lures, for the most part, are getting fancier, with only a handful of states pulling back, either due to recessionary pressures or local scandals. A just-released study by the Milken Institute indicates that aggressive plays, by states as well as overseas locales, are cutting into California’s historical grip on the business.

The rest of the article contains arguments for and against such aggressive tax credits. Regardless, it seems that the tax credit game may become a race to the bottom where states eventually find there is little economic benefit to having filming in their backyard.

Even if the filming doesn’t bring in many jobs (as opposed to short-term work) or other lasting benefits, filming can certainly draw attention. The filming of Transformers 3 has attracted a lot of local media attention, perhaps raising the profile of Chicago and Michigan Avenue for viewers.