The Billionaire Boondoggle

Author Pat Garofalo on how tax breaks for the wealthy hurt America and how they fool you into going along.

PAT: Payment-in-lieu-of-taxes … extremely popular … used all over the country in these sorts of deals, by mostly cities. And it means essentially that the corporation gets to negotiate a lower payment in lieu of taxes. So if they were supposed to pay $7 million in property taxes they can come in and say, we’ll make this investment here and build this plant or do this thing, but we only want to pay $2 million or $1.5 million or $500,000 or nothing, … but they really are just a way to let corporate interests dictate their own tax rate… which is preventing the revenue that should be collected from the area from actually benefiting the entire community.

ILONA: Hello and Welcome to All Things Hudson Valley. Maybe the name should be changed to the Hudson Valley Inequality Podcast, because lately the shows have focused on crony welfare giveaways that exacerbate inequality. My name is Ilona Ross. This interview was recorded Monday November 23, when I had the good fortune to speak with an expert in tax giveaways who wrote a book called the Billionaire Boondoggle. Pat Garofalo was so much fun to speak with that our conversation went about twice as long as most of my interviews, and I managed to edit it down to about twice as long as most of the podcasts. It turns out that tax giveaways date from the beginnings of our nation, so it ought to be a nice listen while you’re digesting the Thanksgiving bounty that also celebrates the beginnings of our nation. And of course there’s a substantial side dish helping of our local boondoggle known as the Kingstonian.

01:45
So I am Pat Garofalo. I am a director of state and local policy at the American Economic Liberties Project. And last year I published a book called The Billionaire Boondoggle: How Our Politicians Like Corporations and Bigwigs Steal Our Money and Jobs. It’s a look at how corporate tax incentives at the state and local level are a big scam.

ILONA: Yes, they certainly are. So at the state and local level, well that’s especially pertinent for the Kingstonian because it is a state and local boondoggle if I ever saw one. Later, we can talk about Opportunity Zones, but first, let’s talk about why politicians keep on with these stupid incentives, even though it’s clear that they don’t work. There’s been a lot of hand wringing lately about the fact that the Democrats lost seats in the US House of Representatives, and I can draw a link locally to the Kingstonian, because in essence it’s a betrayal of the public purse. And we, or at least I, expect Republicans to shovel money in their friends’ pockets, but I’m always surprised when Democrats to do the same. And maybe it’s malfeasance, that’s a strong word, or maybe it’s more like your quote in the book from Greg Leroy that basically these politicians are jumping like trained seals. That was a great quote. And I’m wondering if Democrats are actually falling for these trickle down economic fallacies or whether they’re just trading their support for votes, and if the inequality that results downstream from these boondoggles is a reason we have autocrats rising, because the Democrats are betraying the people as much as the Republicans are. I loved your book.

PAT: Oh great, I’m so glad. Yeah I think that the sort of politics of this is a good place to start. And it is a, there has been a pretty broad bipartisan consensus on using these sorts of economic development strategies over the last 40 years or so. Like if you look at states that are the most problematic and the most profligate in terms of these corporate tax incentives, they’re New York, deep blue, and Louisiana, deep red. Those are those are your two states that are sort of on the top of all the metrics. And that makes sense at a certain level, one, because our sort of national partisan party lines do break down a lot, once you start getting into state and local issues. The sort of federalizing of those issues doesn’t really matter anymore, a lot of places are basically governed by one party. So that sort of red/blue divide doesn’t really matter. But the other thing is that there has been just this long concerted effort on the part of corporate interests to tell this story that turns out to be false, that the only way in which to develop your economy is to do the sort of corporate deal making all these guys engage in. You can track this stuff back to literally the beginning of the Republic. The first corporate tax break in American history was given to Alexander Hamilton for a manufacturing park in Paterson, New Jersey, that didn’t actually ever turn into a manufacturing park. He sort of started the ball rolling on the same sort of problems that we see today. But the modern era really started in the late 50s and 60s, when southern states were trying to diversify their largely agrarian economies, and the idea that they hit on was to use tax incentives to poach manufacturing plants from the north. This is actually something that then-Senator John F. Kennedy got really mad about. He would go to the Senate floor and rail against Mississippi for stealing northern plants from Massachusetts and moving them down to the south. And for a while like it sort of, you know, air quote, worked, right, manufacturing did move down to the south and those states were able to diversify, but it set off this long race to the bottom where we now have literally tens of billions of dollars given away every year by states and cities to corporate interests in the name of economic development. And those corporate interests have been very, very good about selling the story that this is what states and cities should be competing on. They shouldn’t be competing on how good their education system is. They shouldn’t be competing on how good their infrastructure is. They shouldn’t be competing on the standard of living for their workers, the sort of things that those… that sort of competition would be good for workers and for local communities. Corporations don’t want you competing on that. They want you competing solely on the amount of money that you can throw at large corporations and it really has worked this story has taken hold. And now politicians fear being left behind. So they engage in it, even when they sort of don’t want to. One of the most striking things about doing the book was talking to people who knew better, who had seen the economic analysis, knew what they were doing wasn’t really going to be fair or equitable for the communities, but either felt they had no other option because there just weren’t good policy levers to pull or felt for political reasons that they had to do it because if they didn’t they would get booted out of office and the next guy was gonna do it anyway.

ILONA: Earlier you said something about federalizing. What did you mean by that?

06:44
PAT: Oh that I just, while a lot of our politics has become federalized and that like people basically just vote in local elections on what they think that like the national party is doing, a lot of those issues break down when you start getting to the local level, right, like it doesn’t really matter all that much what your local officials think about whatever the big issue at the time before Congress is, right, because they just those aren’t the sort of issues they deal with. So, the divide on issues here is not Democrat Republican, it’s business versus the people, it’s corporate interests versus communities. Those are the sort of divides that you see when you start talking about these issues, it’s not really Democrat/Republican, red/blue. And honestly one of the most interesting things about doing the book was talking to people who know who I am and know that I’m, you know, a fairly progressive guy on everything, and come up and say, I don’t agree with you on anything at all, except everything that is in here. You can find allies amongst libertarians, amongst true conservatives who are actually interested in promoting the interests of small business, something that Republicans used to stand for and don’t really anymore, and amongst the progressive left, and they all have different reasons for doing it. Amongst conservatives it’s because they don’t want crony capitalism, amongst libertarians it’s because they don’t like the idea of the state picking winners and losers, amongst progressives it’s because they think this money could be spent on schools, infrastructure, what have you, but they can all unite around the dominant strategy being used to develop local economies is the bad one.

ILONA: Yeah, now that’s something I’ve definitely noticed. This is an issue that bridges the divide, there’s no question about that. So it seems that among scholars, maybe not politicians, but among scholars and activists this is an issue that’s definitely gaining traction now. After reading your book I learned that Greg Leroy, who I’ve been in contact with also, he was on to this 30 years ago. Personally I did not know anything about these incentives, until I started questioning this development that’s going, that’s going to be going up in our backyard here in Kingston. Do you think there’s a better way to publicize it? I noticed something else in your book that you said, which is that the interests of the people are diffuse whereas the interests of the corporation will be very narrow, so it’s a little harder to fight. Now, for example, there was a woman on Facebook who criticized me for being against the PILOT cause she said the problem in America today is that billionaires don’t pay their taxes. And, yeah, that was my reaction. I laughed also. I, and I said to her, very gently on Facebook, Well, this is the same thing, it’s somebody’s not paying their taxes. So how can we get people to understand that this should unite everybody, because there was something else again from your book. It seems like the great divide is… so you will have the Black Lives Matter groups, you’ll have these different issues that are more immediate and more tangible and they’re more in your face. But this issue may very well be something that underlies all those other problems. How can we reach people?

10:03
PAT: Yeah, I think a really important moment in this… and I think you’re right that the knowledge of this issue has grown in recent years… and I think a key moment was actually the Amazon second headquarters controversy. And for those listeners who weren’t following that or don’t know what I’m talking about, a couple of years ago Amazon launched this very large, very public search for a second headquarters, played tons of cities and states off against each other, searching for huge incentives and ended up picking Long Island City in New York and then the suburbs of Washington DC. So Amazon did this huge auction, and like Greg Leroy’s saying, all the mayors jumped like trained seals. Mayors across the country dove into this thing. We have to get Amazon, we have to get the second headquarters, we will give you whatever you want, and ultimately Amazon decides to go with the literal nation’s capital and the world capital of finance. I can’t prove this, but they probably want it to go to those two places the entire time. And but then very famously activists and lawmakers in New York managed to chase HQ2 away. The public opposition foiled Amazon’s plan, they pulled out of that second headquarters in New York, and then ended up moving more jobs and more offices back into New York anyway without any of the incentives. I think that was really a key moment in this debate because it was so public and so absurd and Jeff Bezos is so rich and Amazon makes so much money, and the totals that were being bandied around were truly eye-popping. We were looking at states offering billions of dollars to one of, if not the richest corporations on the world. So I think that was really crystallizing for a lot of people who don’t necessarily follow the ins and outs of these policies, to say like there’s, there’s something wrong here. Maybe I don’t understand the like economic data debates or I haven’t followed the policy questions but like that amount of money going to that corporation on a gut level feels very wrong. So I think that was very, very important for this debate and it put the issue on the radar of normal Americans in a way that nobody else did before, so maybe I should send Jeff Bezos a giant Thank You note. Because, as I talked about in the book, the way a lot of this functions so successfully is because it’s done out of the public eye. It’s because it’s done in a way in which voters cannot hold either the corporations or their local officials accountable for the decisions that are made in their name because they aren’t able to know about them. For the most part when these corporate tax incentive deals go through there’s very little, if any, public discussion. There is very little, if any, public posting of documents. There is very little, if any, public debate. It’s not until the deal is already signed, sealed, delivered, crossed T’s dotted I’s, that then there’s this party held, woohoo, Facebook is coming to build a data center here, and we’re going to pay $35 million for it and it’s going to be great. It’s going to be awesome and here’s a ribbon cutting and yay it’s done, you can’t do anything about it. That’s the way these things function. Big corporations go to great lengths to prevent residents from having a say until it seems like a fait accompli. That’s how this often happens. But because Jeff Bezos got it in his head that he could do it all publicly, people were able to discuss the details as it was happening. So I think that really really raised the level of awareness. And I think that’s sort of the key to dealing with this problem writ large, we can talk a little later about. There are grand fixes that could be put in place to take care of this on a policy side, but at the purely local level, in your community, the best thing you can do is just try and make these things more transparent, try and make it a requirement that your public officials say what they’re doing, talk about it during the negotiations, not, for instance, sign non-disclosure agreements with the corporation they’re negotiating with which many many officials do and is totally outrageous. Just letting the community know because I think people understand on a gut level that these big corporations don’t need your money, that when it’s a choice between funding the school or funding Facebook, you got to go with the school.

14:06
ILONA: Well, in this case, it’s not even a big corporation, it’s a big fish in a small pond corporation. You cited the $35 million earlier as a giveaway, as a corporate giveaway. Well this particular giveaway that they’re asking for is $27 million down from $30 million dollars, which they say is a huge concession. And I think that these people are going to build the Kingstonian anyway, because they stand to make at least 100 million dollars. There’s a St Louis Federal Reserve chart that shows that multi families have increased, you know have basically doubled every decade, and the construction cost of the Kingstonian is $60 million, which means that in ten years it’ll be worth 120 million minus mortgage which would be about 30 million leftover, which means $90 million in profit, and if they hang on for another 10 years are looking at $200 million in profit. And because it’s an Opportunity Zone, there is no capital gains tax. And on top of that they want an extra $27 million. Well you know who doesn’t want extra $27 million. But I think that they’re going to do this one way or the other. And they say they’re not going to, they’re relying on something known as the “but for” clause and once again there I’ve got air quotes around my “but for” with the implication being that “but for” the PILOT, and that stands for payment-in-lieu-of-taxes, they’re not going to build the project. But I don’t think they’re going to walk away from 200 million just because they have to pay 27 million.

15:40
PAT: Right. There are two important points to make here. The vast bulk of corporate incentive deals are incentivizing things that would have happened anyway. There’s a study that came out by a man named Tim Bartek who’s also someone you should have come on and talk on the show, he found that between 75 and 98% of corporate relocations that are incentivized would have happened anyway. So we’re talking about nearly every one. I tell a story in the book of Toyota received $40 million to consolidate a bunch of offices into the Dallas, Texas area, and Texas made a huge deal, this is great, there was they were never going to do this without the money, it’s going to be awesome for the Texas economy. And then a bunch of Toyota executives said after the fact, Oh yeah, we were planning to do this the whole time, like, thank you for the $40 million but it made perfect business sense for us to do this, regardless of the money. When we talk about taxes and this is not just a corporate tax incentive thing this is a American text debate writ large, people put way more of an emphasis on decisions made because of levels of taxation than actually occurs in the real world. People don’t actually make every living waking decision based on the amount of taxes they’re going to pay, and corporations are the same way, despite what they tell you. There are tons of data points and important factors that go into where and why a business locates where it does. Taxes are one of them, sure, but it’s not the only one, yet we treat it as like the be all end all of corporate decision making, even though it’s often not. There’s a reason that actually New York and California despite their high taxes have lots of business activity and it’s because of the things we talked about. There’s in certain parts a good standard of living, there’s a good quality of life, their, you know, connection to transportation, there’s proximity to education, both higher and primary. Those are all important factors and for business executives and deciding where to locate, yet we pretend as if taxes are the only thing. And this is actually a good lead-in to the Opportunity Zone discussion. One of my largest qualms with that program is that, when it was designed it was patently clear that this was going to be incentivizing projects that were absolutely going to happen anyway, and in some instances were already occurring. My neighborhood is an Opportunity Zone. Where I live in Washington DC, there’s a development going on literally like 200 yards outside my door. The developer there had already broken ground when it got designated as an Opportunity Zone and freely says the Opportunity Zone obviously had nothing to do with his thinking because he had literally already started the project when it got designated, but he’s going to receive this incentive anyway. And that happens over and over all over the country, decisions that are made for good business reasons we then layer tax breaks on top of it, even though it has nothing to do with the decision to undertake that particular business project. It’s just unreal, like I get I get so mad about it because it’s literally happening outside my door, kind of like the Kingstonian with you. The developer’s just doing it, he’s like okay, well I guess thanks for the, you know, capital gains free development but I was literally already here.

18:45
ILONA: I looked at a site online and right now there are 51 bills pending in Congress, or that have been proposed in Congress to close the loopholes in the Opportunity Zone law, and a lot of them want to get rid of luxury housing or market rate housing as a recipient of the OZ capital gain exemption. So, the one outside your house is that residential project, or is it a business?

PAT: It’s both. It is several luxury apartment buildings and plus an Alamo Drafthouse Cinema and several other to be named later storefronts, so far as we know it’s only the only the Alamo has committed to coming here. So it’s both. And it is luxury apartments. DC has a huge housing crunch problem and yet, all we ever build luxury apartments. But that’s an important point. Is it just … the OZ program… it has a lot of problems, but one of its main ones is that there is no consideration given to the actual needs of the community because the community has no buy in. When we were designated an Opportunity Zone like no one ever came here and asked, Hey, what could this community use? What do you guys need here? And it was just, okay you’re in an Opportunity Zone now and people are going to start investing, have fun. It’s local trickle-down economics, the theory being that what these air quote “distressed” neighborhoods need is just investors to do something, and we don’t really care what they do, they just need to do something and bring money into these neighborhoods and magic will happen. And that’s not the case, right? Communities have different needs and they aren’t necessarily the same things that make a lot of money for high end developers. So that’s just one of the problems with this program is there’s no requirement for community buy in or community discourse, or any consideration given to what the people who live in these zones actually need. The other one are these loopholes that you’re talking about, the way to get designated an Opportunity Zone is just, it’s Swiss cheese.. you can. There’s all sorts of problems with it, but one of them is that the designations are given, in theory, with how rich the residents are, right, so it’s supposed to be for distressed neighborhoods. But there are all sorts of ways to game that designation. My two favorite Opportunity Zone loopholes are 1) that a bunch of college towns got designated Opportunity Zones because they’re full of air quote “low income” people who are actually just full time college students. So of course they’re not making any money because they’re attending university full time so it’s like… This was a big issue in Pennsylvania where they have, you know, parts of Philadelphia they’re just full of universities, and yet the area is being designated an OZ, and so the gentrifying forces of the University are being, you know, doubled and tripled upon. The other one is that you could get designated because you were relatively less, in turn, you had relatively less income in your neighborhood than your surrounding neighborhoods, and we have an example here in Rockville, Maryland, where the median income is something like $85 or $90,000, but because the median income in the surrounding neighborhoods is more like $150,000, Rockville, MD got designated an Opportunity Zone, even though it’s super posh and super well off and doesn’t need the money. So it’s just a really poorly designed program, trying to use trickle down to develop local economies. It’s just a bad idea the like idea that outside investors need to come in and pour money in and that will solve all the problems, it’s just sort of problematic at its core. But then this problematic ideological program was then compounded upon with these really really poorly thought out design features. And we should point out that like this isn’t a new idea, every presidential administration has its version of this thing. George W Bush had something called Opportunity Zones, the Clinton administration had Empowerment Zones. The Obama administration had Promise Zones like everybody tries to do this. And it doesn’t ever work yeah we try it over and over and over again so this is just the latest in a long history of trying to get money into areas that need it through really just clunky means that have never proven effective but everyone thinks that you can just sort of tweak it and we’ll do it better.

23:03
ILONA: Well, I’m sure no one’s ever heard of anything like this but is there a possibility that some of these census tracts could have been designated Opportunity Zones .. How can I possibly say this… to repay…

PAT: For politically motivated reasons.

ILONA: Yeah, it’s something yes absolutely absolutely maybe, it may have something to do with campaign donations, but I know we’ve never heard of anything like that right.

23:27
PAT: Oh, absolutely. I mean that happened all over. The ones in and around Detroit were put in an area where there’s a there’s a huge Republican donor in Maryland, that the way that was these were designated to take a step back. And it was pretty clunky and that sort of tracts were nominated and then the governor would send a list of tracts to the Treasury Department which would then okay them. So there are several opportunities right for people to try and stick tracts in to help their buddies. One example in Maryland… Sorry I keep talking about like the greater DC area but it’s because where it’s where I live and what I know. Originally an area on the, on the Baltimore Harbor where Under Armour has a giant plant was not part of the original set of OZs that were sent out to the governor’s office but then Larry Hogan — great Republican Never Trump hero — swapped it so that the area where the Under Armour factory is would be designated an OZ and the Under Armour CEO is just a sort of huge political booster in and around Maryland. You saw that sort of stuff all over the place and yes, you can blame those people for making those decisions that were in their political interest but it’s also, right, just a design flaw with the program. The program should have been built in such a way that that wasn’t possible. And because Congress opened the door, governors were able to run through it.

24:46
ILONA: So how about PILOTs — payment in lieu of taxes — and are you familiar with what we have in New York state which is IDAs, which stands for Industrial Development Agencies?

PAT: A little bit, yeah. So I mean I could actually step back is an important point that one of the ways in which these sorts of things are able to proliferate is because they sound like wonky and boring and the details are hard to understand. And it’s by design. The way to make sure that your corporate giveaway program just keeps chugging along with nobody ever noticing is give it a really sleepy name, and to not tell anybody whatever like payment in lieu of taxes, like, whatever, boring. That’s how these things perpetuate and proliferate is because nobody wants to pay attention to them because you start explaining how it works and people’s eyes glaze over and by the time you’re done, they’re falling asleep. You sound like the … I joke that every time I start talking about the like actual economic data analysis behind these things I sound like the teacher in Charlie Brown right Wah, wah, wah, wah. No one wants to hear it. But that’s intentional. So yeah, payment-in-lieu-of-taxes is extremely popular used all over the country in these sorts of deals, by mostly cities. And it means essentially that the corporation gets to negotiate, instead of just paying whatever the headline tax rate is, they get to negotiate a lower payment in lieu of taxes. So if they were supposed to pay $7 million in property taxes they can come in and say, we’ll make this investment here and build this plant or do this thing, but we only want to pay $2 million or $1.5 million or $500,000 or nothing, whatever the case may be and so it’s a way in which, yes, they’re pitched as a way for localities to get flexibility in order to entice in corporations but they really are just a way to let, you know, corporate interests dictate their own tax rate. Tax Increment Financing is slightly different, but those are two methods of ultimately doing the same thing, which is preventing the revenue that should be collected from the area from actually benefiting the entire community.

26:54
ILONA: Of all the arguments from the Ulster County legislators who voted for the tax giveaway, not one held water. There’s nothing new with Republican legislators carrying water for the rich and powerful, but plenty of Democrats also sold their souls. It looks like they coordinated their statements beforehand so they each could recite a different piece of propaganda lifted from the developers’ script. Herewith, a selection of lies, fallacies, or talking points that might be true but are absolutely irrelevant.

Republican Legislator Bruno said that without the PILOT the property would continue to generate zero dollars. Presumably he meant the city-owned portion. He said he did a lot of research, but apparently, he didn’t do enough, because he bought the argument that without the PILOT no new tax dollars would be generated. Economic research says pretty clearly that tax breaks have only a minor influence on developer decisions and that the Kingstonian would probably be built anyway.

Then, there were Democrats who bought into magical thinking. Legislator Brian Cahill called it a cornerstone to an economic development engine that will generate housing for moderate income people as well as low income people and will be the cornerstone of future economic development not just in Kingston but in the region overall. The way he talked, you’d think it was going to spark development in Central Africa. Cahill’s faith in economic fairytales is touching, but in truth, he has no idea if it’s going to benefit the region, much less Kingston, and that’s probably NOT gonna happen, because the studies show it DOESN’T happen. And even if it was an economic engine, a true economic engine wouldn’t require subsidies. And that still doesn’t address the question of why give your buddies an extra $27 million dollars. Cahill also spent a fair amount of time stressing that the developers are local and that they do a lot of good for the community. It would be interesting to calculate whether a $27 million dollar handout balances the good works they do.

Democrat David Donaldson established many times over and beyond a shadow of a doubt that the Kingstonian would not reduce the amount of tax money paid into Kingston. Of course, no one ever argued that it would, but it’s good to know we can count on David Donaldson to mount a spirited defense against an argument that no one ever made. That’s called a straw man argument. Also, at no point did he address why he wants to give his pals an extra $27 million dollars. See, it really doesn’t matter if it’s coming off the front end or the back end. They’re still getting an extra $27 million.

Special mention for NOT the Nobel Prize in Economics has to go to Republican Ken Ronk. He said it’s very simple, it’s the law of supply and demand. It’s very simple, create new housing and you’ll bring housing prices down everywhere. Very simple. But is it really that simple? One person who says it’s not is an economist who works for the County. That economist says the law of supply and demand pertains ONLY to goods and services of equal value. In other words, you can flood the market with Wagyu beef at $80.00 a pound but that’s not going to do anything for people who can only afford hot dogs. That principle is called ceteris paribus, that’s Latin for all things being equal. And if you don’t like Latin all you have to do is look around at the evidence from the last 20 years. The nation has been flooded with market rate housing or luxury housing or whatever you want to call it, and yet there’s a massive homeless crisis and lack of affordable housing across the United States. And that doesn’t even address the issue of the Federal Reserve sending gushers of cash to the banks, which love to lend to real estate rather than businesses because there’s something tangible that you can foreclose on in the event of a crisis. So no, it’s really NOT a simple matter of supply and demand. Plus, what does that tell you about where the banks really think we’re heading without intervention from the Fed?

30:36
PAT: I mean that’s cool to nod towards supply and demand to justify a massive state intervention in the economy. Cool.

ILONA: Yeah that is kind of ironic isn’t it especially coming from a Republican who’s almost a libertarian,

ILONA: Another legislator who voted for the tax giveaway complained that it took too long to get development projects off the ground. Well if the developers weren’t trying to pull a fast one, to pull the wool over everyone’s eyes, maybe it wouldn’t take so long. They succeeded in sidestepping the Comprehensive Plan, which calls for green construction and affordable housing, they succeeded in sidestepping laws that call for an environmental review, and they succeeded in extracting every concession they sought from the planning board, the zoning board of appeals and any commission whose approval they need, not to mention every last dollar of corporate welfare. Getting $27 million dollars for free usually does take some time. A more plausible reason for that legislator’s vote could be that a local and very influential group called the Bruderhof is said to support the PILOT. And the Bruderhof headquarter in that legislator’s district, and that legislator needs their support for re-election.

31:38
PAT: I mean that’s that’s a really important point is that happens how these deals often get sold right is that, oh we’re gonna give up some of this money but we’re gonna profit hugely on the back end in terms of jobs, in terms of investment, in terms of revenue, whatever the metric may be, but the bulk of the research has been done on it shows that that’s the second part is doesn’t happen. You just don’t see the level of increase in investment, increase in jobs, increase in in revenue that is promised. That’s the way in which these things are always always always pitched to get, you know, slick corporate folks come in in and you know with their pie charts and their graphs and show and if you just give us this money up front, you’re gonna get so much money at the back end. And it just doesn’t happen.

32:26
ILONA: Their IDA application says they’ll create 150 temporary construction jobs. But after the thing is built, they’re only promising 14 permanent jobs, of which 13 would pay around $15 an hour. That’s what they said in their Sept. 9 presentation to the IDA, and that’s what’s on the video recording. Now the IDA application says something different. There the developers wrote they’re going to create 40 jobs, of which 33.6 jobs would pay livable wage for one person, which is a little more than 20 bucks an hour around here. But I’m not sure they can guarantee those jobs because they themselves are only going to hire 14 people once the thing is built. Then on top of it, the tenants they’re trying to attract are senior citizens who are going to be downsizing and selling their homes, so they’re not going to be adding to employment. And the other cohort that they want to attract are people who work remotely, so they’re not going to be adding any new jobs either, so I don’t know where they think these jobs are going to come from. They do have 9,000 square feet of retail storefronts but, you know, small businesses are tanking, they’re folding left and right and even after COVID is over, well, small business creation is the lowest it’s been in decades, and with all the empty storefronts we already have I don’t see how the new ones are going to be filled unless it’s by another chain pharmacy or maybe a bank or maybe a new restaurant. But of course that would hurt the local restaurants that are managing to hang on. He’s got a tenant in the mall who owns a pizza parlor. Let’s say he let that tenant start a new pizzeria in one of the new storefronts. What would that do to the pizza parlor down the street?

33:58
PAT: Yeah, I mean those are two really important points. The first is, what is the effect on other businesses in the area, because by making the decision to subsidize something you are inherently giving that something a leg up over other small businesses in the area. So is this now subsidized business going to be able to outcompete other small businesses in the area thanks to the state’s intervention, right? You see this all the time with retail and food in particular. The bulk of the subsidies go to the big retailers, right, We’re actually giving these bigger concerns and like to your point earlier I always use sort of big concerns and I always name these national companies but within a small economy, like, whoever the big fish is, is also the company that usually benefits. And that enables them to outcompete the smaller guys even though the smaller guys are really important to the local economy. But then the second point is that, again, if those revenue promises and those job promises aren’t going to be fulfilled, then the money that was used to subsidize it is just thrown down the rat hole and that could have been used to do things that provide more broad based benefits, that could have been used to invest in a school, to invest in some local infrastructure, to spend on local health care, the sort of things that we know provide bang for the buck to the community and also just make quality of life better. The federal government can run a deficit because it can print money but states and cities cannot. And so these are very conscious decisions that are made to spend on corporate interests based on this myth that it’s going to pay off in the long run when it doesn’t, and that means that the actual important things that a government does go unfunded and so it’s just a really stark example of the choices that local policymakers have to make, and the sort of things that we’re talking about here in a really real concrete way, because again when you’re like, going over the details of the stuff you’re talking dollars and cents and you talking TIF and PILOT and acronyms and IDA and Woo, But this is really about governing choices, it’s about doing things for the benefit of the community or making a bet with taxpayer money that there will be benefits that redound to the community because of this private interest that we’re subsidizing, even though again the bulk of the economic research says that those benefits are actually not going to manifest at the end of the day.

36:14
ILONA: Right now, New York State is looking at a 20% across the board cut in education spending. The Kingston School District receives $70 million from the state, and this would mean a loss of $14 million. And this at a time when the developers are looking to escape paying the school district of about roughly about 550 or $600,000 a year in school taxes. Normally about half the school district’s students come from families with incomes so low that they qualify for free lunches. But it seems that the real free lunch is to the developers.

36:45
PAT: Yeah, absolutely. I mean that’s that’s exactly what we’re talking about. And I think it’s an important point to make that oftentimes these deals are built on property taxes because that’s the source of revenue that is available to localities. When you’re a locality you basically have property taxes, maybe sales taxes, and then fees and tickets, essentially, those are the three big sources of revenue, and property tax is often the largest one and the one that very explicitly funds education. And so when you decide to take in less money in property taxes you’re quite literally taking money out of classrooms. And it’s just a shame. I wrote a story a few months ago of a situation in Iowa in which a deal was made with Facebook to give them a property tax kickback worth about $900,000 but the tax assessor when he was filling out the forms forgot to include that and so the $900,000 actually got built into the school budget. And so when they found out what had happened they actually had to take $900,000 directly out of the school budget and give it to Facebook. And so that was because there was a clerical error that the school thought it had the money when it didn’t but that is actually what we’re talking about, right, when we talk about these property tax deals. Just because it happens on the front end doesn’t make it any less important than here where it accidentally happened on the back end.

38:10
ILONA: Near Kingston there’s a Holiday Inn that got a PILOT and it stiffs the school district to the tune of about $322,000 at this year’s rate. And the Holiday Inn chain is owned by a publicly traded company called Intercontinental that’s based in London. And the largest shareholder of Intercontinental is JPMorgan Chase, so yeah I just think it’s wonderful that the children of the Kingston School District, half of whom come from families poor enough to qualify for free lunch, are subsidizing Jamie Dimon and his fellow paupers at JPMorgan Chase….

PAT: Jamie needs a yacht.

ILONA: Ulster County hired an economic development company to review the kingstonian’s so-called benefit to the community. One of the benefits to the community they listed was the roughly $585,000 that would have gone into the IDA’s piggy bank from this particular PILOT, because the IDA funds itself with a percentage of the tax breaks that it hands out. The economic development company that did the review actually had the nerve to label as a benefit that $585,000 share of the loot that would have gone to the IDA. So you’re calling it a benefit when you pay money to the IDA that would have gone to the school district, and then with that money the IDA turns around and gives away more money that should have gone to the school district and instead gives it to the likes of Jamie Dimon. I mean, it makes no sense.

39:31

PAT: That’s such a huge design flaw too to have that — New York is not the only place that does this — to have the Economic Development Office itself funded through the fees that it makes from deal making, because obviously the incentive then is just, you know, throw as much money out the door so you can get as much money back in, you know, to pay your own salaries. At the end of the day that’s just a huge, massive design flaw and as you know from reading the book, there’s a particular hatred in my heart for subsidizing hotels. Like you know, a lot of the things we talk about that get publicly funded, there’s at least some plausible explanation for how there will be, you know, how benefits will redound to the community. A hotel is just like… the economic theory on the hotel is just so circular. People act as if the hotel is the thing that draws in tourists by itself as opposed to having tourist attractions that then require a hotel. It’s just such a silly debate. But there’s a there’s a huge, long history of subsidizing hotels in the US, it goes back to the Jimmy Carter Administration actually. And when, when the politics of urban renewal were really in vogue and Carter really wanted to like help inner cities and a lot of that money went into hotels in cities. And then when Reagan came in, he didn’t like that because you know there were economic development dollars going into black neighborhoods so he couldn’t have that. So he cut the program but then states and cities often picked it up because this template already existed. And it’s just perpetuated billions of dollars. In 2014 was the last time I saw a good survey, it’s $8 billion in the public money has gone toward subsidizing major hotel chains, massive amount of money and it’s just… the theory makes no sense, it’s totally crackpot.

ILONA: I think the plurality of PILOTs in Kingston is in fact to boutique hotels. We have one guy up here who’s just the master of PILOTs and he has got four boutique hotels, of which only one has been constructed so far. He’s got one in an outlying area I mean yeah but the boutique hotel business is just thriving right now.

PAT: It’s just, it’s so bizarre. If you do not have enough of a tourist economy to have hotels, the hotels are not going to create that tourist economy. If you do have enough of a tourist economy to require hotels, the hotels are going to be profitable without public subsidies. The whole thing just makes no sense.