Corporate Tax Giveaways Are Key Issue in LD9 Primary (video)

The choice is clear in the Legislative District 9 primary race.

Do you want more old-school economic development based on corporate tax breaks and sales tax giveaways? You know… the same policies that starved our public education system, left our infrastructure in shambles, forced thousands of Arizonans to live in poverty, destroyed our state budget by giving away billions in taxes each year, and left Tucson with a 25% poverty rate. If you support giving your taxes away and banking on trickle down economics– vote for challenger in the LD9 race.

If you want a leader who will continue to be the voice of the people in the Arizona Legislature, vote to re-elect me– Rep. Pamela Powers Hannley. I have used my voice, my amendments, my votes, and parliamentary procedures to defend the rights of workers, patients, students, teachers, women, and the underserved. In 2017, Progressive Democrats vowed to vote against every corporate tax cut and tax credit bill until public education is fully funded. In 2018, that line in the sand against tax giveaways and for public education funding became the rallying cry for the most Democrats in the Legislature and for the #RedForEd movement. (You can see some of the tax giveaway votes here.) In my opinion, Arizona government should funding the People’s To-Do List– education, healthcare, safety and security, and infrastructure– instead of funding the corporate wish list.

In his recent speech at the Democrats of Greater Tucson (DGT) luncheon, J.P. Martin, who is challenging Dr. Randy Friese and me in the LD9 primary, made it clear that he is the Rio Nuevo Board’s candidate. He even showed their slides when he pitched creating more sales tax giveaway districts (AKA tax increment financing districts, like Rio Nuevo) around Southern Arizona. He says the northwest Tucson malls “need our help” because there are too many empty stores and young people need something to do on the weekend– like go shopping. (You can read about his talk in Tim Steller’s Political Notebook column here.)

I agree that brick and mortar retail is faltering due to increased online sales and a corporate push to reduce labor and overall costs. I disagree that government should incentivize retail shopping with tax dollars. Tax giveaways drain on our state coffers. Arizona is already upside down on its mortgage. The state government gives away or otherwise excuses more than $13 billion in taxes each year and leaves around $10 billion to run the state.

I support taxing digital goods as a way to level the playing field between online purchases, brick and mortar retail stores, and local small businesses. There are multiple proposals floating around to increase sales tax for a variety of reasons. Further increasing sales tax in Pima County would bring our sales tax rate in the neighborhood of 10%. Taxing local purchases but not digital purchases hurts local businesses. Besides leveling the playing field, taxing digital goods would raise hundreds of millions in much-needed revenue for public education, community colleges and the university system, as well as other crucial needs. Sales tax on digital goods is an increasing revenue stream, unlike store-based sales tax.

Retail store sales and related sales tax are declining nationwide, resulting in store closures. This one of my arguments against pinning Tucson’s economic development future on sales tax generation by brick and mortar retail stores in the downtown Rio Nuevo Tax Increment Financing District (TIF).

I want to know what the public’s total investment in every incentive deal– not just Rio Nuevo. Are taxpayers getting our money’s worth? I have heard the rosy projections and seen the slide shows. I want to see the spreadsheets. Perhaps it is my journalistic Spidy sense, but I am a “show me, don’t tell me” person when it comes to giving taxes away. The public has the right to know the bottom line about Rio Nuevo and any economic development project that uses taxpayer money.

DGT hosts a weekly luncheon with a steady cast of candidates rotating through. My last DGT talk was: Economic Development, Access to Care & Workforce Development: A Progressive Roadmap.  Click on the link to read the speech and watch the video. It provides a great contrast to my challenger’s ideas. (Watch the video after the jump. Also, check out research regarding the reality of TIFs around the country. Seriously, Detroit, $16.5 million for a Whole Foods store?)

Further reading about tax increment financing districts…

The jury is out whether TIFs are good for municipalities. Check out some of the research I found…

Tax Increment Financing Is the New Urban Renewal

…But TIF still shares urban renewal’s problems, for example by perpetuating crony capitalism. At first glance, its subsidies don’t seem like handouts, since they supposedly pay for themselves through increased revenue from new projects. But it is unclear whether revenues truly increase because of these projects, or from inflation. And the money that pays for them would otherwise fund core services, causing misplaced priorities in many cities. For example, the luxury grocer Whole Foods has received a combined $16.5 million in public money to locate in Detroit and Chicago, two cities that can’t even provide adequate policing. Chicago has also used TIF to lure a Walmart and a Marriot hotel… [This is a long article with an historical look at urban redevelopment.]

Does Tax Increment Financing (TIF) Generate Economic Development?

…While TIF can be used for traditional government goods like roads, sewer systems, water systems, and public transportation, it can also be used for private goods like business parks and sports facilities. The former arguably provide direct benefits to all firms in the TIF district since better roads, streetscapes and water systems can be used by any firm in the area. The latter projects, though they may provide indirect benefits to nearby firms in the form of more attractive surroundings and increased property values, mostly benefit the owners of entity receiving the development funding. Like other development incentives, TIF can be used to subsidize private businesses with taxpayer dollars.

Projects that use TIF are often described as ‘self-financing’ since the project itself is supposedly what creates the higher property values that pay for it. Additionally, TIF is often sold to voters as a way to create jobs or spur additional private investment in blighted areas. But there is no guarantee that the development project will lead to increased private sector investment, more jobs or higher property values. Researchers at the UNC School of Government explain the risks of TIF in a 2008 Economic Bulletin:

“Tax increment financing is not a silver bullet solution to development problems. There is no guarantee that the initial public investment will spur sufficient private investment, over time, that creates enough increment to pay back the bonds. Moreover, even if the investment succeeds on paper, it may do so by “capturing” growth that would have occurred even without the investment. Successful TIF districts can place an additional strain on existing public resources like schools and parks, whose funding is frozen at base valuation levels while growth in the district increases demand for their services.”

The researchers also note that it’s often larger corporations that municipalities are trying to attract with TIF dollars, and any subsidies via TIF that the municipality provides to the larger firm gives it an advantage over its already-established, local competitors. This is even more unfair when the local competitor is a small, mom-and-pop business that already faces a difficult challenge due to economies of scale.

There is also little evidence that TIF regularly provides the job or private sector investment that its supporters promise. Chicago is one of the largest users of TIF for economic development and its program has been one of the most widely studied. Research on Chicago’s TIF program found that “Overall, TIF failed to produce the promise of jobs, business development or real estate activity at the neighborhood level beyond what would have occurred without TIF.”…

Local politicians often like tax increment financing because it is relatively flexible and enables them to be entrepreneurial in some sense: local officials as venture capitalists. It’s also an easier sell than a tax rate increase or general obligation bonds that require a voter referendum.

But politicians tend to make bad venture capitalists for several reasons. First, it’s usually not their area of expertise and it’s hard: even the professionals occasionally lose money. Second, as Milton Friedman pointed out, people tend to be more careless when spending other people’s money. Local officials aren’t investing their own money in these projects, and when people invest or spend other people’s money they tend to emphasize the positive outcomes and downplay the negative ones since they aren’t directly affected. Third, pecuniary factors don’t always drive the decision. Different politicians like different industries and businesses – green energy, biotech, advanced manufacturing, etc. – for various reasons and their subjective, non-pecuniary preferences may cause them to ignore the underlying financials of a project and support a bad investment.

If TIF is going to be used it should be used on things like public infrastructure – roads, sewer/water lines, sidewalks – rather than specific private businesses. This makes it harder to get distracted by non-pecuniary factors and does a better – though not perfect – job of directly helping development in general rather than a specific company or private developer. But taxpayers should be aware of the dangers of TIF and politicians and developers should not tout it as a panacea for jump-starting an area’s economy. [This is a very long and detailed article about TIFs based on property taxes. Rio Nuevo is based upon sales tax, but the basic concepts of the article apply across the board.]

What’s Got Me Cheering about Those Downtown Failures

…It’s not that I’m opposed to developing the Vista’s most visible vacant lot, or erecting that scaled-back-but-still-massive apartment building on Assembly Street, or bringing great new shopping opportunities to BullStreet [in Columbia, SC.)

I’m not even necessarily opposed to the idea of the city building another parking garage to aid the Vista development. If in fact no one is going to build a hotel in the Vista without a taxpayer-funded garage, and if it is truly realistic to expect that taxes from the hotel will pay for the garage in short order, then a legitimate argument can be made for that investment. (A legitimate argument can be made against it too, but that’s getting off point.)

No, I’m not cheering failures themselves, but the failure of city officials to create the special tax mechanism that was supposed to benefit — or benefit from — the projects. I’m cheering because all three projects were supposed to be tied to tax-increment financing districts — which steal money away from the rest of the city, tie the hands of future elected officials and, when they work, allow the city to spend money that rightfully belongs to the county and, much, much worse, schools. I’m cheering because we ought to celebrate anytime government is unable to create a TIF but has to instead consider a more responsible funding mechanism…

But while government spending inside a TIF district can spur economic development that generates more tax money (that’s what drove Vista development), simply creating a district does not create money. What a TIF district really does is divert money. The government could do that anyway, through the annual budget process, but this makes it automatic. This strips elected officials of the ability — and duty — to make spending decisions. It says that everything inside the TIF district will be paid for no matter what, while everything else has to fight for funding.

Creating a TIF district is the opposite of a council making responsible decisions every year about how to allocate our resources… [This is an article by a local Columbia, SC reporter.]

[The photo at the top was taken at 9:30 in the morning after the 24-hour marathon budget battle. #RedForEd teachers, who held an all-night vigil in the House gallery and out on the lawn, cheered Democrats as we walked out of the Arizona House. It was so touching that it brought tears to my eyes. I stand with #RedForEd. No more tax cuts until the $1.5 billion has been restored to public education. If big business wants an educated workforce, they should be willing to put some skin in the game.]