Author: hankkalet

Hank Kalet is a poet and freelance journalist. He is the economic needs reporter for NJ Spotlight, teaches journalism at Rutgers University and writing at Middlesex County College and Brookdale Community College. He writes a semi-monthly column for the Progressive Populist. He is a lifelong fan of the New York Mets and New York Knicks, drinks too much coffee and attends as many Bruce Springsteen concerts as his meager finances will allow. He lives in South Brunswick with his wife Annie.

Paying Honeywell to stay

Honeywell — and its 1,800 jobs — will be staying in New Jersey. The questions is, however, at what cost?

According to Forbes.com,

Cote said the $33 billion company had been seriously considering moving out of New Jersey and taking its 1,800 jobs with it. He said the company was persuaded to stay after getting assurances from Gov. Chris Christie that his administration will work with the Legislature to expand a tax credit program aimed at retaining companies.

So what’s the cost? At $2,225 per job saved — which is what the governor wants the tax Business Retention and Relocation Assistance Grant program expanded to — that amounts to $4 million a year for six years. The compnay, according to its annual report, had state tax liabilities in all the states in which it operates totalling $71 million (combined currrent and deferred obligations) in 2009.

I’m not arguing that the tax credit is bad in this particular instance. The preservation of 1,800 jobs cannot be sniffed at, nor can the property and other taxes generated. The question, however, is whether tax credits like this encourage companies to shop around, to see if they can find communities that are willing to bid down their tax liabilities to get companies like Honeywell to pick up and move and whether the benefits to the state offset the tax costs in the longrun.

New Jersey Policy Perspective has issued several reports on this, including this one on Citigroup in 2007 and this one on Jersey City tax abatements. The upshot, according to NJPP, is that these kind of incentives might be better reserved for small businesses and not tossed at multinationals.

From the executive summary of the Citigroup report:

An analysis of Citigroup’s practices in four states–New York, New Jersey, Kentucky and Texas–suggests that the world’s largest financial institution rarely makes a move without getting taxpayers to help foot the bill.

Using the threat of moving facilities and jobs elsewhere, Citigroup has repeatedly played state against state and locality against locality to attract at least $285.9 million in subsidies in just the four states.

STATE AND LOCAL ECONOMIC DEVELOPMENT
SUBSIDIES TO CITIGROUP
1989-2007
STATE * AMOUNT
New York* $125.5 million
New Jersey $101.1 million
Kentucky* $46.7 million
Texas* $12.6 million
TOTAL * $285.9 million

Given that Citigroup operates in many states in the US and more than 100 other countries, these findings are in all likelihood just the tip of the iceberg.

In some cases, Citigroup sought special tax deals even though it was not pledging to create any new jobs. Worse, despite the company’s claims at the time that the job subsidies were necessary or that they determined where the company ultimately decided to expand or relocate, our findings also suggest that business basics–such as a skilled work force, affordable housing, good transportation infrastructure and a modern telecommunications system–mattered far more in determining where Citigroup jobs went.1

Giving Citigroup such large subsidies is no guarantee the company will stay or that it will avoid layoffs. The latest proof of that came in April 2007 when the firm announced it will eliminate 17,000 positions worldwide. In that respect, Citigroup is a revealing case study in the perils of granting large, company-specific tax breaks.

Sometimes, Citigroup appears to have taken advantage of rivalry among states, exploiting the “prisoners’ dilemma” dynamic to mislead one government that it is competing against another, when no rival offers actually have been made.

Finally, the idea that Citigroup “needed” the tax breaks is undermined by its willingness in the same years to spend lavishly on global acquisitions, baseball stadium naming rights and executive compensation. For those who argue that economic development incentives are best reserved for small businesses that truly lack access to adequate or affordable capital, Citigroup–with more than a trillion dollars in assets and more than $21 billion in profits last year–presents compelling evidence.

Admittedly, this is an incomplete picture, but what we have here does not paint a convincing picture that these kinds of tax breaks create economic growth — which contradicts the conventional wisdom. At the least, it should offer ammunition to other entities to do a comprehensive study of tax incentives in the state.

Email me at grassroots at comcast dot net.

More bad news

I know this is a big news story, but is it really a surprise to anyone? We know the state faces another massive shortfall, which made it fairly certain that no one would be seeing more state money come their way.

And yet, one has to wonder if there is some way this governor can find money for schools to keep districts from another round of teacher layoffs and to minimize tax increases.

The difficulty I have with the way in which Gov. Chris Christie has gone about his budgeting is that he has failed to engage the state in a discussion of priorities and instead has moved forward with his own conservative goals while allowing taxpayers to assume that he is only cutting waste.

I have no real sense that New Jerseyans understand that slashing aid to schools and towns means an equivalent slashing of services. Fewer teachers mean larger class sizes, while schools have had to resort to pay-to-play for sports and extracurricular activities, fewer elective courses and less building maintenance to offset their lost aid. Municipal governments face similar problems. (Imposing spending caps do little to address these problems, but certainly make the politicians feel good about themselves.)

Should the state increase income taxes on higher-income residents? What about corporations? What if the higher tax rate prevented cuts to health-care, AIDS and senior programs?

And what about consolidating municipal and school services and outright mergers of towns? The governor alludes to this idea, but has not forced it onto the agenda.

Part of the problem, of course, is the decaying status of the state’s newspaper industry — layoffs and cutbacks have forced a joint Statehouse bureau into existence, which has left both The Star-Ledger and Bergen Record unable to perform their watchdog functions with the same zeal as in the past.

We need to have these discussions; if we don’t, we are just shooting in the dark, which makes it more likely that we will hit innocent bystanders.

Email me at grassroots at comcast dot net.

Logical fallacy, an example to the extreme (right, that is)

Here is a response to my posting on the federal court ruling on the Arizona “Papers please” law:

You are obviously an idiot.
This is not about Fearing Mexican Nationals.

This is about National Security. I understand you on the left don’t really give a flip about National Security and as long as you are affected by it, who gives a flip.

You on the left remind me of the Movie Independance Day, when the idiots climbed up atop the building to wowwy zowwy, zippy zappy the “ALIENS” and try to make nice with them. Right before they were vaporized.

There is nothing racist in the Arizona Bill. Sooner or later WE,THE PEOPLE WILL TAKE CARE OF A MESS THE GOVERNMENT REFUSES TO DEAL WITH.

First though November 2 and the draining of the swamp in D.C.

Is this what passes for debate these days? Name-calling? Tarring with a broad brush?

I am not opposed to a serious discussion of the Arizona law, including discussions of:

  • how requiring the presentation of papers squares with the Bill of Rights,
  • how the rights of legal immigrants and citizens will not be violated or should not be of concern,
  • what impact the law will have on law enforcement,
  • what the law actually will accomplish, and so on.

What we don’t need are ugly screeds calling into question the patriotism of the law’s critics.

Email me at grassroots at comcast dot net.