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Thursday, March 10, 2016

The Real "Kings and Queens" of Welfare

I would be willing to bet that you think, and rightly so, that the word PILOT has to do with someone piloting an airplane from one location to another.  You would be right, of course, but you might also want to know that there is an acronym that means something quite different.  In financial and governmental parlance, the term P.I.L.O.T. means simply “Payment In Lieu Of Taxes.”  The original Program began as PILT, explained on the Department of the Interior website:
"Payments in Lieu of Taxes" (PILT) are Federal payments to local governments that help offset losses in property taxes due to non-taxable Federal lands within their boundaries. The key law is Public Law 94-565, dated October 20, 1976, amended by Public Law 97-258 on September 13, 1982 and codified as Chapter 69, Title 31 of the United States Code. The law recognizes the inability of local governments to collect property taxes on Federally-owned land can create a financial impact. PILT payments help local governments carry out such vital services as firefighting and police protection, construction of public schools and roads, and search-and-rescue operations. PILT payments are one of the ways the Federal Government can fulfill its role of being a good neighbor to local communities.”
As it often does, WIKIPEDIA provides us with a usable summary of various kinds of PILOTs we might encounter, so let’s start there.
In addition to the federal government making payments in lieu of taxation to local governments affected by this reduction in their tax bases, the occasion for such a payment can arise in several different ways:
  • “In some states where land owned by colleges and universities is not subject to local property taxes, the state government reimburses the local governments for part of the tax revenue that the local government would otherwise have collected. In other cases, the institution makes a direct payment to the local government (which would not otherwise be reimbursed) simply to maintain good relations.
  • Where a non-profit may be exempt from equipment taxes and sales taxes, its mission may permit payment of an agreed PILOT to the local tax authorities, to offset the impact upon local services funded by town residents. The size of such payments can be controversial, especially where the organization appears to have federal income from taxable activities.
  • As an incentive for investment in taxable infrastructure or other facilities that create a public benefit, a PILOT may be negotiated to limit or defer the property taxes on a developer, striking a balance between public and private economic needs. In effect, the local taxpayers are subsidizing the development, which might otherwise have gone elsewhere. This has occurred in poor rural areas where large wind energy systems are often placed, providing cost relief to the owner and a limited tax payment to the locals.
  • PILOTs may be negotiated in specific circumstances, as when an arrangement is made for a corporation or institution to build a facility on public land without assuming ownership of the land. For example, there is such a program in New York State.
For many municipalities in the United States, property taxes are a primary source of revenue. The amount of forgone tax revenue as a result of these tax-exempt land parcels is significant. The president of the city council of Baltimore, MD, recently estimated that his city loses $120 million annually from these foregone taxes.”
And so we arrive at the point of laying out briefly (from the website), the economic development program in NYS called “StartUpNY,” with an eye toward the larger theme of this posting which is the waste and abuse that occurs when large corporations are provided with certain incentives and subsidies that allow them to benefit at the hands of the middle-class taxpayer who gets stuck with the consequences of such “deals.”
“START-UP NY offers new and expanding businesses the opportunity to operate tax-free for 10 years on or near eligible university or college campuses in New York State.  Partnering with these schools gives businesses direct access to advanced research laboratories, development resources and experts in key industries.”
Here’s the deal: “Pay zero taxes for 10 years.  No business, corporate, sales, property, state or local taxes and no franchise fees. And no income tax for the company or its employees. Ten full years of savings.  And, partnering with these schools gives businesses direct access to advanced research laboratories, development resources and experts in key industries.”
To participate in START-UP NY, a company must meet the following requirements:
  • Be a new business in New York State, or an existing New York business relocating to or expanding within the state
  • Partner with a New York State college or university
  • Create new jobs and contribute to the economic development of the local community
But, the company must also belong to one of the “eligible” industries:  Advanced Materials and Manufacturing, BioTech and Life Sciences, Tech & Electronics, CleanTech & Renewable Energy, Transportation Equipment, Food & beverage, Advanced Materials & Manufacturing.  This leaves a long list of ineligible industries.
Thus far, according to the website, 157 business have already joined START-UP NY and committed to create 4,278 new jobs and invest over $225 million across New York (projected over a five-year period).  An impressive record, to say the least.  The deal certainly relieves companies of an initial higher tax burden and allows those companies to re-invest the savings in new equipment, personnel and/or greater inventory.  But not everyone is on-board with using PILOTs to attract businesses because they are concerned with the consequences of 10 years of tax-free operation.
What are some of those consequences?
  • Sometimes the jobs are not distributed throughout a community, and often many of the jobs are already filled by employees from other areas.  So both job quality and job quantity are being questioned
  • The re-use of troubled or perhaps contaminated properties is not always well-regulated, and not always improved by the attracted companies
  • While some cities and communities experience peripheral expansion and attraction of smaller adjunct businesses that are not always sustainable unless incentives are raised for them as well
  • Community development and services to the community depend on each industrial entity; some have good records of community service, others do not (see my Blog of May 4, 2014 on “Good Neighbor” Policy and on March 12, 2014 on “More About Nanotech Firms”)
  • Some of the settled industries take advantage of support from the community but do not return the favor, even if there has been an agreement to do so
  • Potential increase in property and sales taxes for the rest of the community to pay for the incentive of no taxes at all for the recruited companies
  • What is to prevent a company from leaving the area and going somewhere else where they are offered more incentives after the first tax-free period of ten years is over?  In all too many cases, the answer is “nothing.”  There are usually no community contracts or state laws that require some sort of give-back to a community left in the “lurch” so to speak.  It has happened over and over again, and New York State does not currently have any strong legislation which would require something back from companies who leave.  Nor is there any substantial requirement that companies who receive this incentive must account for their actions, such as impact on environment, benefits received, or measurable community development and involvement
New York State has failed miserably in setting requirements for community involvement, accountability, safeguards and pay-back from these StartUpNY entities.  Meanwhile, Bills S02838 and A00472 lay dormant in the NY Senate and Assembly that would address these questions.
And therein lies the problem:  Government income from taxpayers is being given indiscriminately to businesses, small and large; to huge corporations and the men and women who run them, without the same attention given to regulation and restriction as is given to “welfare recipients.”  It is as though fraud, waste and abuse do not exist in the upper echelons of our economy and society.  But it does, and I’m going to briefly outline for you where much of that abuse and waste is happening (for more detail, see my Blog of April 16, 2015 – “TAX DAY – where does all that money go?”).
“Over the past 15 years, the federal government has provided $68 billion in grants and special tax credits to business, with two-thirds of the total going to large corporations. During the same period, federal agencies have given the private sector hundreds of billions of dollars in loans, loan guarantees and bailout assistance, with the largest share going to major U.S. and foreign banks.” These sums represent the portion of federal “corporate welfare” for which specific recipients can be identified.
PILOTs – another form: In 2006, industry experts estimated that more than $7 billion would be spent on new facilities for professional sports teams.  That’s what the federal government spent in subsidies to the cities involved, and host cities spent even more – about 10 million each per year!  There is no rationale whatsoever for the federal government to subsidize the financial tug-of-war among the cities that host sports teams.  It is a complete waste of taxpayer money.  If teams and cities want new stadiums, let them pay for them.
An article on in mid-2015 suggested that the StartUpNY was not living up to expectations. One source suggested a $7 billion bill for the entire cost.
“Now the results are starting to come in: 76 jobs so far.  In the entire state. From a program that has spent $28 million advertising its own existence.  That’s $368,000 per job.  Start-Up NY sounds great on its face. It’s a tax cut. The problem is that it’s a very, very narrow tax cut. It’s only for certain kinds of businesses that do certain kinds of things in certain areas of the state. Surprise: It’s had very narrow effects.  Those 76 jobs are just a tad bit shy of the program’s initial goals, which were rather modest to begin with.  Start-Up NY’s professed goal? Creating 2,100 jobs. Over five years.  In a state in which there are 7,775,000 jobs, that’s projected job growth of 0.005% a year. Touting this as “economic development” is like saying “you’re going to fight hunger in India by sending Mumbai one box of Minute Rice.”
Income Tax Code - WASHINGTON, April 15 (Reuters) – “The annual cost of corporate tax breaks has more than doubled to $180 billion since 1987, according to a report released on Monday. 
Corporate tax deferral, the potential indefinite postponement of U.S. taxes on profits held offshore, makes up nearly a quarter of that sum” (Huffington Post).  Tax deferral allows corporations not to pay tax on foreign profits as long as they never come into the United States. As a result, many U.S. companies stash foreign profits offshore. U.S.-based multinational corporations are estimated to hold about $1.7 trillion offshore, in large part to avoid taxes.  The biggest corporate tax break in 2011 was accelerated depreciation of machinery and equipment, accounting for $76 billion of the revenue loss, according to GAO. There are many more abuses of the Tax System, but there just isn’t enough space to mention them all.
Tax rebates/refunds – the owner of several real estate ventures in Denver, recently collected a $150,000 refund check from the IRS thanks to the new tax rules taking advantage of a tax maneuver called "loss carryback." When a business books a profit, it pays income tax on its earnings. But if the business then turns a loss in later years, tax rules allow the business to "carry back" its loss and deduct the money from earlier profits. By filing an amended tax return for the earlier, profitable year, the business can claim an immediate refund on the taxes it paid.  The Joint Committee on Taxation estimated 2009 the carryback change would cost the government $33.2 billion.
Subsidies and Incentives – let’s just take a quick look at the subsidies of billion-dollar industries, many of which are familiar to us:

“Here are the 10 companies with the highest cumulative subsidy dollars received: 

Subsidy Value
Number of Subsidies
General Motors
Royal Dutch Shell

The point here is clear -- state and local government will incentivize large corporations to stay within their state or region in order to stabilize the local job market.”  (Sean Williams, The Motley
For much more information on subsidies to large corporations and banks, etc., please take time to look at the website responsible for tracking so much of the fraud and abuse in such subsidies, their sources, and their outcomes.  Ctrl + Click on:
Special incentives - The development of movie production incentives stems from the perceived economic benefits of filmmaking and television production in the US. In 2010 revenues from television production in the US were estimated at $30.8 billion while revenues from movie and video production in the US were estimated at $29.7 billion in the same year.  But the question persists: why should taxpayer money be used to sustain an industry that is already making billions a year?  If we can’t build shelter for the homeless, why can we give special tax breaks to billion-dollar companies?
Above all, let me point out that this merely scratches the surface.  We have not considered contracts or loans or more special fraud contained in farm subsidies (see my Blog of November 10, 2013 for some detail on farm subsidies to members of Congress!)
Hopefully, this has given you the clear flavor of what we are up against in waste, fraud and abuse.  It is rampant in the world of government, manufacturing and finance.  Welfare for the rich is far and away the largest pig trough in the world.  Unfortunately, we are all at fault.  First, because we are ignorant of most of it; second, because we allow it and tolerate it by returning the same old political hacks to Washington and state houses, and third, because we sustain it through our ignorance and silence and by the distraction of far lesser supposed evils like recipient fraud in government aid programs to those with special needs.
One might conclude that the representatives of the wealthy – the lobbyists, lawyers and politicians – are rather clever in finding new ways to assure that more taxpayer dollars end up in the coffers of the rich and that no one, including Congress, gets much say about our “welfare for the rich” system. 
One might also conclude that the poor and other persons in need do not generally have the resources to either manipulate the governmental systems or to access the office-holders to their advantage.  They do not have PACs; they do not have lawyers (Legal Aid is fast disappearing), and they do not have lobbyists who can manipulate the system and come up with new and better, less transparent, ways to discern and implement how taxpayer money can be extracted and used to their total benefit.  For a criminally- inclined few who actually come up with schemes to defraud the government, their impact is far less than that of health care conglomerates on the amount of fraud and waste that is extant in that system.
Our governmental and economic systems are weighted to coddle the rich and impede the poor at every turn.  That is why we have to change our way of thinking and understand where fraud and waste come from in the greatest quantity.  The overwhelming amount of fraud, waste and abuse comes from those who use the system every day to advance their portfolios and their wealth.  They are the master manipulators; not the poor, the disabled, the elderly, the homeless and the unhealthy.  The latter are too busy just trying to survive in a world that is not made for them.  The playing field is tilted toward the wealthy and the rest just struggle up the steep incline, made steeper by those who control the money and use it for placing blame where it does not belong, while escaping all consequences for their robbery and decimation of others less fortunate. 
Are you being bamboozled? Of course you are.  Stop looking for fraud in all the wrong places.  That very focus of “bought” politicians on the “welfare queen” serves the purposes of the wealthy because it distracts you from the perfidy of the rich and powerful – the real kings and queens of welfare fraud and abuse!