Developers and their Fixers Hustle Tax Breaks and Opportunity Zones

New Orleans        Sometimes secrets are hidden in the wide open as they were recently, thanks to the daily New York Times and Wall Street Journal, both of which were offering tips for developers and real estate speculators on how to use tax incentives and tax dodges to best affect.

If you ever wondered how CZ-USA decided to build a firearms plant in Little Rock, Arkansas, well $24 million in incentives is a big part of the answer.  Same for the $26 million from Fresno that helped locate Ulta Beauty’s distribution center, or the almost $12 billion in 2003 and 2013 that kept Boeing in Everett, Washington, the $4 billion for China-based Foxconn in Wisconsin, and the more than half-billion for Amazon for its second headquarters in Arlington, Virginia.

The Journal solicited tips from site-selection fixers at Ernst & Young, some of which are disturbingly revealing:

  • “Leave no stone unturned. ”Not just regular tax breaks but especially “so-called discretionary incentives” that officials might be able to grant without much transparency or accountability.
  • “Use a formal request for proposal. ”Essentially this means putting communities in competition with each other, but it’s worse perhaps because “doing so ‘opens the discussion to possibilities such as special legislation and creative alternatives for ‘off-menu benefits’ such as discounted rent or free land.”
  • “Compile your wish list.”Perhaps this is a good negotiating tactic, but as E&Y says, maybe you can “ask them to amend tax provisions to give your project special treatment.”

Basically, hire consultants that can help you fleece the public by getting officials to bend the rules and swallow your public relations and cooked numbers on jobs and benefits.  They argue that people should be careful with “incorrect headcounts and investment projections” that “can undo the benefits of your public relations pitch,” but you can see them winking as they say that to make their lawyers happy, since they have already acknowledged that this is PR and a pitch, not real economics based on solid business plans.

One of the hottest giveaways right now, thanks to the 2017 Trump tax gifts to the rich and corporations, are more than 8000 census tracts becoming “opportunity zones.”  Paul Sullivan, the “Wealth Matters” columnist in the Times gives his audiences of high net worth investors the news they need.  As some may recall, these opportunity zones were billed as ways to move investments into lower income census tracks, especially for higher paying tech jobs, to benefit the communities.  I remind you of this because Sullivan’s advice doesn’t waste a word on the intent or real benefits of the project.

His warning to the rich is simple.  You can’t sell for 5, 7 or 10 years depending on the tax benefit.  The advantage though if you hang in, is that any gain from your investment after that time is that all your profit is tax free, so big whoopie if you make it.  His advice is to research the areas to make sure they are already gentrifying, because if the zone is truly a lower income area and has been so for a while, then keep your millions under the mattress.  In short, the smart investor will only put their money in the zones for tax benefits and needs to avoid the lower income areas that are desperate for investment and the whole rationale for the tax benefit.

In short the dailies open the kimono wide, as many used to say, that for companies and developers it’s all about ripping off the communities and their taxpayers for the maximum benefit you can coerce or cajole while you line the pockets of your investors and stockholders, regardless of the law’s intent, since you can change it or dodge it.

With such advice so soberly given, is it any wonder why there is inequality at every level of American now or that the adjective “rapacious” fits so snugly next to capitalism in any current description.

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Opportunity Zones Open the Door to More Rip-offs of the Poor

New Orleans    The Trump-McConnell-Ryan tax giveaway of 2017 is a bad penny that just keeps coming up again and again.  Although it was a stupendous tax break for corporations and the rich, the president tried to disguise its real purpose by claiming it would give working- and middle-class taxpayers a break.  Headlines abound now about unhappy tax filers who are shocked at the lower level of their refunds and the denial of longstanding deductions.  High property tax states on each coast are still screaming as well.

Unfortunately, that’s not even all of the bad news.

The act included a provision creating “opportunity zones” that provided an additional tax break for investments in areas that were economically hard-hit.  As desperately as poor and depressed areas need new opportunities, once again, as these zones are designated by state governors, they are being diverted to benefit investors and real estate developers instead.  With a real estate promoter, speculator, and sometime developer as president, why are we surprised, no matter how cynical and corrupt this distortion is becoming.

Financial firms are creating special pools for investors to get-rich-quick or probably more accurately keep-rich by putting money in these funds and harvesting the tax benefits while they wait for the projects’ payoffs.  Even some business observers are noting that the program will largely add additional tax savings to projects that were already in development and under any circumstances would have happened anyway.  A legion of others examining the political lobby and the determination of the zones note that they are unlikely to benefit the poor and in fact in many cases will displace those very families by accelerating gentrification.

Equally unsurprising is that much of this idea can be credited to the same tone-deaf, libertarian business-myopia of Silicon Valley since it originated in a supposed think tank funded by tech maven Sean Parker, originally of Napster, then Facebook, and other projects.  In typical tech fashion there is no accountability, no reporting requirements, no cap on the amount of benefits allowed each year, and, this hurts to say, no requirements that local residents benefit.  In fact, if the investor sticks with the project for ten years, they would owe no capital gains on any profits ever making this a super sweet deal for them, rather than the lower income and depressed communities meant to benefit.

In Louisiana for example, much of the Central Business District is now a zone in New Orleans, as is all of downtown Baton Rouge as is “parts of the city’s MidCity corridor, which has in recent years attracted a rush of investment,” according to the The Advocate.  Their reporting also found that the undeveloped area near the New Orleans convention center and an old power plant, both owned by big time local real estate and hotel operators.  Of course, none of these qualifies as a low-income area, but there is a provision in the tax giveaway law that allows some areas that are “contiguous” to also be designated.  The policy director of the Greater New Orleans Fair Housing Action Center, Maxwell Ciardullo, noted to The Advocate that developers “could bring mixed-income buildings with some affordable and some market-rate housing in areas where some residents are being displaced.  They also could bring luxury apartments.”

Since there’s no accountability and no requirement that the residents’ benefit, let’s be honest, developers and investors can do any damn thing they feel like doing and be subsidized by all of us as taxpayers while they walk back and forth to the bank over and over, ripping off lower income and economically distressed area for their own greed and benefit.

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