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Report: Government “Megadeals” Fail to Produce Jobs

0 Comments · Wednesday, June 26, 2013
A new report found many "megadeals" rarely produce the kind of jobs initially touted by public officials.   
by German Lopez 06.24.2013
Posted In: News, Streetcar, Economy, City Council, Commissioners at 08:53 AM | Permalink | Comments (0)
 
 
city hall

Morning News and Stuff

Streetcar vote today, sewer project compromise reached, "megadeals" fail expectations

The federal government is committing another $5 million to Cincinnati’s streetcar project, but the city must first close the budget gap that has recently put the project in danger. The U.S. Department of Transportation is also asking the city to restore certain aspects of the project, including a passenger information system and a screen or wall that would block power substations from public view. City Council’s Budget and Finance Committee is expected to vote on the project’s $17.4 million budget gap today. The latest proposed fixes from the city manager would pull funding from multiple capital projects, including improvements around the Horseshoe Casino, and issue more debt. Cincinnati and Hamilton County announced a compromise Friday that will end the county's funding hold on sewer projects. As a result, the city will be required to rework its “responsible bidder” ordinance and repeal the “local hire” and “local preference” laws that incited county commissioners into passing the funding hold in the first place. The city says its responsible bidder law creates local jobs and encourages job training, but the county argues that law’s rules favor unions and push up costs on Metropolitan Sewer District projects. CityBeat covered the city-county conflict in further detail here. Ohio is No. 3 in the nation for “megadeals” — massive government subsidies to corporations that are meant to encourage in-state job creation — but a new report found many of the deals rarely produce the kind of jobs initially touted by public officials. For Cincinnati, the risks of megadeals are nothing new: In 2011, the city’s $196.4 million megadeal with Convergys collapsed when the company failed to keep downtown employment at or above 1,450, and the company agreed to pay a $14 million reimbursement to the city. As of Friday, Cincinnati is officially leasing its parking meters, lots and garages to the Greater Cincinnati Port Authority. The Port announced it had signed the lease Friday, putting an end to a four-day controversy over whether the agency was going to sign the lease at all. The city will get a $92 million lump sum and at least $3 million a year from the deal, according to city estimates. Current plans call for using the money to help balance city budgets and fund economic development projects, including the I-71/MLK Interchange. The prison company that owns and operates a northeastern Ohio prison lost four contracts around the nation in June, according to the American Civil Liberties Union (ACLU). In May, CityBeat released an in-depth report looking at the Corrections Corporation of America’s handling of the Lake Erie Correctional Institution, finding evidence of rising violence and unsanitary conditions. About one in three Ohio children live in a home where neither parent has a full-time, year-round job, and a quarter now live in poverty. Although Ohio’s overall ranking improved in Annie E. Casey Foundation’s annual report card on the well-being of children, the state worsened in three out of four economic indicators. President Barack Obama will make a speech tomorrow unveiling sweeping plans for climate change. The president is expected to impose a series of regulations, particularly on power plants, with executive powers, which means the plans won’t require congressional action. Ohio gas prices are still coming down this week. Plants apparently do math to get through the night. Some diseases, including some types of cancer, are now being diagnosed by smell.Got questions for CityBeat about anything related to Cincinnati? Today is the last day to submit your questions here. We’ll try to get back to you in our first Answers Issue. CityBeat is looking to talk to convicted drug offenders from Ohio for an upcoming cover story. If you’d like to participate or know anyone willing to participate, email glopez@citybeat.com.
 
 
by German Lopez 06.23.2013
Posted In: News, Economy, Budget at 07:13 PM | Permalink | Comments (0)
 
 
convergys

Report: Government "Megadeals" Fail to Produce Jobs

Ohio ranks No. 3 for massive subsidy deals with corporations

Ohio is No. 3 in the nation for “megadeals” — massive government subsidies to corporations that are meant to encourage in-state job creation — but a new report found many of the deals rarely produce the kind of jobs initially touted by public officials. In the Good Jobs First report released on June 19, Ohio tied with Texas as No. 3 for megadeals, which Good Jobs First defines as subsidies worth $75 million or more. Michigan topped the list with 29 deals, followed by New York with 23.In the Cincinnati area, local and state agencies agreed to pay $196.4 million to Convergys in 2003 and $121 million to General Electric in 2009 to keep and create jobs in the area. It’s no secret the deal with Convergys went sour for Cincinnati. In December 2011, the company, which provides outsourced call center services, agreed to pay a $14 million reimbursement to the city because the company’s downtown employment fell below 1,450 — the number of jobs required under the initial deal. The reimbursement deal also calls for the company to pay an additional $5 million if its downtown employment falls below 500 before 2020.The Good Jobs First report finds this kind of failure is not exclusive to the Convergys megadeal or Cincinnati; instead, the report argues that megadeals are expensive and often fail to live up to expectations. “Despite their high costs, some of the deals involve little if any new job creation,” said Good Jobs First executive director Greg LeRoy in a statement. “Some are instances of job blackmail, in which a company threatens to move and gets paid to stay put. Others involve interstate job piracy, in which a company gets subsidies to move existing jobs across a state border, sometimes within the same metropolitan area.” For the jobs that are kept and created, states and cities end up paying $456,000 on average, with the cheapest deals costing less than $25,000 per job and the most expensive costing more than $7 million per job. The report finds the number of megadeals per year has doubled since 2008, on top of getting more expensive in the past three decades. Each megadeal averaged at about $157 million in the 1980s, eventually rising to $325 million in the 2000s. The average cost dropped to $260 million in the 2010s, reflecting the price of deals made in the aftermath of the Great Recession, which strapped city and state budgets.“These subsidy awards are getting out of control,” said Philip Mattera, research director of Good Jobs First and principal author of the report, in a statement. “Huge packages that used to be reserved for ‘trophy’ projects creating large numbers of jobs are now being given away more routinely.” Ultimately, the report aims to increase transparency for such subsidies, reflecting an ongoing goal for Good Jobs First. To do this, the organization has set up a database (www.subsidytracker.org) that anyone can visit to track past, present and future subsidy deals.But the report claims much of this work should already be done by the Governmental Accounting Standards Board (GASB), which “has been long-negligent in failing to promulgate regulations for how state and local governments should account for tax-based economic development expenditures,” according to a policy sidebar from LeRoy. “If GASB were to finally promulgate such regulations — covering both programs and deals — taxpayers would have standardized, comparable statistics about megadeals and could better weigh their costs and benefits.”
 
 

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