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The Abington Citizens Network
where Abington, PA residents can share ideas and join forces to build a better community
 

 

 Economic Development Corporations
Corruption: |
All the ways they have NOT worked properly  

  Return to Main page  on the Econ Dev Corporation


    THE PROGRAM WAS DROPPED  IN MICHIGAN BECAUSE  :
    “Taking money from some people and giving it others through a political process in the name of job creation has been a losing policy.” 
     
( see  more about the  Michigan program below )

    
WHY GOVERNMENTS FAIL  at economic development  
      "
In short, so-called development programs run by governments are ineffective and expensive. They don’t work, they’re unfair to those who pay full freight, cost billions of dollars that could be better used elsewhere and are potentially corrupting.”  ( see Why Gov’ts Fail )



 
MONTGOMERY COUNTY, MARYLAND-

Economic Development Corruption   
“A government official stole $6.7 million from Montgomery County, Maryland, over a six-year period reports the Washington Post.
The IRS discovered the crimes, not Montgomery County. Six years without noticing a bureaucrat stuffing his pockets with $6.7 million?”…. the chief operating officer of the county’s Department of Economic Development …. complex financial structures permitted for “economic development” activities to hide his long-running thievery.
https://www.washingtonpost.com/local/md-politics/ex-montgomery-official-gets-4-years-in-federal-prison-for-67m-embezzling-scheme/2019/02/22/125096bc-3552-11e9-854a-7a14d7fec96a_story.html

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DUQUESNE, PA

More than $1 million dollars was taken out of a local city's coffers, just before a change in leadership, 11 Investigates has learned.Now the city of Duquesne is working to recover that money, starting with suing its own redevelopment authority for transferring the money to a private nonprofit organization…https://www.wpxi.com/news/top-stories/city-suing-its-own-redevelopment-authority-to-regain-control-of-money-leaving-city/714877630

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NEW JERSEY
 
FBI, Philly prosecutors investigating N.J. corporate tax breaks, sources say“FBI agents have interviewed potential witnesses over the last month, sources said. Among their areas of interest has been the development boom in Camden, which has been fueled by $1.6 billion in tax breaks that the state’s Economic Development Authority awarded to companies there since 2013, according to one person briefed on the matter.” https://www.inquirer.com/news/new-jersey-tax-credits-fbi-investigation-philadelphia-federal-20190926.html

50+ Organizations Call for Resignation of NJ Economic Development Board in Response to Whistleblower Allegations, Audit
“The call comes in the face of growing scandal over the $11 billion in corporate welfare it has pledged to profitable and politically connected  companies" https://www.insidernj.com/press-release/50-organizations-call-resignation-nj-economic-development-board-response-whistleblower-allegations-audit/

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CAMDEN, NEW JERSY BEING HURT BY THE TAX BREAKS

 the businesses won’t have to pay property taxes on their new buildings for a decade. And for now, Camden is facing the “most severe” challenge of raising money of any municipality in New Jersey
Camden New Jersey has a revenue problem and Tax Break problemas aren’t helping

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WESLACO, TEXAS

Another charged in association with city of Weslaco scam (McAllen, Texas)
“Beginning in at least April 2013, Wadhwani allegedly conspired with others to obtain a development agreement with favorable terms containing $300,000 in incentive agreements from the City of Weslaco Economic Development Corporation.”
https://www.justice.gov/usao-sdtx/pr/another-charged-association-city-weslaco-scam

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WARREN COUNTY , VIRGINIA

The Entire Warren County  Board of Supervisors indicted  9-24-19 
A widening corruption investigation involving current and former public officials resulted in 14 indictments Tuesday from a special grand jury in Warren County, Virginia — including all members of the Warren County Board of Supervisors. They are up to 21 million or more .
https://wtop.com/virginia/2019/09/public-officials-charged-in-corruption-probe/
FBI confirms raid of Warren County Economic Development Authority office (Virginia)
“Last month, the EDA filed a civil lawsuit after their former director, Jennifer McDonald, and several others, allegedly misplaced $17 million of the authority’s money. Thomas Sayre of the Warren County board of supervisors gives his personal opinion on the matter.”
https://www.localdvm.com/news/virginia/fbi-confirms-raid-of-warren-county-economic-development-authority-office/


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WISCONSIN
Wisconsin Economic Development Corp. gave taxpayer funds to businesses that created jobs in other states, audit finds“MADISON - The state's economic development agency gave nearly half a million dollars to a company that cut more jobs than it created and handed out taxpayer funds to others for jobs in other states, according to a bruising audit released Friday.  In addition, the Wisconsin Economic Development Corp. didn't recover more than $400,000 in tax credits and more than $4 million in loans it could have when employers didn't meet the terms of their taxpayer-funded deals, auditors concluded.”  https://www.jsonline.com/story/news/politics/2019/05/10/wedc-gave-funds-businesses-created-jobs-other-states/1163670001/

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ST LOUIS

Sheila Sweeney gets probation, fine in Stenger scandal

“Sheila Sweeney, the former CEO of the St. Louis Economic Development Partnership, was sentenced Friday to three years of probation and was ordered to pay a fine of $20,000 for her role in Steve Stenger's pay-to-play scandal.”https://www.bizjournals.com/stlouis/news/2019/08/16/sheila-sweeney-gets-probation-fine-in-stenger.html

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MICHIGAN 

“All told, there is likely more than half a billion that can be saved and spent elsewhere if the MEDC closes and the state stops its business subsidies”.
“Taking money from some people and giving it others through a political process in the name of job creation has been a losing policy.”  
https://www.mackinac.org/what-happens-when-the-michigan-economic-development-corporation-ends

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NEW YORK

Edc's Recent Challenges Extend Well Beyond Amazon Debacle
The EDC, however, has missed chances to undercut criticism from the left. It has been slow to re- examine decades-old incentive programs that some watchdogs say are tailored to a bygone era when the city strained to attract private investment. 
https://www.crainsnewyork.com/features/edcs-recent-challenges-extend-well-beyond-amazon-debacle

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WHY GOVERNMENT FAILS AT ECONOMIC DEVELOPMENT

“There are few areas of research where I find such widespread agreement in academic and other studies than those involving targeted “economic development” programs. In short, so-called development programs run by governments are ineffective and expensive. They don’t work, they’re unfair to those who pay full freight, cost billions of dollars that could be better used elsewhere and are potentially corrupting.”
https://www.mackinac.org/why-government-fails-at-economic-development
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THE REALITIES OF ECONOMIC DEVELOPMENT SUBSIDIES

“The announcement of a deal between a government and a company typically includes the promise of jobs retained or created and millions of dollars in new investment. These benefits are a politician’s dream because they create immediate positive headlines. In fact, one public finance expert calls it the “ribbon-cutting syndrome.”2 Meanwhile, any negatives, such as companies failing to deliver on their promises, come to light much later and often receive less attention. And in some cases, companies even started construction on a new facility while still pursuing incentives to locate there”

https://www.americanprogress.org/issues/economy/reports/2018/11/01/457771/realities-economic-development-subsidies/

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THE IRS'S POSITION ON EDCS

Relief of the poor and distressed or of the underprivileged; advancement of religion; advancement of education or science; erection or maintenance of public buildings, monuments, or works; lessening of the burdens of Government; and promotion of social welfare by organizations designed to accomplish any of the above purposes, or (i) to lessen neighborhood tensions; (ii) to eliminate prejudice and discrimination; (iii) to defend human and civil rights secured by law; or (iv) to combat community deterioration and juvenile delinquency.

While the phrase "economic development" does not appear in the regulation, it is through this language that EDCs are exempt from taxation.

 “the IRS's position is that EDCs must generally exist to help disenfranchised taxpayers in blighted communities. EDCs are well-advised to be aware of both the regulatory foundation for an exemption and the various IRS authorities on EDCs”

The IRS stated in an informal memorandum:

The theory behind recognizing economic development corporations as exempt under IRC 501(c)(3) is that although services are provided directly to for-profit businesses, the ultimate good received by the general public outweighs the private benefit accorded to the direct beneficiaries. In light of this, the most important factual determination for the specialist to make is whether the activities of the incubator serve a public rather than a private interest consistent with Regs. 1.501(c)(3)-1(d)(1)(ii). . . .

Merely targeting assistance to an economically depressed area is not sufficient to overcome the private benefit derived by non-charitable business beneficiaries intended to serve as instruments to accomplish charitable purposes.

In developing economic development corporation cases under IRC 501(c)(3), the emphasis should be in having the organization provide information that shows the targeted area in which it will operate as one which is economically depressed. Federal, state or local designations of an area as depressed, or studies (including maps) are helpful. The organization also should be able to show its specific criteria used in determining whether businesses are eligible for its assistance and how such criteria relate to furthering public rather than private interests. [IRS Exempt Organization CPE Text, "Economic Development Corporations: Charity Through the Back Door" (1990), available at tinyurl.com/y967zwrg]

The IRS's informal memorandum also listed three factors for evaluating whether an EDC primarily accomplishes charitable purposes despite the element of private benefit: (1) whether the activity aids economically blighted or depressed areas; (2) whether the benefit is conveyed upon a disadvantaged group, e.g., unemployed or minority groups; and (3) whether the activity is necessary to ensure that a business remains in or locates to the economically blighted area.
https://www.thetaxadviser.com/issues/2018/oct/economic-development-corporations.html

 

    Return to Main page  on the Econ Dev Corporation

 

 

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