Glossary of Economic Development Terms
Note: *Most of the definitions listed here come from the Glossary of the Good Jobs First Research Manual, a great resource for in-depth exploration of subsidies all over the US.
As-of-Right benefits - a phrase used to describe a subsidy, usually a tax break, to which a company is automatically entitled. A subsidy to which a company is automatically entitled by virtue of meeting some criteria or performing some specific activity. The opposite of a discretionary subsidy.
Bond - a certificate of debt that bears interest, issued by a government body or a private corporation to finance infrastructure, construction, new equipment or other improvements. "General obligation bonds" are bonds issued by governments that are backed by the full faith, credit and future tax revenue of that government; examples include school bonds and sewer bonds. "Private activity bonds" may include industrial revenue bonds (see that entry and Chapter 6 for more), and they are backed by revenues from the project and not by a government or its general tax base. Private activity bonds are typically private transactions (both the borrower and lender are private parties) laundered through an economic development authority so that the interest becomes tax-free. This funding vehicle is allowed because the loan’s use is deemed to meet the public purpose of economic development, such as job creation or retention.
Clawbacks - (also known as recapture) - money-back guarantee language. Canceling, reducing and/or recovering a subsidy when a company fails to deliver. An enforceable penalty in a development subsidy contract, saying that if a company fails to deliver a specified public benefit in a specified period of time, it must repay some or all of the subsidy already received and/or lose some or all future benefits of the subsidy. (This is identical to the "penalty provision," which is standard in civil contract law.) A prorated clawback would say, for example, that if a company falls 10% of its job-creation goal, it would have to refund 10% of the subsidy. Some clawbacks set a steeper penalty, even including interest penalties. Clawbacks may also apply to other goals, such as capital investment. Clawbacks are the ultimate taxpayer protection against a company failing to deliver. They also strike most people as common sense. What state would contract for 100 miles of highway and then allow a contractor to build only 50 miles and keep the money? Trouble is, cities and states fail to make job "projections" binding, so such shortfalls are routinely allowed in economic development. However, clawbacks are finally catching on: at least 19 states now apply a clawback of some sort against at least one development subsidy, and more than 100 cities do the same.
Community Benefits Agreement - a project-specific contract between a developer and one or more community groups and/or labor unions, in which the developer agrees to provide various benefits as part of a redevelopment project. Such agreements are usually tied to the developer receiving economic development subsidies; community-labor coalitions use the subsidies as leverage. Benefits may include first-source hiring, living wages, relocation assistance, access to affordable housing, parks or other public-space improvements, and traffic or parking improvements.
Disclosure - The foundation of an effective accountability strategy is public disclosure about economic development spending. By disclosure, we mean annual, company-specific reporting of both the subsidies received and the benefits produced including jobs created, wages, and benefits. Reliable data collection and reporting are essential to measuring the effectiveness of subsidies and monitoring the performance of individual subsidized companies.
Discretionary benefits - a subsidy granted to a specific company or project based on a decision made by a government body. The opposite of an entitlement or as-of-right benefit.
Energy Benefits - a subsidy in the form of reduced electricity or natural gas bills. For details on the three main city programs (Con Ed Economic Development Incentive Rates, Energy Cost Savings Program, and Fitzpatrick Power Program - NYCPUS) see GJNY's Research Manual.
Fiscal Year (FY) - In NYC, the Fiscal Year begins July 1st and ends June 30th. For half the calendar year, the Fiscal Year appears to be one year ahead of schedule (i.e. in July 2003, we begin FY 2004).
Freedom of Information Act (FOIA, or "FOY-ya") - a federal law enacted in 1974 that requires Federal agencies to provide, to the public, access to and copies of existing agency records. States have enacted similar laws, often called Open Records Acts. Both federal and state FOIAs allow government agencies to exclude some materials from public review.
Grant - a subsidy which simply consists of cash or another asset given from a government agency to a company for use in a development project. In some cases, the grant may have a narrow purpose such as training new workers. In other instances, it may simply be applied to the construction costs of a new facility or for land acquisition.
Industrial revenue bond (IRBs) - also known as Industrial Development Bonds; the most common form of economic development loan given to companies. The interest rate on IRBs is low because the interest paid on them is tax-free. That means the wealthy individuals or corporations who buy the bonds will accept a lower rate of interest. IRBs are essentially a private transaction (a corporation borrows money from a private lender, the bond buyer) laundered through a public authority to become tax free. IRBs are enabled and allocated under the federal tax code and regulated by each state. States may attach accountability standards to IRBs, such as wage rules and clawbacks. IRBs are private activity bonds, not general obligation bonds (like school bonds or sewer bonds), so they don’t affect the credit rating of the state or local government.
Job Quality Standards - State and local governments are increasingly demanding that subsidized companies create high quality, living wage jobs. Many jurisdictions have attached wage and benefit requirements to economic development subsidies.
Local Law 48 (LL48) – This law, passed in 2005, by the New York City Council overhauled its predecessor, Local Law 69, by increasing the information in the New York City Economic Development Corporation’s “Annual Investments Projects Report” on EDC and Industrial Development Agency projects. These are discretionary subsidies allocated by these entities. The overhaul included more company specific and current data including figures on job promises, job creation and job retention, the value of particular subsidies, percentage of New York City employees and broad wage rate. The annual report will be amended again in 2012 when all projects currently being subsidized (currently older projects are not included even though they are receiving benefits) will be included and the data will be available in an electronic database on the EDC’s website.
Local Law 69 Report - Annual report prepared in response to Local Law 69, New York City's disclosure law, passed by the City Council in 1993. The law requires the Economic Development Corporation to publish information on subsidy projects for a period of eight years after they are approved. Information in the Project Reporting Forms include amounts already given out in various subsidy categories (PILOT savings, energy benefits, mortgage recording fee waivers, sales and property tax breaks), estimates of revenue generated through the retention of the firm, and (usually) the number of jobs reported by the company each of the eight required reporting years. Although this report is an important tool in tracking development deals, it is not without problems. These problems (for example, that it may overestimate benefits and underestimate costs to the city) are outlined in detail in an Independent Budget Office report from June 2002: "Full Disclosure? Assessing City Reporting on Business Retention Deals"
Mortgage Recording Fee Waiver - a subsidy given by the city through the Industrial Development Agency by not charging the usual tax the city collects on commercial mortgages when they are registered.
Payment In Lieu Of Taxes (PILOT) - payments negotiated between companies and local governments to cushion the blow to public services caused by property tax abatements. Sometimes PILOTs are pegged to cover a specific portion of a company’s normal property tax liability, such as the school increment.
Private activity bonds - government-sponsored bonds, such as industrial revenue bonds, the proceeds of which go to a private entity (for a public purpose). The opposite of a general obligation bond, the proceeds of which go to a public entity. Private activity bonds are essentially private transactions laundered through a public authority, such as an industrial development authority, to become tax-free and therefore low-interest. Private activity bonds do not affect a government’s credit rating, since all of the risk is borne by the private lender who buys the bonds. See industrial revenue bonds and general obligation bonds.
Property Tax Abatements - when a local government exempts a company from paying all or some of its property taxes. In dollar terms, tax abatements are often the largest subsidy a company receives, especially property-intensive companies such as manufacturers.
Sales Tax Exemptions - a state tax, which often has a local increment added to it, imposed on retail sales or on sales to a corporate end user (such as when a company buys building materials for a new facility). Many states now exempt new-facility construction or expansion from sales taxes. Others divert sales tax revenues into TIF, or rebate a portion of sales tax revenues to developers as a subsidy.
Smart growth - a term coined in 1997 by Maryland Governor Parris Glendening. This is a broad term encompassing many kinds of policies. For example, the law Glendening won says, in essence, that people can build anywhere they like, but if they build outside designated "Priority Funding Areas," (areas that already have infrastructure or are planned to get it) the state will not subsidize it. Other examples include: 1) State land-use laws that encourage development (and redevelopment) in areas that already have infrastructure, encourage adherence to long-term planning goals, and/or encourage cities to cooperate through regional strategies. Twelve states have adopted some version. 2) Regional tax-base sharing among cities to deter job piracy and other tax-base competition and encourage regional cooperation. 3) Metropolitan or "Unigov" systems to merge counties with cities and thereby deter regional in-fighting. 4) New criteria for state investment funds to give preference to projects that revitalize blighted areas, promote Glossary No More Secret Candy Store public transit, or involve mixed-use structures. 5) Open-space preservation, including bond referenda to pay for the public purchase of open space, incentives to encourage private donations of land; and state land preservation programs. 6) "Urban growth boundaries" or "greenbelts" around metro areas to set geographic limits on new development and encourage more intensive use of core areas and suburbs inside. 7) "Infill" development projects on vacant or underutilized parcels of land in areas that already have infrastructure. Think Urban Rogaine. 8) Reclamation and re-use of "brownfields," or contaminated land sites left behind by previous industrial users. 9) Affordable housing programs in the suburbs so that lower-income workers can have greater access to jobs. 10) "Transit-oriented development," (TOD) in which cities use subway and commuter rail stations as hubs for mixed-use developments within a half-mile radius, including retail, housing and day care, etc.
Sprawl - development patterns that have: low density and a lack of mixed-use projects (for example, no apartments above stores); a lack of transportation options (forcing everyone to drive to work); strict separation of residential from non-residential property; and job growth in newer suburbs with job decline in core areas (including both the core city and older suburbs). These trends result in increased dependence on automobiles and longer average commuting times, deteriorating air quality, and rapid consumption of open space in outlying areas. They also cause disinvestment of central city infrastructure and services, and strain city budgets at the core (caused by a declining tax base) and in the suburbs (caused by overly-rapid growth at the edge). The decentralization of entrylevel jobs makes work less accessible to low-skilled, unemployed workers. Since the suburbs lack affordable housing and public transit fails to reach many suburban jobs, sprawl effectively cuts central city residents off from regional labor markets. That means greater concentrations of poverty in core areas. See also smart growth.
Tax increment financing (TIF) - an economic development subsidy program usually paid for by the diversion of property taxes, and sometimes by the diversion of sales taxes. TIF is regulated by the states and locally-controlled. A city designates a TIF district for redevelopment. Based on the expectation that property values in the district will rise as a result of that redevelopment, the city splits the property tax revenues from the district into two streams: the first consisting of revenues based on the current assessed value; the second based on the increase in property values – the "tax increment." The tax increment is diverted away from normal property tax uses, such as schools, police and fire, and into the TIF district. There, the money can be used to back bonds or otherwise finance many different activities that subsidize the redevelopment. TIF is very popular with local officials because of its flexibility, but controversial with many other parties.
Venture capital (or "VC") - a high-risk investment, usually in a young company, in which the investor may seek very high rates of return (30% to 40% or more) through interest and/or equity in the company to offset the risk that the company will fail and the investment will be lost. Some states have created publicly-sponsored VC funds, sometimes using tax credits to attract capital. Not surprisingly, since they involve small numbers of people seeking to get rich quick, some have dubious histories.
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- The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation by Greg LeRoy, executive director of Good Jobs First
- Guide to Corporate Research by The Corporate Research Project
- Glossary of Terms by Good Jobs First