Chicago teachers, whose strike concluded this week, brought their protests to some familiar places: marches through city streets, rallies in public parks and plazas. But one demonstration’s location probably gave passers-by some pause—a luxury hotel in one of the city’s poshest districts?
Members of the Chicago Teachers Union picketed in front of a Hyatt Regency hotel in order to highlight the fact that the hotel chain had received some $5 million through a city subsidy called Tax Increment Financing (TIF). That’s money from property taxes that the city sets aside from the pot for schools and other public projects.
In Chicago, “TIFs capture about $500 million in tax revenues each year, about half of which is diverted from the public school system,” notes a June study by a sociologist at Roosevelt University.
In theory, TIF funding is meant to spur development, both public and private, in blighted areas of the city. But the study found that that funding has ended up inequitably applied along racial, geographic, and socioeconomic lines; sometimes it ends up an outright slush fund, the money going to well-connected developers working on projects in upscale neighborhoods. TIF, the study concludes, “has moved beyond its original purpose of developing blighted communities and has become a general financial tool to spur economic development for the city as a whole.”
Courting private companies with taxpayer money has been a widespread practice for decades. To lure new industry or development, state and local governments offer tax breaks, subsidies, and other enticements to the tune of $70 billion every year, according to a December report from Good Jobs First, a group that monitors public subsidies.
This practice sometimes has real benefits—including, in ideal cases, paying for itself by increasing the size of a tax base. But the teachers—who protested in front of the Hyatt carrying union signs that read, “Silly Rich Guy, TIFs are for kids!”—were highlighting the cost to communities when governments divert tax dollars to private companies.
In exchange for subsidies and tax breaks, companies often promise jobs, training, and other benefits. But frequently, they never materialize. When that happens, it’s a major loss: not just of those benefits, but for the schools and other public resources that got shortchanged to create the subsidy. And the company usually doesn’t face any repercussions for not living up to its promises.
The good news is that advocacy groups and governments are taking a closer look at such subsidies to make sure they’re really worth their cost—and finding ways to make sure that governments can get their money back if they’re not.
So how do you hold a company accountable for its promises? One method is to require “clawback” provisions in contracts when companies accept subsidies. Under a clawback, if a company doesn’t create the agreed-upon number of jobs, fails to pay a certain wage, or relocates, taxpayers are entitled to their money back.
Without clawbacks, in contrast, that money is simply gone: a taxpayer giveaway to private companies. Between 2008 and 2010, the state of Tennessee paid more than $27 million in FastTrack grants to companies who trained 6,200 new workers. By 2011, the Nashville Business Journal found, fewer than half those jobs still existed—and neither did any recourse for getting the money back. Now, the state is working to draft clawback provisions that can be included in future FastTrack deals.
Good Jobs First lists a series of reforms that could make companies more accountable to the taxpayers who support them. Among them are laws demanding better public disclosure of how subsidies are distributed and whether goals are met, and better public access to the subsidy-approval process. Community groups can also negotiate directly with companies to create Community Benefits Agreements, offering support for a subsidy only if a company agrees to particular local demands. And governments can demand that jobs come with living wages and benefits, that subsidies don’t encourage sprawl, and that funds not be taken from school budgets.
The Chicago teachers who picketed at the Hyatt chanted, “Give it back!” With corporate handouts continuing as schools and other public programs suffer around the country, that’s a demand we may start to hear much more often.