Tax-exempt bonds fund some private projects
Billions of dollars from state and local governments are under scrutiny because private corporations are using them to fund tax-free projects. One reporter says this is a loophole that needs to be reviewed.
In the past decade, more than $65 billion bonds from state and local governments have gone to help healthy, private corporations, according to a new report from The New York Times.
By using qualified private activity bonds, privately-owned projects can be funded with public money, such as a winery in North Carolina, the Barclays Center in Brooklyn, and the Goldman Sachs office in New York City.
Louise Story, an investigative reporter for The New York Times, says these tax-exempt bonds, called municipal bonds, are issued primarily by states and cities to fund roads, school and other projects.
But states and cities are allowed to let companies use these bonds — granting them a tax-free benefit.
“These bonds are exempt from federal taxes, so what you have is all these local officials across the country writing a federal check because by letting these companies issue these bonds, the federal government gives up on some tax revenues,” she said.
Story says after looking at thousands of bonds, it’s clear they aren’t going to small companies.
“Chevron is the biggest recipient, but there’s a lot of other big oil companies: Exxon, Mobile, BP, Shell — big companies that make a lot of money. And they get this subsidy out of the federal government’s budget essentially,” she said.
The Goldman Sachs headquarters was part of a program after Sept. 11, 2001, designed to keep jobs in New York City, Story said. In return for the bonds, Goldman Sachs was required to report their job figures annually.
Story followed their reports and in the last three years, she found that Goldman Sachs has been below its stated goal.
“That’s the thing about these programs, they have goods associated with them. There’s supposed to be jobs created into them, but there’s very little tracking of it,” she said.
These companies have huge power, Story says, and state governments are competing against each other because the companies can demand benefits, otherwise they'll move — or won't locate in the city or state in the first place.
“Some people have expressed concerns about these bonds,” she said. “The (Government Accountability Office) issued a report in 2008 and said it’s not really clear that these private bonds are creating a sort of public good that they were supposed to.”
These private activity bonds costs billions of dollars a year. The Bipartisan Policy Center says if these tax-breaks ended within 10 years, $50 billion could be saved.
“We’re talking real money at a time that there are painful cuts coming and a broader look in general at the incentives you would see that it’s a lot of money that the federal and state and local governments give to companies to create jobs with very few guarantees,” she said.
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