Too Much Pork in the Pepperoni Pizza?

Transcription

1 CENTER FOR STRATEGIC RESEARCH, AFL-CIO Too Much Pork in the Pepperoni Pizza? Tax Credits for Palermo s Highlight Need for More Transparency, Accountability at WEDC The Wisconsin Economic Development Corp. awarded Palermo s Pizza millions in public dollars and tax credits tied to promises of familysustaining, permanent jobs in the Menomonee Valley. But the WEDC, long criticized for lack of transparency and accountability, has made it impossible to know whether Palermo s is holding up its end of the deal.

2 Contents Executive Summary 1 Introduction 2 Lack of WEDC Accountability Raises Questions 3 Taxpayers Showed Palermo s the Money 4 Palermo s and the WEDC Should Show Us the Jobs Were Tax Credits Used to Spur Poverty Wage Jobs? 6 What is a Living Wage in 2012? How Does Palermo Villa Measure Up? 7 Policy Recommendations 9 Endnotes 10 By Julie Farb Blain and Mateos Chekol 10/16/12

3 Executive Summary When public funding for economic development is at its best, the dollars spent can be a catalyst for growth that makes good economic sense and accomplishes laudable public policy goals where private financing alone would not. At its worst, when public funds are used for economic development, it can be a form of corporate welfare that undermines public confidence in government, gives unfair advantages to individual companies and wastes increasingly scarce public resources. In the case of Palermo Villa Inc., also known as Palermo s, it is unclear whether the money it has received from state, city and federal sources represents a wise or foolish use of public dollars. Since 2005, Palermo s has received $26 million in public subsidies for job creation and economic development. Palermo s made promises about how many jobs the company would create in return for its public subsidies. Due to a lack of transparency in the administration of the Wisconsin Economic Development Corp., we cannot know whether Palermo s has kept its promises. Even if Palermo s creates and maintains the number of jobs it promised, due to a lack of WEDC transparency, we cannot know whether Palermo s has kept its promises regarding the quality of these jobs. Many jobs at the company have paid less than the WEDC s minimum wage requirement for tax-credit-eligible jobs as well as less than the Menomonee Valley Partners living wage. Policy Recommendations WEDC should improve public disclosure of company reporting on accountability measures. WEDC tax credit programs should adopt minimum wage requirements that match a reputable living wage index for the regions the programs serve. WEDC should enforce clawback measures that require companies that do not adhere to minimum wage standards to pay back any job creation tax credits received. WEDC should deny subsidy eligibility and enforce clawback provisions when companies violate labor laws. CENTER FOR STRATEGIC RESEARCH, AFL-CIO 1

4 Introduction When public funding for economic development is at its best, the dollars spent can be a catalyst for growth that both makes good economic sense and accomplishes laudable public policy goals where private financing would not. At its worst, public funds used for economic development can be a form of corporate welfare that undermines public confidence in government, gives unfair advantages to individual companies and wastes increasingly scarce public resources. In the case of Palermo Villa Inc., it still is unclear whether the money it has received from state, city and federal sources represents a wise or foolish use of public dollars. Palermo Villa Inc. has received more than $26 million in tax credits, subsidies and loans from state, city and federal sources combined since The majority of this money was tied to job creation and other economic development requirements. However, lack of transparency and accountability at the Wisconsin Economic Development Corp. (WEDC), and conflicting reports by Palermo s, has made it impossible for taxpayers to know whether their money has been well spent. Wisconsin s job creation tax credits are designed to help companies provide living wage, permanent jobs 2 in communities that are struggling with high unemployment and poverty, like those surrounding the Menomonee Valley where Palermo s plant is located. 3 The company, one of the largest manufacturers of frozen pizza in the United States, and supplier to highly regarded corporate citizen Costco, among other leading chain food retailers, appears to be growing its profitable operations. But due to a lack of WEDC transparency, we cannot know whether Palermo s is fulfilling the mission of the economic development programs from which it benefits. 2 CENTER FOR STRATEGIC RESEARCH, AFL-CIO

5 Lack of WEDC Accountability Raises Questions The state of Wisconsin long has been criticized by members of its own legislature for problems with transparency and accountability in its economic development programs. In recent years, Wisconsin has established measures to improve accountability by setting clear benchmarks and requiring annual reporting of subsidy and tax credit recipients. 4 However, unless the state establishes better disclosure requirements and more effective clawback enforcement triggers for noncompliance, taxpayers should not have confidence the economic development programs they fund are achieving their goals. The Wisconsin Legislative Audit Bureau s 2012 annual report found the [Wisconsin Economic Development Corporation] did not include all available information on its programs in the October 2010 economic development report. For example the number of expected and actual jobs created or retained as a result of awards it made. 5 In the last two years, an examination of the online development program tracking tool shows little progress on the part of the agency to improve. 6 The public has a right to know whether companies benefiting from public dollars are meeting their economic development obligations. Annual reports should be comprehensive and responses to public records requests should not be so zealously redacted as to render it impossible to evaluate a particular subsidy or tax credit. In the case of Palermo Villa, a disclosure document obtained in researching this report was so heavily redacted it was impossible to know: whether the company met job creation benchmarks; for which new jobs the company claimed or received tax credits; and whether any new jobs Palermo Villa created, and for which it claimed tax credits, actually meet the full-time, permanent and minimum wage specifications the company committed to in its contract with the WEDC. 7 CENTER FOR STRATEGIC RESEARCH, AFL-CIO 3

6 Taxpayers Showed Palermo s the Money Palermo s and the WEDC Should Show Us the Jobs Palermo s has received millions of public dollars in the last five years in the form of job creation tax subsidies, loans and economic development bonds. All told, Palermo s has received more than $26 million from state, city and federal sources combined in the last five years. The majority of this money was tied to job creation and economic development, but several years later taxpayers have no means for holding Palermo Villa Inc. accountable. In 2010 and 2011, Palermo s was awarded $456,416 in three tax credits from the state of Wisconsin. As part of the job creation tax credit agreement, Palermo s contractually committed to the following terms: a) To create 56 full-time jobs paying at least $10.88 per hour over a period of 36 consecutive months. b) To maintain the total number of existing full-time positions and new full-time positions for which the company has received tax credits for a period of over 60 consecutive months. c) To submit an annual project report, as well as supporting documentation and other reports as specified in the annual project report, within 60 calendar days of the end of the Recipient s taxable year. 8 But it is unclear whether Palermo s is on track to meet its job creation obligations. The company appears to have listed employees in an annual tax credit disclosure report, but so much of the information is redacted by the WEDC it essentially is useless from a public disclosure perspective. 9 For example, it is impossible to glean from this report how many new jobs Palermo Villa created in 2011; for how many jobs the company is claiming a tax credit; how many of the employees listed truly were new hires and therefore qualified for tax credits; and how many of these jobs meet the full-time, permanent status or wage requirements stipulated in the company s agreement with the WEDC. 4 CENTER Two years after the award was made, due to a lack of WEDC transparency, we cannot know how many jobs have been created or retained by Palermo s. 10 In fact, public records show Palermo s had 369 full-time and 27 part-time employees for a self-reported total of 396 employees in But in a press release issued Oct. 11, 2012, the company stated Palermo s currently employs 373 people including 189 plant employees. 12 This casts doubt as to whether it has met its commitment to the WEDC. FOR STRATEGIC RESEARCH, AFL-CIO

7 Palermo s also received construction loans from the Milwaukee Economic Development Corp. (MEDC) totaling just more than $12 million and public bonds from the federally funded Midwestern Disaster Relief Bond Program totaling $14 million. In 2005, Palermo s was awarded a $6 million construction loan through the New Market Tax Credit Program of the MEDC to relocate its manufacturing facility to the Menomonee Valley. 13 Again, in 2010, it received slightly more than $6 million to help finance the expansion of a manufacturing facility. The New Market Tax Credit Program is a federal program that states its primary mission as providing investment capital for low-income communities or low-income persons. 14 Public records show that after getting the loan from the MEDC, Palermo s expected to add 92 full-time jobs within two years. 15 Today, exactly two years later, due to poor disclosure by WEDC, it is impossible to verify whether Palermo s has met that goal. 16 $26 million in state, city and federal tax subsidies CENTER FOR STRATEGIC RESEARCH, AFL-CIO 5

8 Were Tax Credits Used to Spur Poverty Wage Jobs? Transparency and disclosure issues aside, it remains that the citizens of Wisconsin are funding WEDC programs. In a city where, according to the Milwaukee Journal Sentinel, The Great Recession is over, but the hangover remains and in which the U.S. Census Bureau statistics show the city to be one of America s 10 most impoverished big cities, with a poverty rate of 29.4% in 2011, scarce public money should be used to create good jobs. 17 According to the Wisconsin Economic Development Corp., the [agency] will invest in Companies that retain or create family-supporting jobs in the state of Wisconsin. 18 In 2003, Menomonee Valley Partners, a public-private partnership tasked with redeveloping the region, established a family-sustaining wage target for the valley, which was determined to be $12 per hour by In 2005, the recommendation was formally adopted as policy for land sales by the city. 19,20 Yet, the WEDC requires employers who qualify for job creation tax credits to pay only a minimum wage of $10.88 per hour. 21 Consequently, Palermo Villa was only required by the WEDC to pay a wage in 2010 that was more than a dollar below what the Menomonee Valley Partners stated was a living wage seven years earlier. This kind of inconsistency among economic development entities serves to weaken expectations for companies that benefit from the economic development agencies programs. A company like Palermo s can take advantage of this public benefit without much accountability to create the family-sustaining jobs the programs aim to incentivize CENTER FOR STRATEGIC RESEARCH, AFL-CIO

9 What is a Living Wage in 2012? How Does Palermo Villa Measure Up? According to Wider Opportunities for Women, an organization that maintains the BEST Index a measure of the income required for a working adult to achieve basic economic security a single working adult in Milwaukee needs to earn $14.06 per hour. The BEST Index is a conservative estimate of need and does not include extras such as vacations, entertainment, electronics, gifts or meals out. 23 Even using the far more conservative federal poverty guidelines, a family of four requires a wage of $11.08 per hour, working 40 hours per week. 24 It is unclear what Palermo s pays the workers for which it claims tax credits because this information is not publicly disclosed, but an examination of pay stubs obtained from about 25% of the company s self-reported production workforce of 189 employees 25 shows at least some Palermo s workers receive an hourly wage far lower than the Menomonee Valley Partners wage recommendations and even below the WEDC threshold of $10.88 per hour. 26 This is ironic because Angelo Fallucca, the chief operating officer of Palermo s and the brother of CEO Giacomo Fallucca, sits on the board of the Menomonee Valley Partners. Multiple other family members are donors to the organization and Palermo s is an official supporting company donating time and expertise to the Menomonee Valley Partners. 27 While Palermo s publicly claims to pay an average starting wage of $12.90 per hour to production workers, 28 an examination of pay stubs obtained from 55 people recently Average Wage of a Sample of Recent Palermo s Employees Far Below Living Wage Measures $14.06 $11.04 $10.88 $10.55 Basic Economic Security Wage Federal Poverty Line WEDC Minimum Wage Requirement Sample Palermo s Average Wage* *Calculated based on an examination of 55 pay stubs from recent Palermo s workers. Represents approximately 25% of Palermo s reported production workforce in June As stated in the text, the authors are unable to confirm based on available information whether the jobs of these 55 employees relate to the WEDC tax credits received by Palermo s. CENTER FOR STRATEGIC RESEARCH, AFL-CIO 7

10 employed by Palermo s, who worked at the company in the last two years (including 46 pay stubs from employees in 2012), shows an average wage among this group of employees of $10.55 per hour. 30 More than half of these workers earned less than $10 an hour and only one worker earned more than the $14.06 per hour needed to achieve basic economic security. These workers, many of whom have years of experience on the pizza production lines, either have been fired or permanently replaced for protesting unfair labor practices and in retaliation for exercising their right to form a union and to request their employer bargain with them over wages and working conditions. The pattern of poverty wages among this group of Palermo s employees does not appear to be explained by entry-level workers or high turnover. Of the 36 workers for which employment tenure information was available, the average time on the job is five-and-a-half years, with eight pay stubs showing nine or more years on the job. Only three workers had fewer than two years on the job. Because of inadequate disclosure by WEDC, it is impossible to draw a straight line between any of the more recent hires represented in these pay stubs and positions for which Palermo Villa may be claiming tax credits. Nevertheless, an employer with a history of paying many workers poverty wages is qualified in Wisconsin to benefit from an economic development program specifically designed to reduce poverty and create family-sustaining jobs. Years on the Job After Years on the Job, Some Palermo s Workers Still Paid Poverty Wages $0 $2 $4 $6 $8 $10 $12 $14 $16 *Calculated based on examination of 55 pay stubs from recent Palermo s workers. Represents approximately 25% of Palermo s reported production workforce in June CENTER FOR STRATEGIC RESEARCH, AFL-CIO

11 Policy Recommendations WEDC should improve public disclosure of company reporting on accountability measures. Annual reporting on accountability measures for tax credit and other economic development programs should be made available to the public online and should be more discriminating when redacting proprietary company information from open records requests to ensure the public has access to sufficient information. WEDC tax credit programs should adopt minimum wage requirements that match a reputable living wage index for the regions the programs serve. Tax credits tied to job creation should hold employers accountable for the family-sustaining jobs the economic development authority sets forth as its goal. Rewarding employers with tax credits for creating poverty wage jobs will not spur the adequate or sustained economic development the state of Wisconsin or the city of Milwaukee seek. WEDC should enforce clawback measures that require companies that do not adhere to minimum wage standards to pay back any job creation tax credits received. Wisconsin s jobs tax credit program does give the Department of Commerce the discretion to require a business to return tax credits for any job that was not maintained for the contractually specified number of years. Clawback measures such as this also should apply if wage and benefit requirements are not met. WEDC should deny subsidy eligibility and enforce clawback provisions when companies violate labor laws. An effective way to guarantee family-sustaining jobs in line with the mission of the WEDC is through support for collective bargaining. Companies that violate labor laws, exploit public programs to hold wages at poverty levels or who retaliate against workers who petition their employer for the right to collectively bargain should be denied job creation tax credits and other economic development dollars that are tied to the creation of jobs. CENTER FOR STRATEGIC RESEARCH, AFL-CIO 9

12 ENDNOTES 1 (search Palermo), accessed 9/25/12; Milwaukee Economic Development Corp., open records request, (loan to Palermo Villa Inc., 2005 and 2010, accessed 9/25/12. 2 Wisconsin Economic Development Corp., at accessed 9/23/ accessed 9/28/12. 4 Joel Dresang and Steve Schultze, Millions for jobs worth it? State parcels out business aid without evidence of effectiveness, Journal Sentinel, 7/1/07 at accessed 9/25/12. 5 Legislative Audit Bureau, Audit reported issued in 2012: State Economic Development Programs, Wisconsin State Legislature, June 2012, at accessed 9/25/12, pg State of Wisconsin Annual Economic Development Programs, at php?yr=2011&ayr=2011, accessed 9/26/12. 7 Economic Development Tax Credit Agreement between the Wisconsin Department of Commerce and Palermo Villa Inc., Economic Development Tax Credit #FY ; pp ; obtained via open records request on 8/30/12. 8 Ibid. 9 Palermo Villa 2011 Economic Development Tax Credit Annual Project Report obtained via open records request 9/14/ accessed 7/5/ MEDC New Market Tax Credits Allocation Request, April 20, Obtained via open records request accessed 10/11/ Annual Report, The Milwaukee Economic Development Corp., at MEDC_Annual_Report.pdf, accessed 7/2/12; pg U.S Department of the Treasury: Community Development Financial Institutions Fund, New Markets Tax Credit Program, at accessed 7/7/ MEDC New Market Tax Credits Allocation Request, April 20, Obtained via open records request. 16 Ibid accessed 9/28/ Wisconsin Economic Development Corp., at accessed 9/23/ Christopher De Sousa, Milwaukee s Menomonee Valley: A Sustainable Re-Industrialization Best Practice, Institute for Environmental Science and Policy, University of Illinois at Chicago, at pg. 8, accessed 10/10/ pg. 105; Menomonee Valley Industrial Center Sales Procedures and Principles, Redevelopment Authority of the City of Milwaukee, pg. 1, Step 1 E. 21 Economic Development Tax Credit Agreement Between the Wisconsin Department of Commerce and Palermo Villa Inc., Economic Development Tax Credit #FY ;pg. 8, Section 3. Obtained via open records request. 22 Economic Development Tax Credit Agreement Between the Wisconsin Department of Commerce and Palermo Villa Inc., Economic Development Tax Credit #FY ; pg. 8; obtained via open records request 9/14/ accessed 9/28/12. Wage rates shown are for two workers with two children (one infant, one school age). Assumes no benefits accessed 10/11/ Economic Development Tax Credit Agreement Between the Wisconsin Department of Commerce and Palermo Villa Inc., Economic Development Tax Credit #FY ; pg. 8, Section 3. Obtained via open records request accessed 10/10/ accessed 10/11/ accessed 10/11/ Pay stubs available for review upon request accessed 10/11/ CENTER FOR STRATEGIC RESEARCH, AFL-CIO