Saturday, October 31, 2015

GOP Zombies Lumber On

There is a zombie party, but it's not the GOP
"Dysfunction" was hardly the scene in the House last week as Wisconsin Rep. Paul Ryan took hold of the speaker's gavel — an act unthinkable even to Ryan just a few weeks prior. The young, attractive Ryan always has been seen as the future of the Republican Party, able to bridge the gap between the GOP's more ardent wing and those more interested in governing. (In the end, only seven of the Tea Party's "Freedom Caucus" members voted against Ryan, proving the group's opposition to Ryan was overblown.)
WOW. Talk about trying to polish a turd. Nobody revises history quite like the Republicans.

Even Schneider, in the article, writes that Ryan becoming speaker was unthinkable weeks ago. But the Republicans did what they do best when between a rock and a hard place, a well-staged photo opportunity. Hence, even Schneider doesn't have much more to say about Ryan other than "young, attractive." Ryan's previous attempts at serious policy analysis have been shown to be nothing more than flim flam.

For the past few weeks (more so than usual), dysfunction was the entire scene for the Republicans. 20 or so presidential candidates, a Tea Party caucus holding the rest of the party hostage, and seemingly no one wanting to become the new speaker.

Paul Ryan was the only Republican left that the party felt the public may actually pay some attention to at this point. Because Ryan and Rubio are younger, the Republican party is alive and well, according to Schneider.

Schneider details how the Republican party still has a hold on America and the demise of the party is premature:
In fact, Republicans — y'know, the party that has ceased to function — currently hold majorities in the U.S. House, Senate and claim 31 governorships.
He forgets to mention much of this is due to gerrymandering and voter suppression tactics. For Schneider, just like his new hero Paul Ryan, details aren't that important.

I know this is the Republican playbook - claim the opposite of reality and always act as if everything is just what the Republicans planned and wanted (and Schneider's sole purpose is to regurgitate some version of this fantasy in every article he writes). But, aren't even the conservatives getting tired of the willful distortion of reality?

Weekend Reading

The Real Reason Germs Spread in the Winter
The Links Between Gut Microbes and the Brain
The Myth of Big, Bad Gluten
The Religious Right's Big Lie About the Founding of America
You're Not Irrational, You're Quantum Probabilistic
American Failure: The 401(K)
The 401(K) Crisis is Getting Worse
Inequality in Our Retirement Accounts
The Rage of the Bankers
Why Does Wall Street Want Higher Rates?
The Stock Market is Not the Economy
The Case Against Raising Interest Rates Before Wage Growth Picks Up
The Failed Reaganomics Experiment In Kansas Keeps Getting Worse
Red States Spent $2 Billion in 2015 to Screw the Poor

Friday, October 23, 2015

Another Wisconsin Corporate Welfare Failure

Harley-Davidson plans job cuts amid decline in quarterly earnings

Here's a link to Harley-Davidson's subsidy bonanza over the years.

Wisconsin gave Harley a $25 million subsidy (corporate income tax credit, rebate or reduction) in 2010.

Sadly (for journalism), the article mentions nothing about the millions in subsidies given to Harley-Davidson.

Saturday, October 3, 2015

Wisconsin's Corporate Welfare

In keeping with the theme of corporate giveaways (see the previous post), there has been a lot in the Wisconsin media lately regarding company lay offs, closings and downsizings.

Jobs Lacking After State Subsidy Of Kohl's
Joy Global To Temporarily Close Milwaukee Department, Lay Off 113 Workers
Caterpillar Plans To Cut Thousands Of Jobs As Key Markets Slow

Perplexingly, Wisconsin has also been lavishing welfare on some of these same companies as they lay off employees or fail to create the promised jobs.

Caterpillar (and former Bucyrus) has received $40 million in state and local awards (subsidies) in Wisconsin.

Kohl's has received at least $87.5 million in subsidies from Wisconsin.

Mercury Marine received $123 million. Northwestern Mutual Life $50 million. Quad Graphics $46 million. Oshkosh Corporation $36 million. Uline $18.6 million.

According to a New York Times analysis, Wisconsin spends $1.53 billion per year on subsidies.

As Badger Democracy wrote:
In total corporate incentives, Wisconsin ranks 14th overall in the nation...Of the 903 reported corporate grants listed in the Times report, 300 (nearly one-third) have come in 2011-2012 alone, during the Walker administration, primarily through the WEDC “Enterprise Zone Jobs Tax Credit.” In fact, seven of the top ten grant awards totaling over $270 million are 2011 or 2012 grants.
But we're broke, remember?

For More Information:
Discover Where Corporations are Getting Taxpayer Assistance Across the United States

About Meijer Grocery Coming To Wisconsin...

Think you'll be saving money by shopping at Meijer? Think again.

Here we have yet another large corporation using their boardroom of lawyers to lower their property taxes...which means you'll be paying more.

In a long-building tax avoidance scheme, big businesses and their lawyers, with the help of malleable appraisers and tax representatives, are turning the appraisal profession on its head.

Some basic economic principles are imbued in property appraisal. Substitution is the idea that a comparable must not only be similar physically, but also economically (similar rents, expenses, etc.).

Typically the details and length of the lease are common factors a buyer would consider when contemplating the purchase of an income-producing property. The appraisal profession typically considers the rents a property can charge an outcome of the location - the land. Now, according to the lawyers, the value is due to goodwill and other intangibles...and, conveniently, most of these aren't taxable.

Take Walgreens, a court recently ruled that sales of Walgreens weren't good comparables or good indicators of value for ... Walgreens. Typical retail, a closed Blockbuster store, and mom-and-pop stores were deemed more comparable.

The City of Milwaukee recently settled a property tax dispute, dating back to 2010, with Walgreens, on 18 of their stores. The settlement was for $3.7 million dollars.

Opinions in the Milwaukee Journal Sentinel on the topic (incorrect grammar and all) were things like: "Is it any wonder why citizens and businesses want to get out of the City?" or "This should be good news for mayor Berrett now he has another excuse for not fixing the pot holes on almost every street in the city. Waite for him to try increasing the wheel tax again. Which reminds me is he spending any of the wheel tax money on streets."

So, giving a business a refund of $3.7 million is a reason for a business to go away? Not to mention, the $3.7 million Walgreens is not paying, now has to be paid by other citizens. When corporations avoid paying their fair share, everyone else has to pick up the slack.

Much of what this case hinges on is that fact that Walgreens claim the leases they have are not market rate and actual sales of other Walgreens are also not comparable market transactions.

On the transfer returns (which names the buyer and seller; and separates real estate, equipment and business value) for the Walgreens sales, the Property owners claimed the total sale prices were for the real estate. Plus, in their actual leases on these properties, they specifically state these are real leases and not financing instruments. [Transfer returns and court transcripts, which contain this, are public information.]

Yet, in court they have claimed just the opposite. And the judge agreed in a City of Madison v. Walgreens court case. Although, if we're going to accept these revelations as true, this means that Walgreens has submitted falsified transfer returns and entered into bogus contractual leases.

Much of how a property's value is declared is based on accounting - wherever they can shift the supposed value to lower their taxes the most (based on things like depreciation, etc.), that's where they'll enter it in the ledger. A Walgreens is built to be a Walgreens, nothing else. Just as other special purpose properties (like gas stations, car washes, etc.) are built for a specific use. The builder/owner does this because they expect a certain return on their investment at that specific site.

Walgreens feels more appropriate comparable properties, to establish the value of their properties, are vacant buildings and and other neighborhood establishments.

This is like saying to find out what my Chevy Camaro is worth I should look at what Ford Taurus' are selling for. They're both cars, right?

The court completely ignores the concept of substitution. A property is only comparable if a buyer would actually consider it as an alternative investment. A vacant store does not have the same marketability and value as a store with a 25-year lease.

If a current owner of a Walgreens store were to sell, he/she would base the sales price on what the income stream is worth - how much he/she gets from the leases. Which is why most Walgreens sell at twice what Walgreens are claiming they are worth in court.

This whole fiasco ignores the general market that is the triple-net lease, investment grade properties. These are properties under long-term leases (usually 25 years) where the tenants pay the expenses. Thus vacancy (a typical deduction from the cash flow) is non-existent for the property owner. And, expenses are minimal to non-existent since they are the responsibility of the tenant. For these reasons, the standard Walgreens drug store sells for $467 per square foot at a 5.6% capitalization rate. The minimum typical footprint of a Walgreens is 12,000 square feet; this equates to a $5,604,000 value (or a rental rate of roughly $26 per square foot).

Even though the market evidence indicates this is what typical investors buy and sell these properties for, Walgreens astonishingly claims the stores are only worth half that.

All of these factors corroborated the City's assessments on the Walgreens' properties. Yet, for some inexplicable reason, the judge bought Walgreens' self-interested and contradictory argument and decided rather than comparing apples to apples, one should compare apples and rotten apples. And, because of this, my fellow taxpayers, you will pay more since Walgreens is paying less.

And taxpayers should be upset over this (and start complaining to their city attorney office to fight back against this shakedown) because the ambulance-chasing lawyers tax representatives are trying to use these same arguments all over the country on restaurants, big box stores and a whole host of other properties. Which means, in the next few years, residential home owners will be paying a lot more, while commercial property owners will laughing all the way to the bank.

And, for big boxes (like Meijer, Target, Walmart, Lowes), some courts have decided the best comparable indicators of value are vacant, or "dark", stores. Somehow, a building that is closed and out of business is a viable alternative investment to an successfully operating one.

Olivia LaVecchia has more of the gruesome details:
Figuring out the value of a property can be a complicated business. In Michigan, town and county assessors typically use a property’s construction costs, minus depreciation, as a primary metric to determine its fair market value; taxable value is half that amount. Property owners sometimes prefer, instead, to use the sale prices of comparable properties. This was the approach that Lowe’s took—with a catch. Lowe’s looked at the definition of the word “comparable,” and decided to stretch it. It said that, because big-box stores are designed to be functionally obsolescent, comparable stores are those that have been closed and are sitting empty—the “dark stores” behind this method’s name... 
It’s an established part of the big-box retail model that the boxes themselves be custom-built, cheaply constructed, and disposable. If retailers decide that they need a bigger space, it’s cheaper for them to leave the old one behind and build a new one. When Walmart, for instance, opened its wave of new, twice-the-size Supercenters across the country in 2007, it left hundreds of vacant stores behind it. This means that new, successful stores like the Marquette Lowe’s are rarely the locations that are up for sale, and that when big-box stores do come on the market, it’s because they’ve already failed or been abandoned by the retailer that built them. In other words, Lowe’s was saying, it had built a property that, despite generating roughly $30 million in annual sales for the company, had very little value, and because of that, it should get a break in its property taxes... 
Despite all of this, cities and towns continue to buy into the myth, sold to them by the mega-retailers themselves, that big-box stores spark economic development. In service of this myth, local and state governments across the country have granted at least $2.6 billion in subsidies to just six large retailers, including $160 million to Walmart and $138 million to Lowe’s, according to another study from Good Jobs First.
When these businesses use their clout to avoid taxation, all other taxpayers pay more.

For Further Reading:
For Cities, Big Box Stores Are Becoming Even More Of A Terrible Deal
Multibillion dollar Meijer, Inc. finds another way to screw Michigan cities and kids
Unfair Comparisons? Meijer, other big-box retailers use ‘dark store’ loophole to cut their Michigan property tax bills
Big box stores ringing up property tax discounts
Are big-box retailers getting a tax break at schools’ expense?

Weekend Walker Reading

How Do You Like Unions Now, Gov Walker?
Scott Walker Back GOP Plan To Overhaul Civil Service System
Board Delays Decision On Land Sale To Walker Donor
Scott Walker Can't Be President, So He's Back Ruining Wisconsin
Irrelevant Scott Walker Hits New Low
GOP Presidential Candidate Scott Walker To Propose Vast Union Restrictions
Scott Walker Proposes National Right-To-Work Law and No Bargaining For Federal Workers
Scott Walker's Exaggerated Claims Of Employment Trends In Wisconsin
Wisconsin: Where Has The Labor Force Gone?
Wisconsin Still Has High Poverty