How the Rich Spent Your Billions in Tax Credit
The annual $1 billion tax credit was supposed to pump money into poor communities, so why it is funding things like classic car museums and upscale movie theaters?
How do you help needier parts of America develop an economic engine? That’s easy: fancy car museums, upscale movie theaters and ritzy aquariums.
At least that’s what banks will fund if you just hand them the money—and give them a cut of the action.
With funding of at least $1 billion a year, the New Markets Tax Credit was created in 2000 to incentivize banks to invest in small businesses in struggling communities with the hopes of stimulating their economies. But the tax credit has been exploited by investors looking to pad their pockets and has done little to improve the lives of the low-income Americans it was intended to help, according to a new government report.
“Big banks collect millions of dollars in tax credits to help finance economic development projects, which have included doggie day cares, a sculpture in the desert, drive-in movie theaters, luxury hotels and fast-food enterprises,” said Republican Sen. Tom Coburn of Oklahoma in his report “Banking on the Poor.”
According to Coburn’s report, “virtually all census tracts are potentially eligible” for the NMTC, and its loose guidelines have resulted in frivolous projects in areas that don’t need the help. For instance, NMTC funds were used to build a Target in Pittsburgh and a fancy tea shop in Columbus, Ohio.
The tax credit hasn’t been a complete waste. It was, for example, used to build a grocery store in a low-income area of Baltimore and a community health care center in a downtrodden area of Tacoma, Washington.
“While some of these project are well-intended, like health clinics, it is difficult to measure if these tax expenditures are truly helping those seeking a hand up or simply subsidizing banks, corporations and others who are already succeeding,” Coburn continued.
Under the NMTC, banks and other financial institutions receive a subsidy based on the amount of their investment. So for these investors, the more they are able to say they spent, the more money they get back from the government—which doesn’t necessarily incentivize them to take on projects in struggling neighborhoods where real estate costs are lower.
Coburn’s office estimated that between 2003 and 2013, $40 billion was allocated for the NMTC, with banks and other financial institutions being the recipients in almost half of the cases.
The report listed a number of dubious projects—situations where, Coburn says, there was abuse of the taxpayer credit. They include:
AT&T Dolphin Tales exhibit expansion at the Atlanta Aquarium in Georgia
How much of the tax credit it received: $40 million
The problem: While proponents of the tax credit argued that the project created jobs, many are highly skilled positions—such as the dolphin trainer, who makes over $300,000 a year. Additionally, tickets to the show cost almost $65 and Coburn’s office reported that condos in the area can sell for as much as $2 million. Sounds pretty nice for an “impoverished” neighborhood.
“Dancing in the Wind” sculpture in Desert Springs, California
How much tax credit it received: $65,000
The problem: This work outside the Desert Hot Springs Health and Wellness Center is art, not job creation.
Classic car museum in Tacoma, Washington
How much tax credit it received: $13.3 million
The problem: The museum was a gift to the incredibly wealthy LeMay family. The museum houses 300 cars from Harold LeMay’s 3,000 car collection. Real estate company Trammel Crow and U.S. Bancorp also pocketed $1.5 million in fees for the project.
Beacon Cinema Complex in Pittsfield, Massachusetts
How much tax credit it received: $16.7 million
The problem: It cost a total of $21 million to restore the old theater (and spending ballooned to ensure that the theater opened in time for the premiere of New Moon, the second movie in the Twilight saga).
Trolley system in St. Louis
How much tax credit it received: $15 million
The problem: Local residents dubbed the 2-mile, old-fashioned project “Folly Trolley” and “The Streetcar Named No Desire.”
Canal Park in Washington, D.C.
How much tax credit it received: $13.5 million
The problem: While parks are great, two laser-lighted water fountains—one of which will run year-round—are hardly a must-have. The park cost millions in taxpayer dollars, and skaters must still pay $7 to use the ice rinks.