Tax Credits For The Poor End Up Going To Luxury Hotels, Big Banks

This post has been corrected.

Taxpayer dollars that were intended to help poor communities are instead being used to finance luxury hotels, according to a new story in Bloomberg Markets magazine.

A Federal program, called New Market Tax Credits, gives a substantial tax refund to institutions that bankroll development projects in poor neighborhoods, according to Bloomberg. But in practice, it hasn't always worked out that way. Developers use 10-year-old Census data to claim a neighborhood is low-income and deserving of a jobs-creating development. Many of the neighborhoods receiving taxpayer assistance have since become upscale. Some of the projects being financed are among the most luxurious of their kind.

The program, which gives institutions or individuals 39 percent of their investment over a seven year period, is popular. Last year, Treasury received 250 applications for the tax credits, according to a Treasury release from last June. The applications requested a total of $23.5 billion. In that round, only $5 billion was available.

In many cases, New Markets has helped revitalize under-served areas. But in other cases, it has simply enriched financial institutions, while nearby poor areas remained stranded, Bloomberg reports.

The rules stipulate that developments must be in neighborhoods with at least a 20 percent poverty rate, or with a population earning 20 percent less than the median family income in the surrounding area.

Hotel union officials and activists in Chicago have taken notice of the seeming abuse, and have filed a complaint with the U.S. Treasury Department, the Milwaukee Journal Sentinel reported earlier this month. And at least one government official seems inclined to agree.

"Things like luxury hotels are entirely contrary to what we set out to do," Cliff Kellogg, a former senior policy advisor at Treasury, told Bloomberg.

One such project is the Blackstone Hotel, in downtown Chicago, which offers rooms for as much as $699 a night. Prudential Financial, which bankrolled the development, received $15.6 million from Treasury. JPMorgan Chase served as a lender, according to Bloomberg.

Read the full story here.

UPDATE: This post incorrectly stated JPMorgan Chase received a tax credit. The bank served as a lender.

Comments

[jaycasey]

09:41 AM on 02/14/2011

The rich and educated can be counted on to take advantage of the poor and uneducated. The educated middle class must step in to stop this through the ballot box.

[builderman55]

12:37 PM on 02/10/2011

Habitat for Humanity is using these vehicles to fund building projects. When used forntheir legitimate purpose they are very productive.

[doctordoubt]

10:40 AM on 02/10/2011

It's always about the greed, the gaming of the system, and the rich getting richer.

[sammyscout]

04:13 PM on 02/09/2011

Free Market, conservative style. Also see no-bid contracts, Haliburton, Blackwater (Xe) and cost plus.

[CarlJr7]

09:07 AM on 02/09/2011

So businesses are given tax credits to develop in areas they would otherwise not, therefore pumping capital into communities that were previously overlooked or shunned--what's exactly is so horrible about that? The headline of this article is greatly misleading.

[parlimentMike]

12:32 PM on 02/09/2011

I would ask some questions before I spent public dollars so a wealthy chain could add more properties to their portfolio. Where did the materials for the hotel come from. Where do the construction workers live? What percentage of the hotel revenues will remain in the community the next time they're spent. What were the competing uses for that Public capital to better the community?

Off hand, I can't think of a use for a luxury hotel in an underdeveloped neighborhood. A factory would seem like a better investment. Pick a product being imported from somewhere else, and put Americans to work making it.

[gcogs]

02:02 PM on 02/09/2011

How many jobs will it create?

That's another that comes to mind. This one hired over 200, which is extremely modest IMO for giving away over 15 million dollars in credits.

[sensimilla]

03:39 PM on 02/09/2011

no it isn't and obviously you did not read the article. Applicants are using decades old census data, knowing full well the areas are now upscale.

[oilfield]

12:16 AM on 02/09/2011

just the tax alone on a 600.00 a night room helps the local economy....not to mention jobs for locals...

[sensimilla]

03:40 PM on 02/09/2011

which has nothing to do with helping development in low income areas. Hence the scam.

[oilfield]

04:42 PM on 02/09/2011

so tax money in a city doesnt help the city?

[sammyscout]

04:11 PM on 02/09/2011

oilfield...trickle down never worked and never will...get over it...rubbish Reagan economics

[oilfield]

04:43 PM on 02/09/2011

so handouts are the answer.....yes detroit is a model of success.

[James R Klein]

09:42 PM on 02/08/2011

The article presents an interesting piece that presents a limited view of one of the most successful attempts by the federal government to affect low income communities by direct private investment. This investment would not have happened without the tax credit incentive. But the addressed by the reporter is not about the investment but the place and the benefit. These types of stories are always controversial and “shocking” because they present only part of the picture. The characterization of the New Markets Tax Credit program as “aimed at helping poor communities” is accurate; however it does not mean only physical places will benefit but more importantly poor people. The article mentioned in passing that the Chicago hotel provided hundreds of jobs. I might suggest that the next question is; “where do these employees come from?” Experience tells us that the vast majority of employment in hotels, museums, aquariums and other “non-low income” venues are low and moderate income people that respond to the pay scales offered. As in all the New Markets examples given and these types of projects that are funded by non-tax credit incented private investment, they become an on-ramp for poor people providing employment opportunity and a chance at a better life. As an organization that has been awarded several New Markets allocations we have seen tens of thousands of economically disadvantage people nationwide gain opportunity and hope for a better life.

James R. Klein, CEO
Finance Fund
Columbus, OH

[innerpuppie]

11:10 PM on 02/08/2011

Sadly, a great majority of the employment you are talking about will do nothing more but produce larger numbers of America's working poor. The projects mentioned provide employment that generally don't offer any benefits - not even a sick day or a vacation day. You can't make a silk purse out of a sows ear and if you put lipstick on a pig, well, it's still a pig. Service industry jobs are historically minimum wage jobs. Minimum wage at 40 hours a week still allows that individual to be among those who earn little more than our country's poverty level.

I don't know why people take MY tax money - money that I and my sons and their wives and my grandchildren will have to pay back to CHINA - and use it for little more than personal greed all the white attempting to whitewash what they have done as altruistic.

[KathyinMichigan]

06:51 AM on 02/09/2011

Exactly. Fanned. Oh and don't forget the men and women who are fighting over seas for these low paying jobs. Corporate welfare is what I call it.

[sensimilla]

03:42 PM on 02/09/2011

I have a serious issue with large corporations getting govt subsidies like this. You obviously do not see the problem of taking taxpayer $$ these very profitable projects. How about the private sector just friggen pay for their own development WITHOUT tax incentives?

[pwd2008]

09:11 PM on 02/08/2011

There is a healthy dose of greed by those abusing the intent of the incentives. However, at the same time it is further proof of incompentance by the Federal Governmnet.

Why people think it is a good idea to give more money to a government which simply throws it away is beyond me....

We should be fighthing harder to cut government spending - maybe it would motivate our elected leaders to spend wisely and have better controls to prevent fraud.

Medicare fraud is estimated at $60 Billion annually - just stopping 70% of this fraud would easily fund a simple health care reform system and provide for better coverage for poor people. Instead the leaches in the government just want more and more of tax payers hard earned dollars and refuse to take accountability for their years of mis-management.

[rtb61]

03:52 AM on 02/09/2011

A government appointed by corporate executives is not behaving incompetently when it feed tax payer dollars to those corporate executives who appointed it, it is behaving corruptly with competence.
The incompetence lie, is simply that a massive lie designed to obscure the corruption of government by 'private' interests, by corporations corruption government, by lobbyists distorting the whole election process all hiding behind the right wing masquerade of incompetence.
Both corporations and their appointed governments are demonstrating carefully planing, managing conspiracies at the highest level and competently feeding their greed.
What change then first step get corporate influence out of government and second step regulate corporations like corporate executives are psychopathic criminals bent on stealing everything they can, regardless of the pain and suffering they cause.
Government quite clearly isn't the problem insanely corrupt private enterprise is, who is more at fault the one who pays hundreds even thousands of bribes who the one who receives it ie $60 billion of 'estimated' Medicare fraud annually is not mismanagement, that is many carefully orchestrated conspiracies managed by 'private enterprise'.

[AmosKnows]

08:44 PM on 02/08/2011

If I had to guess I would say this is less an abuse of a bad idea than it is an intentional creation with this kind of result as the goal.

[leonardo2]

08:21 PM on 02/08/2011

Egypt demonstrations could bring inspiration

[Nomccain]

07:56 PM on 02/08/2011

GREED, GREED, GREED, CORRUPTION, CORRUPTION, CORRUPTION....THE GOOD OLE AMERICAN WAY! Uncontrolled, it will signal the end of our country and our way of government and we're in the fast lane to arriving there.

[hobo62]

07:30 PM on 02/08/2011

Isn't it bad enough we gave the rich 750 billion dollars in tax breaks. Do we have to remodel their weekend getaways, too?

[sammyscout]

04:14 PM on 02/09/2011

Meet all the characters responsible for the economic collapse of the world at the Olialia resort.

[Christopher Millsap]

06:22 PM on 02/08/2011

Talk about corporate welfare.....

[TrickledOn]

05:14 PM on 02/08/2011

People who are caught abusing programs such as these should be stripped of all their wealth so they DO comply with the programs they've stolen from.

[sammyscout]

04:15 PM on 02/09/2011

Like your name and your comment...F&F