The excerpts below are from an article in Bloomberg by David Dietz:
Rich Take From Poor as U.S. Subsidy Law Funds Luxury Hotels
by David Dietz - Bloomberg
. . . .
Since 2003, some of the world’s biggest financial companies, including Goldman Sachs Group Inc., U.S. Bancorp, JPMorgan Chase and Prudential, have taken advantage of a federal subsidy that will cost taxpayers $10.1 billion -- and most of the public has never heard of it.
Investors have used the program, called New Markets Tax Credits, to help build more than 300 upscale projects, including hotels, condominiums, office buildings and a car museum, on streets far from poverty, according to Treasury Department records released through a federal Freedom of Information Act request.
Money spent on high-end development could have been used to build more than 1,000 job-training centers, medical clinics and schools. The program, endorsed by Republican Senator Rick Santorum and House Speaker Dennis Hastert and adopted by Congress, was signed into law by President Bill Clinton in 2000.
Building high-end commercial projects goes against the intent of the New Markets program, says Cliff Kellogg, a former senior policy adviser at the Treasury Department who helped design New Markets.
. . . .
Goldman targeted tracts on the upswing in Pittsburgh and Portland, Oregon, when the firm got its first New Markets investment authorizations in 2002. In Pittsburgh, $30.5 million of a $75 million Goldman investment authorization went to a shopping center in the East Liberty neighborhood.
The mall’s tract was in the midst of recovery with city renewal efforts that had already helped lure a Whole Foods Market Inc. grocery store.
Fees: $9 Million
Goldman brought in PNC Financial Services Group Inc., the sixth-largest U.S. bank by deposits, to help finance the project. PNC invested $30.5 million in equity and loans to receive $11.9 million in tax credits. The subsidy was $1.3 million more than PNC’s cash investment of $10.6 million.
Banks, lawyers and consultants took fees totaling $9 million -- 28 percent of the total project cost of $32.7 million, according to city records. Goldman’s share, for overseeing the project’s finances, will be $1.6 million over eight years, according to Goldman spokesman Stephen Cohen.
The tract had an individual poverty rate of 20 percent as of 2000, just enough to qualify. Family poverty was at 10 percent.
Read the full article here