Rant Of The Day!

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A friend pointed me to this article today, which notes that tax credits intended to spur economic growth in poorer areas are being misused to build luxury hotels in more affluent neighborhoods:

The landmark Blackstone Hotel in downtown Chicago, which has hosted 12 U.S. presidents, opened in 2008 after a two-year, $116 million renovation. Inside the Beaux Arts structure, built in 1910, buffed marble staircases greet guests spending up to $699 a night for rooms with views of Lake Michigan.

What’s surprising isn’t the opulent makeover: It’s how the project was financed. The work was subsidized by a federal development program intended to help poor communities.

The biggest beneficiary of taxpayer help for the Blackstone revamp was Prudential Financial Inc., the second-largest U.S. life insurer. The company got $15.6 million in tax credits from the U.S. Department of the Treasury for helping to fund the project, according to Chicago city records, Bloomberg Markets magazine reports in its March issue….

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.

“Things like luxury hotels are entirely contrary to what we set out to do,” says Kellogg, who’s now a bank consultant. “Some hotels may create jobs and spur other nearby investment, but you have to ask if these projects prevent worthwhile ones from getting done.”

This doesn’t look good at all. Yet, when I read this “Money spent on high-end development could have been used to build more than 1,000 job-training centers, medical clinics and schools.”… I have to shake my head. Jobs training? Really???? For what jobs???? I can’t believe people fall for this. You get into debt to train for a job, and then, when you’re done… Guess what… You find out there are either no jobs in the field that you studied, or the pay possibilities are much lower than advertised. Now they are stuck with huge student loan debt and can’t pay it back. I have several friends who are in that boat.

Existing medical clinics are closing all around the country. OK. building more will provide some construction jobs, but will that new, more expensive (including rent) clinic be able to stay open when older less expensive ones can’t?

Schools… What good are schools if the states can’t afford to hire teachers and will more than likely be laying more off in the next couple of years (hello California).

This all comes back to good governance. Granted, it doesn’t matter how hard you try and prevent it, there are always going to be loopholes that allow for this kind of misuse and abuse of aid… be it Federal, State, or even the privately variety. When you read the article, it appears the banks and financial institutions in question took advantage of flaws in the program. Some went outside the intent, but didn’t AFAWCT, violate any rules. Others clearly gamed the system (the art museum in Tacoma).

So, the question is… Will anyone bother to correct the flaws in this program, and will anyone try and get some of this money back??? That would take some work, and I doubt, given the amount of bank cash and lobbying common in Washington, that much time will be spent on this.

My bet… Nothing will happen and this just fades away.

2 Comments to “Rant Of The Day!”

  1. By Jeff Alberts, February 9, 2011 @ 3:41 am

    “there is always going to be loopholes”, should be “there are…”

    I’m more outraged that they could bring themselves to come up with a round number for the price of the hotel room.

  2. By Jeff Alberts, February 10, 2011 @ 1:58 am

    Arghh! That should have been “that they couldn’t bring themselves”…

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