It’s been fascinating to watch how the media has covered the fact that Ron Johnson’s plastics company, Pacur LLC, benefitted from government-issued industrial revenue bonds back in the 1980s. Johnson has campaigned against any subsidies, saying the market and not government should pick winners and losers. “I’m in business,” Johnson has declared. “I have never lobbied for some special treatment or for a government payout.”
The story of how the Oshkosh Common Council awarded the bonds to help the company finance an expansion was first reported by Madison TV station WKOW last Wednesday and quickly picked up by Milwaukee Journal Sentinel reporter Don Walker. Walker’s terse story read like he was walking on eggs, but it didn’t matter: All kinds of anonymous commentators jumped all over him and the JS, claiming this was not a story and accusing Walker of bias.
Two days later, the Associated Press did a longer story that reported Johnson’s company actually benefitted from two awards of IRBs totaling $4 million. The story noted that IRBs are tax-exempt, which lowers the cost of repayment for a company like Pacur, typically reducing the annual interest by 1.5 to 2.5 percent. Investors willingly buy a bond that pays less interest because it’s tax-free, meaning Pacur pays less interest because the taxpayers have subsidized the transaction.
By Sunday, the JS published a story by Walker on Johnson’s campaign with a small update near the end on the IRB controversy. It skipped some of the details from the Associated Press story – like how much this reduced the cost of the loan for Pacur. The short item mostly allowed Johnson to insist he hadn’t gotten special treatment.
But of course he did. Not every company that expands is issued IRBs by a local government. Typically, a city does this because it was asked to do so by the company – or because the company threatened to move elsewhere. So I asked Sara Sendek, spokesperson for Johnson’s campaign, how did it happen that the Oshkosh Common Council voted to award the bonds? “I don’t know what the actual request process was,” she answered. “I know Ron and his brothers were the co-owners of the company. I don’t know the actual details.”
Yesterday, Democrats issued a statement estimating the tax-exempt bonds saved Pacur $1.1 million in repayment costs. When I asked Sendek about this, she referred me to a written statement from Johnson’s campaign, which says “no taxpayer money was involved” and “Pacur paid back all loans in full, with interest.” But with less interest because the bonds were tax-free.
This was crystal clear in reading the Associated Press story but not in the Sunday JS piece. Call the Associated Press more liberal or the JS more conservative, but as I’ve noted in the past, there is often a distinct difference in how they report these kind of politically charged issues.
But lo and behold, in this morning’s Journal Sentinel, Walker did another piece, in response to the Democratic press conference, that finally ran down all the details about the bond deal Johnson received. Why did the paper wait until five days after the Associated Press story ran? Your guess is as good as mine.
The Real Cost of High-Speed Rail
Rail transit wasn’t always such an ideologically charged issue. Paul Weyrich, the Racine-born “godfather” of the conservative movement, loved trains. Former Republican Gov.
Tommy Thompson championed high-speed rail in the 1990s. Local business groups often support rail projects. But increasingly the issue has pitted the left against the right, who can’t resist ridiculing the idea of spending money on “choo-choo trains.”I’m something of an agnostic. I’ve never believed light rail made sense for Milwaukee but have argued that high-speed rail from Milwaukee to Madison could have benefits. Whatever one’s views, the current campaign for governor is misleading us as to its actual costs.
Doyle has touted the fact that Wisconsin won an $823 million federal stimulus grant to pay for building the line. But the Republican candidates for governor, Scott Walker and Mark Neumann, have argued the money should be rejected and that it will require additional spending. Walker has run a commercial against “runaway government spending,” saying the state will have to spend $10 million a year on operating costs for the rail line.
That’s quite misleading. For starters, the state has estimated the annual operating costs at $7 million. But it’s quite likely much of this money will come from the federal Department of Transportation. Adam Collins, a spokesperson for Doyle, notes that the federal government now pays 80 percent of the costs of the Amtrak line from Milwaukee to Chicago, and the Doyle administration is negotiating with the federal government as to how much it will underwrite the Milwaukee-to-Madison line. Odds are the state’s operating costs for the line will be less than half of what Walker has claimed.
All transportation is subsidized. The state spends more than $2 billion annually to subsidize roads and highways and $66 million just on the Milwaukee County bus system.
What stands out about high-speed rail is what a small percentage of the costs will be borne by Wisconsin taxpayers. If Republicans try to kill it next year, they would leave state taxpayers repaying hundreds of millions in federal funds the Doyle administration will have spent by then. By far the cheaper alternative for state taxpayers is continuing with the high-speed rail line. The small state subsidy it will require seems a cheap way to better connect the state’s biggest city and its governmental center, not to mention connecting UW-Madison’s huge research institution and biotech industry with Milwaukee’s economy and academic institutions. Heck, it would also bring more Madison fans to Milwaukee Brewers and Bucks games.
The Buzz
-Is there any reason to think Walker won’t beat Neumann in the primary election next week? Neumann had initially suggested he would tie Walker to Milwaukee and its woes, which might have been an effective advertising strategy outstate, but he seems to have gotten cold feet. Increasingly, he’s been unwilling to challenge Walker on anything. Pretty hard to win an election that way.
-Any doubt about the continuing clout of the Journal Sentinel was quickly dispelled last week as its series of stories criticizing governance of the Milwaukee County Mental Health Complex forced Walker to suddenly embrace the building of a new facility – after opposing this idea for years. Twelve of 19 supervisors joined Walker in support. But as NewsBuzz reports, their rush to do so may be bad public policy.
-Pressroom Buzz reviews WUWM's new funding approach: asking donors to pay for more reporter positions.
-And is Brett Favre actually doing a favor for the Green Bay Packers? The Sports Nut explains why the Pack should be grateful.
9 Comments
You are right. Johnson took a targeted tax break. So did the purchaser of the bond. Johnson should admit this and hold it up as a shining example of what ridding the free market of taxes does for a community.
You are saying that if the government lowers capital gains taxes (or eliminates them), it reduces the costs of loans to private companies. This is an amazing concept.
Lets do a little more digging here and find out what was done with the $4 million dollars loaned to Pacur. My bet is that equipment was bought (read: personal property taxes), more plastic products were produced (read: exports, tarriffs, an influx of money from outside of the region). Maybe a new factory was built (read: real estate property taxes). Im sure some new employees were hired (read: income taxes, FICA, etc), those new employees probably bought stuff with their new salaries (read: sales taxes, more tips for waitresses, more money spent on the local economy).
Follow the money. Lowering capital gains taxes allows for more INVESTMENT in our economy. It brings jobs, exports, new technology, and a wealth of additional taxes that the government can collect. In the end it is a win win for everyone (that is why lowering taxes can actually increase tax revenues).
Instead of the "gotcha" reporting why dont we have a real, in depth debate about how we get out of this mess as a country.
Having a multi-faceted transportation system makes a great deal of common sense. The same people that scream about spending money on rail/mass transit are most likely the same supporters of the invasion of Iraq (what a huge mistake). I would much prefer my tax dollars spent in Wisconsin and the USA.
Cost of the war $744 Billion
www.costofwar.com
Instead of trying to create an issue out of nothing. Why not focus your efforts on the reckless spending in the public sector by the Democrats. Compare the minuscule amount of taxes that were not paid in order to stimulate a private company to the wasteful stimulus spending that will have no lasting or meaningful benefits to the economy. A successful company that provides all the benefits to the economy Jim listed above.
Now I feel bad. Bruce Murphy is just back from vacation rested, refreshed and raring to go. But what do us readers get? The same old liberal dogma Bruce sprouted before he went on vacation. A case in point is when Bruce states:
“Investors willingly buy a bond that pays less interest because it’s tax-free, meaning Pacur pays less interest because the taxpayers have subsidized the transaction.”
No, no no Bruce!!!!! Only in your liberal world is something that is not taxed, referred to as “subsidized” by the taxpayers.
I guess I was naïve to expect Bruce would have a conservative awakening on vacation. But, I keep hoping.
(P.S. Bruce, vacation in Utah during the ski season. Trust me…a lot of lefties out there!)
Bruce, when you mention that "much of this money will come from the federal Department of Transportation" and "All transportation is subsidized", where are you suggesting those funds come from? You're an intelligent guy- I know that you understand that those dollars are provided by taxpayers, the government's primary source of revenue. It is disingenuous to suggest that the operating subsidies for the train are somehow not a waste of money because they come from federal taxes rather than state or local taxes. However, the math is clear- even at 10 million per year, we could operate the train for 30 years more cheaply than paying back $300 million immediately- but fault there lies with Jim Doyle. Spending the $300 million this year is unconscionable and immoral.
Someone please explain why Madison folks will take a $70 round trip to Miller Park or the Bradley Center for a game? Four people can hop in a car, when they want, and start on their way with no waiting. $280 on rail, 1/2 a tank of gas ($25?!) with the eminently more convenient car. And what's this, you can drive straight to the stadium and tailgate? Driving a car, its magic!
Similar for meetings in the respective cities. Cars are simply way too convenient.
Yeah, some drawbacks. Traffic (but will it take more time than waiting for a train and then waiting for a transfer to your destination?), and you have wear on the car and the hassle of driving, with the potential for an accident, but come on, weigh the options. No one is taking this train. This is not central Europe people. Trains are fabulous there, no question, trains are not fabulous here. For 280, I can drive, park, get four loge infield box tix (maybe loge diamond box and get waited on!), a case of Lite, brats, buns, chips, and still have enough to buy a round of 7 dollar beers inside.
When we talk of how expensive that train is, please remember that the equivalent highway also costs. It costs our gov't (state, feds, etc.) over $10 for _each_ automobile or truck that uses the rebuilt I-94. Which comes from our gasoline taxes. Since $10 is more than a car 'generates' in driving that short distance, all of us get to pay toward that $10 subsidy for that single ride. The cost of the land for the rebuilt I-94 was covered back when it was built otherwise the cost per ride would be much, much higher.
The only reason driving a car from Madison to Milwaukee is so easy is that us long suffering taxpayers paid to build the road, and pay to maintain it.
Mr. Johnson's company's use of a municipally backed bond _did_ save his company money, and _did_ help his bottom line. Since it was a gov't bond, it must have been guaranteed by one gov't or another, so a gov't _did_ foot a risk, even if in this case it was not used. For which I thank Mr. Johnson's company management and employees. Risk has monetary value whether exercised or not, as our major banking system institutions recently demonstrated.
And Mr. Johnson claimed that he had never made use of such gov't support. Guess he didn't remember. I'm sorry, now I have to ask what else he managed to dis-remember. Anyone who claims to be 'pure as driven snow' needs to prepare for the day we find out there is dirt in the snow drift.
But the bigger issue is, was these (effectively reduced tax) bonds possible on the commercial market without gov't backing? If so, why did the Company apply for it and the local officials approve it? Only if it was not a sound business decision as a commercial loan can anyone claim that a reduced cost bond has follow-on benefits that a reduced business tax would provide.
I agree that elected people are not great judges of business proposals - they are more interested in secondary effects like employment & economy. But Mr. Johnson's bonds suggest that the local commercial banks of the time were not such great judges, either. Unless the business value of the bond was on the order of the savings in interest - about 1%.
This reminds me of a County Board meeting in Hastings, Nebraska years ago. The head of the local economic development agency was on the board to talk about financing a new industrial park. He said it would be financed with "industrial development bonds."
The Supervisors, most of them farmers, got real quiet. The idea of borrowing any money is a touchy subject in Nebraska. The state famously built its new capitol around the old one so they didn't have to borrow money to build it and could stay in the existing structure for the duration.
Realizing the problem, the development director said, "Oh, no. You don't understand. This won't cost you anything. It's all federal money."