World Business Chicago: Helping the masses or just a few?

by Jamie Netznik November 6 2011, 16:29

 

Chicago, Illinois… ever heard of it? Apparently their mayor, Rahm Emanuel, doesn’t think enough businesses have, or at least seriously consider it as a place to set up shop. Incorporated in 1999, World Business Chicago (“WBC”), a city-funded nonprofit group, is the city’s economic development office, tasked with the duties of “coordinating retention, attraction and expansion efforts in order to spur and accelerate economic growth.” Emanuel has taken a specific interest in this office, roughly tripling its size since his election this past May. Wanting to stimulate Chicago’s and Illinois’ economic growth is warranted. You may have seen the “IL: Deadbeat State” headlines highlighting debts totaling $200 billion.

Despite such need for economic growth, Chicago’s Inspector General has been skeptical of the WBC, even suggesting in the 2011 Budget Options to eliminate the $1.4 million city subsidy the WBC receives. This article explores the three reasons the Inspector General has proposed cutting the WBC: 1) leaders of the city’s largest corporations should not have control over public funding and use of taxpayer dollars; 2) secrecy of WBC meetings and minutes makes it difficult to determine if Chicago receives any benefit by subsidizing the WBC; and 3) public funds should not be used to subsidize large, multinational corporations furthering their own business plans.

The leaders of the city’s largest corporation make up the Board of Directors for the WBC; giving them authority over how public dollars are used to assist other businesses may not ensure the best use of taxpayer dollars 

Mayor Emanuel appointed a 48-member board full of presidents, CEOs, founders, and chairmen of the top businesses in Chicago (i.e. Walgreens, Allstate, and Boeing). Along with their impressive credentials, board members are also quite generous having donated a combined $1.2 million to Emanuel’s campaign with an additional $1 million coming from board members’ employees and spouses. Emanuel appointed these business leaders because he “wants to leverage their global networks and strong business acumen on behalf of the city.”

The operation and authority of the WBC board is not transparent because WBC board meetings are held behind closed doors and board minutes are unavailable. To explain this, Emanuel said at a news conference “If I told them all the meetings were going to be public, guess what, we wouldn’t have real companies coming here to expand.” Emanuel went on to reason that businesses want this privacy because they don’t want competitors knowing what they are up to. Agreeing, WBC’s Vice Chairman Michael J. Sacks echoed Emanuel’s statement about the need for WBC’s operations to be private but stated the WBC has already agreed to be transparent about their general activities, “to bring jobs to Chicago and increase the economic vitality of the city.”

At least one of those “general activities” has garnered some scrutiny from the public.  The WBC has control over Chicago’s “Incentive Programs” which give government money to “encourage businesses to expand or locate in the area.” For example, in 2009, CME Group was given $15 million to help renovate their corporate headquarters and trading space in return for them retaining “no less than 1,750 jobs over ten years” and creating 900 new jobs by the end of the decade. The Inspector General criticized the WBC for this subsidy explaining that there was a conflict of interest given the chairman of the CME Group’s role on WBC’s board of directors. That same year, WBC failed to disclose that United Airline’s CEO sat on their board when the company, at the recommendation of the WBC, received $35.5 million in “city incentives” to relocate its headquarters to Willis Tower.

Also of concern to the Inspector General is the Tax Increment Financing Program (“TIF”), funded separately from the WBC, which encourages businesses to invest in areas of Chicago possessing “numerous blighting factors.” (An interactive TIF and Incentive Program map filter can be found here.) Currently, the TIF approval process starts with corporations applying for TIF funds. Then the WBC reviews the applications and submits letters of recommendation to the city for the corporations they deem worthy of such funding. In turn, the city relies on these letters as evidence of community support for the proposed TIF projects, though any actual community support outside the WBC is absent.

There are a few conflicts of interests the Inspector General notes. First, WBC is dependent upon the city for most of its funding, and as such is not an independent organization. Second, WBC does not thoroughly analyze the merits of the TIF proposals for which it advocates (it is unclear how the Inspector General knows this absent public meetings or minutes). Third, and most compelling, WBC directors each owe a fiduciary duty to their own companies creating an apparent conflict of interest in WBC’s assessment of TIF proposals. Along with the CME Group and United Airlines subsidies, these potential conflicts of interest seem to be a worrying trend. Additionally, if there is a merited TIF proposal, by American Airlines for example, how would that play out at a WBC meeting with United’s CEO on the board? I guess we’ll never know as long as these meetings are held in secret.

Allegedly, Emanuel is cognizant of the conflict of interest problem caused by the WBC Board’s assessment of TIF proposals.  He is said to be setting up an oversight board with authority over these TIF proposals; however, it is unclear whether this oversight board would to police the TIF proposals, the board membership, or both.

Because of the secret meetings and minutes, it is hard to determine how Chicago and its citizens actually benefit from the WBC 

Mayor Emanuel and WBC Vice Chairman Sacks have been clear about the need for secrecy when it comes to WBC meetings and minutes. Such a policy creates skepticism and uncertainty about what the WBC actually accomplishes and how its actions benefit the public. The “Successes” link on the WBC webpage provides an impressive list of economic activity in Chicago as evidence of what the organization has accomplished. Upon review, however, any specific reference linking the described economic success to WBC is absent. The fact that this city-funded organization, created to stimulate economic growth, cannot easily point to what they have done is problematic.

However, Mayor Emanuel has stated that 8,000 new jobs have been created since he took office. Five companies affiliated with the WBC are partly responsible for those jobs. No word on whether any city incentives were given out or had any impact on the job creation. Additionally, how those five companies, or any companies contributing to the 8,000 jobs were brought in or influenced by the WBC is not clear. Perhaps in cases like these, it would not hurt the WBC to make statements reciting a specific correlative effect between job creation and WBC actions.

Chicago should not use public funds to subsidize individual, sometimes large and multinational, corporations, to achieve their corporate goals

The services the WBC provides are navigating site selections for businesses, providing economic and industry data, site location assistances and state and local incentive information. Of the three arguments the Inspector General puts forth, this one seems to be the weakest. It is the norm for major cities to offer resources to businesses thinking about relocation. Philadelphia has a Business Services website which gives access to information on developing business plans, financial plans and marketing plans. The website also offers a helpful link for understanding their city’s business regulations in addition to obtaining business permits and registering business ventures. New York and Los Angeles have similar websites.

Regardless, whether the exact practices of the WBC are the norm in other major cities is another story. The weight and authority given to recommendations by the WBC for handing out government money can be a serious concern. Heading into 2012, with a city budget $636 million in the red, Chicago might want to further scrutinize the funding they give out, especially to these large, fiscally-secure corporations. For the funding the city does provide, public disclosure of reports showing how the city will benefit from the initiative would likely put those concerns to rest.

Solutions

It is clear Chicago needs something to ignite their economy again, and Rahm Emanuel can be the mayor with the vision to do it. He has been proactive in creating jobs since taking office, and there is little doubt he will continue to do so. The skepticism and concerns surrounding the WBC are understandable, but with a few fixes, Emanuel can restore public confidence and trust in the program, as well as Inspector General approval for the WBC.

First, for all TIF recommendations, the WBC should clearly note any perceived or potential conflicts of interest in their recommendation to the city. Accompanying that recommendation, financial reports should also be drawn up by a qualified, independent and impartial party, detailing the recommended subsidy and the projected cost and benefit for both Chicago and its citizens. A projected cost in the millions may seem daunting and inflated as a subsidy, but once the numbers are reported and explained it could be shown as a sound choice for the use of taxpayer dollars. If the subsidy that benefits a business would also allow for more economic gain for the city, a subsidy would be beneficial for Chicago. Additionally, if there are two competing TIF proposals, these reports should serve as the tiebreaker needed to make the recommendation to the city. Furthermore, a financial report drawn up for competing companies that the WBC Board did not recommend, could serve as a public “watchdog” to oversee that the Board is not abusing their positions by giving their companies an unfair advantage over others. In the alternative, if there is a conflict of interest with a competing company the financial report could be sent in to the city itself for approval.

Second, while preserving the “privacy” and “secrecy” of WBC meetings, and in the spirit of transparency, the WBC should release their minutes to the public immediately after each meeting. The content of these notices can redact sensitive information as needed, preserving the anonymity necessary to prevent scaring the “real” businesses away. This move would restore a lot of taxpayer confidence by showing them what their tax dollars are being used for.

There are other measures that could be taken, but these two would be a good start. Hopefully at the board’s meeting on November 4th, some of these problems will be addressed. Who knows? Maybe they will strike that balance to attract “real” companies while not finding themselves on the proposed budget cut list by the Inspector General.

 

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