- 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, 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. JP Morgan Chase the second-largest U.S. bank by assets, also took in money by serving as a lender and the monitor of Blackstone construction financing.
- Since 2003, some of the world’s biggest financial companies, including Goldman Sachs Group, 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.
Essentially, a program was devised late in the 90s that was supposed to help poor communities. The guideline was individual poverty of 20% or greater, based on census tracts. But the 'best and brightest' we have to offer figured out incredibly shrewd ways to develop luxury developments by (for example) finding census tracts where say many college aged kids live because after all, many have poverty wages (or none at all). This is "God's work" as I understand 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. 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.
- The agency bases decisions on census tracts, which are supposed to have common economic standards. Only tracts with at least a 20 percent poverty rate or with a population earning 20 percent less than the median family income of the surrounding metropolitan area qualify for subsidized projects. The numbers are from the 2000 census.
- 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.”
It's not about "intent" Mr. Kellogg - it is about loopholes baby. Please notice where Mr. Kellogg landed after doing "God's work" inside the Treasury.
- The 15-block tract that’s home to the renovated Blackstone -- census No. 3206 -- qualifies because it had an individual poverty rate of 26 percent in 2000. A closer look at the demographics tells a different story and shows how investors can game the system. The poverty profile reflects the large number of students who attend two schools -- Columbia College Chicago and Roosevelt University -- in the area. Among families, the poverty rate is just 3.9 percent, according to the census.
- Three miles (5 kilometers) west of the Blackstone, there are no hotels, banks or supermarkets in a census tract in the Kendrie Avenue neighborhood on Chicago’s West Side. Area unemployment there was 35 percent in 2000. The neighborhood, dotted with abandoned homes and trash-strewn lots, languishes without money from New Markets. (I assume no one in this tract could afford $699 a night hotel rates? If not - JPMorgan and Prudential cannot be bothered with taking taxpayer's money)
- The program’s standards open up some of the nation’s wealthiest areas to development, according to Treasury records. Taxpayers have subsidized projects in tracts with median family incomes as high as $200,000, records show.
- “The way the rules are written, it’s allowing a kind of cherry-picking by financial institutions to find favorable census tracts,” says Virginia Parks, a social services professor at the University of Chicago. “It’s so easy to qualify that all you need to do is hire a good demographer. It’s not rocket science.”
The rest of the story goes through various examples of projects "to help poor communities". They are all quite enlightening but please don't read it on a full stomach - some of it might regurgitate. Here is one I particularly liked since it showed the type of thinking that we do not need in our math and sciences, and instead is fantastically located in our high finance oligarchy.
- In Tacoma, Washington, investors found a way to get New Markets handouts in an area with just a 1 percent family poverty rate. U.S. Bancorp and two other investors used a $34 million Treasury authorization in 2010 to finance construction of an antique car museum. The museum, which will house the private collection of Harold E. LeMay, a deceased trash-hauling tycoon, needed creative financing to fit New Markets rules.
- Companies that operate mostly by exhibiting art or other items don’t qualify for New Markets. To get around the restriction, Minneapolis-based U.S. Bancorp and its partners set up a related company in 2010 to acquire the assets from the museum and then lease back the property. The new company, America’s Car Museum, qualified because a loophole in the rules allows galleries to get New Markets money by using affiliated corporations. (now that's innovation!) The maneuver allowed U.S. Bancorp, which invested a total of $34 million in cash or loans with development partners, to win $13.3 million in tax credits.
- As a result of the deal, federal taxpayers will pick up 39 percent of the cost of erecting a $34 million shrine housing 500 of LeMay’s cars in a mostly commercial tract with a 24 percent individual poverty rate. (you're welcome! I assume I still have to pay full price to get in? Or do I get 39% off since I helped pay for it?)
I love reading stories like these - good ole investigative journalism. And for every one the press uncovers we can imagine there are 100s more very much the same that will never see the day of light.