William Patrick, Author at Florida Politics

William Patrick

Florida’s economic development efforts are ‘underperforming’

Florida’s state economic development efforts are “underperforming,” according to a new legislative report.

An undesirable label by any standard, critics and lawmakers already skeptical of providing taxpayer support for private businesses are likely to seize on the bureaucratic euphemism and underlying findings to bolster their anti-incentives position ahead of the March state legislative session.

The Office of Program Policy Analysis and Government Accountability, a nonpartisan legislative research office, conducted a comprehensive review of Enterprise Florida Inc. and the Department of Economic Opportunity —the state’s two most prominent development organizations— and found the results of their economic development activities wanting when compared with other states.

The analysis spans 10 years and focuses on job creation in targeted industries as well as economic growth. These two areas are the main justifications for awarding taxpayer-funded subsidies to selected businesses, and for their proponents’ significant annual funding requests.

In the report, auditors compared Florida to seven competitor states with tax-incentive agencies and programs: Alabama, California, Georgia, New York, North Carolina, Tennessee and Texas.

Overall, from 2006 to 2015, Florida experienced job growth in only two of six targeted industry sectors, management of companies and enterprises, and professional, scientific and technical services. The state ranked third and seventh in the job categories, respectively, when compared with the other states.

Additionally, Florida ranked fourth out of the eight for high-wage job creation in manufacturing, sixth in both wholesale trade and finance and insurance, and seventh in information services.

“Further analyses showed little or no employment growth in these industries relative to the nation,” the report said.

Texas, a state often compared with Florida because of their comparable size and rapid growth, received first place rankings for employment in five of the six tax-incentive targeted industries.

The report also compares Florida with its competitor states according to several economic indicators commonly used in studies that examine state economic outlooks and business climates — gross domestic product, GDP per capita, unemployment rate, and personal income.

Florida fared best in the area of unemployment, with the third-lowest rate in 2015. However, among large states in the competitor group, New York and Texas outperformed Florida on all four measures, and California outperformed Florida on three measures, auditors determined.

On the whole, Florida ranked fourth out of eight states in economic terms, besting North Carolina, Georgia, Tennessee and Alabama.

‘Lack of marketing’

Beyond jobs and economic growth, the review highlighted a major flaw with respect to Enterprise Florida’s financing, and noted the stark lack of incentive assistance directed toward small, minority and rural businesses.

According to the report, private-sector cash investments “represent a very small portion of Enterprise Florida’s overall budget.”

However, state law requires that the public-private partnership obtain private-sector financing in the amount equal to its taxpayer appropriations, but it never has — and it’s not even close.

Established in 1996, Enterprise Florida was supposed to achieve public-private match funding by fiscal year 2000-01. It didn’t, and it hasn’t grown its private funding resources over the past decade.

“Private sector cash contributions during OPPAGA’s review period rarely exceeded $2 million, while state appropriations averaged about $20 million per year,” the report says.

Auditors added that by investing $122 million of incentive funding — money committed but not yet spent — in a state trust fund instead of a commercial escrow account, the state could double that return, adding another $2 million to the pot.

Whatever its source, very little of the money is going to small businesses.

Although 96 percent of state businesses employ fewer than 50 employees, auditors found that most state-level economic development programs, particularly business incentives, benefit large companies.

The report says a “lack of marketing may affect participation.”

More glaring is the low rate of participation in the state’s Black Business Loan program, which made only 12 active loans in fiscal 2015.

Participation in the Rural Community Development program has been even lower. Since 1996, the program has made only 17 loans, or just one loan every two years.

Gov. Rick Scott and House Speaker Richard Corcoran, both Republicans, are currently at odds over the future of Enterprise Florida. Scott wants a new $85 million appropriation. Corcoran helped block a $250 million funding attempt in 2016.

Corcoran is on record saying that if he could, he’d abolish the quasi-state agency.

Last year alone, state officials appropriated $1.08 billion to Enterprise Florida and the Department of Economic Opportunity. All but $25 million went to DEO.

Enterprise Florida coordinates its economic development partnerships with the department, which in turn collaborates on development contracts and acts as the contract manager for Enterprise Florida incentive agreements.

A House legislative discussion is scheduled for Wednesday at the Capitol, where lawmakers will “review the return on investment” for Florida’s economic incentive programs.

Under Donald Trump, Florida’s premium cigar industry could escape job-killing FDA regulations

On the verge of being snuffed out by Obama administration regulators, Florida’s traditional and culturally distinct premium cigar industry has a chance at new life.

Late last week, U.S. Rep. Mark Meadows, R-N.C., the incoming chairman of the conservative House Freedom Caucus, met with President-elect Donald Trump and submitted a list of 232 items that could be repealed immediately after Trump’s Jan. 20 inauguration.

“We must undo Obama’s harmful regulatory regime that has hurt hardworking Americans across the nation,” the group said in language akin to Trump’s campaign rhetoric.

One item in the report entitled “First 100 Days: Rules, Regulations and Executive Orders to Examine, Revoke and Issue” recommends stripping the U.S. Food and Drug Administration of its authority to regulate tobacco products.

The move could save at least 2,600 Florida jobs currently at risk and spare many businesses, according to Mark Pursell, CEO of the International Premium Cigar and Pipe Retailers Association.

Progressive-liberal firebrand U.S. Rep. Alan Grayson, D-Fla., who’s no fan of Republicans, urged the executive branch agency to back off premium cigars when it first began targeting the industry through a proposed administrative rule in 2014, but to no avail.

In a letter to FDA Commissioner Margaret Hamburg, Grayson said that “the premium cigar industry is responsible for employing an estimated 20,000 Americans, and realizes almost $2 billion in annual revenue.”

The incoming Trump administration could extinguish the economic hardship on Day One, according to Meadows.

Under Obama, the FDA launched an aggressive crackdown on tobacco and began treating cigars the same as cigarettes.

According to the agency, the restrictions are necessary to reduce “death and disease” from tobacco products, and the “dramatic rise in youth and young adult use of tobacco products such as e-cigarettes, waterpipe tobacco, and continued youth and young adult use of cigars (mainly cigarillos).”

Others see it differently.

“Premium cigar retailers already institute a wide range of controls to prevent youth access to these cigars, and all the taxation, labeling and testing requirements that FDA has instituted will accomplish is limit the diversity of products on the market, curtail innovation and raise prices,” Pursell said.

The FDA’s restrictions also ban free tobacco samples, institute new manufacturing equipment standards and abolish the delivery of cigars to American military service members overseas.

Last week’s Freedom Caucus report said: “the threat of FDA restrictions has loomed over the cigar business ever since the FDA took control over cigarettes.”

In 2009, a Democratic-controlled Congress amended the Federal Food, Drug and Cosmetic Act to include the Family Smoking Prevention and Tobacco Control Act, giving the FDA sweeping authority to regulate tobacco. President Obama signed it into law in June 2009.

What started as a harsh focus on cigarettes expanded into a harsh crackdown on all forms of tobacco — something even Grayson, a staunch liberal, considered mission creep.

“Premium cigars should not be subject to FDA regulation,” he said five years after supporting the FDA oversight legislation.

“I urge the FDA to exempt premium cigars from the proposed regulation, consistent with Congress’s intent when passing the Family Smoking Prevention and Tobacco Control Act, for which I voted personally,” Grayson said.

Premarket review

“The worst fear of cigar manufacturers and smokers alike has been that the FDA will impose the same onerous premarket review requirements on cigars that it currently places on cigarettes,” the Freedom Caucus report said.

That fear became a reality in August, when the FDA implemented a finalized rule two-years in the making requiring new tobacco products, as well as those made since February 2007, to undergo an expensive premarket review process, or as the administration defines it, “rigorous scientific review.”

Altering the size, shape, packaging and blend of any cigar product also triggers government approval.

“This process requires that manufacturers prove their products meet certain requirements before they can go to market by submitting hundreds if not thousands of hours of paperwork per product,” said Azarias Cordoba, owner of Córdoba and Morales Cigars, near Orlando.

“Since the FDA defines new cigars to include new blends, which can change seasonally for smaller manufacturers, the compliance costs could overwhelm many small-cigar businesses,” he said in an op-ed co-written by Chris Hudson of Americans for Prosperity.

According to Cigar Aficionado, an industry publication, the FDA confirmed in May that new product applications could “cost hundreds of thousands of dollars” per application. As a result, manufacturers effectively would be paying the government to regulate them out of business.

“That’s part of their game,” Eric Newman, president of J.C. Newman’s Cigar Co., a 121-year-old family business, said of the outgoing administration’s enormous new fees.

“Cigars are to Tampa what wine is to Napa Valley and what automobiles are to Michigan,” Newman said when U.S. Sen. Marco Rubio, R-Fla., visited his Tampa factory three weeks before the Nov. 8 presidential election.

Newman’s Cigar City Co. is facing $2.5 million in new compliance costs that would have to be, in part, offset by laying off up to half the factory’s workers, he said.

“Anyone that has common sense knows that a premium cigar is simply not consumed the same way a cigarette is,” said Rubio. “It’s not a public health threat.”

Speaking in both English and Spanish, Rubio said he hoped a bipartisan bill, sponsored by U.S. Sen. Bill Nelson, D-Fla., to exempt premium cigars would pass Congress before the end of the year. It won’t, just as several other attempts previously failed.

The Obama administration added insult to injury for Florida’s cigar producers and workers in October, when it announced in that Cuban cigars are now allowed in the United States as a result of the administration’s outreach efforts to the communist island government. But the new tobacco requirements won’t apply to Cuban tobacco products.

Cordoba, a Cuban-American, said his family business was once taken when Fidel Castro’s regime shut down factories across Cuba.

“I admit that the FDA’s actions are far less extreme than that of Fidel Castro. But the sting of government control over the economies and lives of people comes at a high price: the possible loss of a thriving business,” he said.

Via FloridaWatchdog.org.

Millions in taxpayer incentives later, Office Depot leaving business-friendly Florida

Office Depot is packing up its corporate bags and shipping out of the Sunshine State, but not before scoring millions in state and local taxpayer incentives.

The Boca Raton business giant announced this past Wednesday that Staples Inc., its chief office supplies competitor, is buying the Fortune 300 company and moving its South Florida corporate headquarters out of the state.

It’s unclear exactly what the future holds for its 2,000-plus employees. Florida Watchdog contacted Staples but did not receive a return response.

Just 14 months ago, Office Depot was awarded a state and local government incentive package worth $5 million — about $3 million from the state that has not been paid out, $1.5 million from the city of Boca Raton and $500,000 from Palm Beach County.

All it had to do was stay put in its existing corporate facility.

Months later, however, the company was ripe for acquisition.

“Staples began discussions to acquire Office Depot in (September) 2014,” an Office Depot statement says.

Now, the company is all but gone. Only shareholder approval of Staples’s generous offer and an antitrust regulatory sign-off stand in the way of finalizing the deal. Office Depot says it should be completed before the end of the year.

The sale is great news for Office Depot shareholders who are set to receive a 44-percent return on the stock price (as of Wednesday). It’s even better for Office Depot CEO Roland Smith, who after little more than a year on the job will pocket a cool $9 million, according to Securities and Exchange Commission filings.

Ron Sargent, CEO of the Framingham, Mass.-based Staples, called the deal a “transformational acquisition” that will create a combined revenue stream of $39 billion.

Florida taxpayers, Office Deport-based Boca Raton employees and the local economy might not share his excitement.

In 2006, Office Depot scored a separate tax incentive package worth $4.9 million, $3 million of which it gets to keep.

Christopher Koopman, a research fellow at the Mercatus Center at George Mason University, said tax incentives are often short-sighted arrangements that leave taxpayers on the hook.

“Politicians grab headlines and give the appearance that they’re creating jobs, and businesses benefit because they’re getting the incentives,” Koopman told Florida Watchdog.

“Ultimately, it’s the taxpayers who lose because they pay for the incentives in the short-term and they pay for any consequences in long-term,” he said.

At the time Florida officials pledged the last round of incentives, Office Depot had merged with its rival office supplies competitor, Office Max. The sweetheart deals went a long way to keep Office Depot’s corporate headquarters in Florida, according to a company statement.

Florida, one of the lowest-taxed business-friendly states in the country was apparently competing with Illinois to land Office Depot’s corporate headquarters after the merger. Office Max was headquartered in Naperville, Ill.

It was the Sunshine State’s business “climate” that won the day, Enterprise Florida CEO Gray Swoope said in December 2013.

“Thanks to the business-friendly climate Governor (Rick) Scott created and our effective economic development model, a Fortune 300 company like Office Depot knows they can be successful in our state,” Swoope said. He did not mention the incentives at the time.

To be clear, all Office Depot did was stay in its existing 625,000-square-foot Boca Raton corporate campus rather than move to the corporate home of Office Max in Illinois.

An Illinois legislator told Watchdog.org at the time, “Government should not be picking winners and losers.”

“People are quick to blame the companies,” Koopman said. “It’s the politicians who are afraid that some other state is going to poach their businesses.”

Sometimes, it happens anyway.

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