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City budget eliminates small business support

Representatives of community-based economic developments groups will testify at the City Council’s hearing on the budget tomorrow (Wednesday, November 3, 11 a.m.), urging restoration of their funding in the mayor’s proposed 2011 budget.

The proposed budget entirely eliminates the allocation for its economic development delegate agencies program — $3.4 million, about the size of many individual developer subsidies from the city.  But that funds 112 neighborhood chambers of commerce and other groups that support small businesses in the city’s neighborhoods.

“More than half of the delegate agencies could be in danger of closing without city funding,” said Ellen Shepard of the Andersonville Chamber of Commerce.  “And the city has no plans to replace these programs.”

On shoestring budgets, the groups play a key role in nurturing small businesses and neighborhood vitality, helping new businesses get off the ground and existing businesses grow, and helping them access city programs and navigate often-burdensome city regulations.

They offer training programs, marketing initiatives and special events to promote local businesses.  (For a closer look at the work of delegate agencies across the city, see last year’s Newstip.)

When the city offered an amnesty program on fines and fees for business sign permits this year, it was delegate agencies that “went door-to-door and talked to every business that’s out of compliance,” said Kimberly Bares of the Rogers Park Business Alliance.

And although the city pays an outside contractor to administer its Small Business Improvement Fund, it’s the neighborhood groups that hold meetings to inform local businesses about the program and go out to solicit applications, said Bares.  “Without delegate agencies there would be no applications to process,” she said.

They work at a level of efficiency and cost-effectiveness that the city could never replicate on its own, Bares said.  A recent survey of 30 neighborhood economic development groups showed they’d assisted 9,700 businesses and impacted 75,000 jobs, Shepard said.

The groups met with officials of the city’s Department of Community Development this summer and received assurances that they’d recommend full funding in the next budget.

But when the budget came, funding was completely eliminated.  “There was no communication, no warning, no preparation,” said Bares.  “And the aldermen had no idea this was coming.”

The cut comes on top of an 11 percent funding reduction last year (down from a proposed 23 percent reduction) and a 7.5 percent cut the year before.  “The city doesn’t seem to understand the value of our services,” Bares said.

Budget planners are wrong if they think local businesses can step up to support these groups, Bares said.  Among their biggest donors are community banks and realtors, which have been among those hardest hit by the recession.

After objections from aldermen at a recent budget committee hearing, budget officials have said they’re “working on” restoring funds, “but it’s all still very vague,” said Doug Fraser of Alderman Mary Ann Smith’s office.

Using TIF funds

The city is planning to shift funding for 19 delegate agencies that support industrial retention to local TIFs.  “Given that the city’s in a budget crisis and these delegate agencies do TIF-eligible work” including site preparation and job training, “it makes sense to think about using TIF to fund us,” said Mike Holzer of the LEED Council, which has helped bring thousands of manufacturing jobs to the North River Industrial Corridor.

But not all industrial retention groups are located in TIF districts, and those that are often assist businesses outside the district; and not all of the groups’ activities are eligible for TIF funding, Holzer said.  In addition, he points out that TIFs have 23-year lifespans, and many are approaching expiration.

There are also indications that consideration is being given to funding other delegate agencies through TIF.

“They’d have to do some fancy footwork,” said Jacqueline Leavy, former executive director of Neighborhood Capital Budget Group.  Under state law TIF is not supposed to support operating expenses.

She recalls the effort by nonprofit job training groups to get funding under the TIF Works program (see 7-15-03 Newstip); the city argued funding could only go to training groups that were under contract to employers within a TIF district.  On the other hand, the city takes money off the top of TIFs to pay for salaries in the Department of Community Development.

One option would be hiring local nonprofit community development groups to administer TIFs, she said.

Bares points out that one TIF district in Rogers Park is in its last year of existence.

Shifting funding for neighborhood groups to TIF “would be a very complicated and temporary fix to address a tiny portion of the city’s corporate budget,” said Bares.

Bad jobs and rip-offs

A Consumers Union report warns that prepaid bank cards are “loaded with fees” and short on consumer protections, the Sun Times reported last week.  Most cards surveyed charged fees for card activation, withdrawals, paper statements and even for checking balances.

The prepaid cards are similar to the payroll cards with which many Chicago area warehouse workers are  being paid, as Newstips reported in August.  Workers say they have to pay fees to access their money, and that it’s difficult or impossible to make sure they’ve been paid for all their hours without a paystub.

Warehouse Workers for Justice thinks the arrangement could violate laws requiring pay stubs, and is investigating the possibility that the fees charged to use the cards could amount to wage theft, said organizer Abraham Mwaura.

It’s just one of many ways that vulnerable workers can be exploited.  A special report from American Prospect highlights another issue faced by workers in warehouses and in many other industries – the misclassification of regular employees as temps or as independent contractors.

At a UPS warehouse, one worker tells Harold Myerson of working for ten different contractors over a period of five years – doing the same job the entire time.  She’s still a temp.

The Department of Labor is studying regulations to guard against misclassification, but the federal government could also use its power of procurement to require contractors to improve conditions, particularly in port trucking and ground express delivery, write David Bensman and Molly Greenberg.

The misclassification issue is playing out at FedEx, where the feds could use the leverage of $1.5 billion in contracts from the Department of Defense, Bensman and Greenberg write.

In May, Illinois FedEx drivers in a  multi-state class action lawsuit won a summary judgment on their claim to be company employees under state law (pdf).  The drivers own their own trucks but must paint them with the company logo and can’t use them for other business; they’re required to dress in FedEx uniforms “down to the color of their shoes and socks”; and they “make pickups and deliveries on routes assigned by the company,” Bensman and Greenberg point out.

“The court found that FedEx Ground misclassified its [Illinois] drivers as independent contractors as an illegal means to avoid paying state unemployment insurance and workers’ compensation insurance,” they report.

In July, FedEx announced a $3 million settlement with Massachusetts over claims that the company’s misclassification of drivers cost the state revenues from payroll taxes, unemployment insurance and workers comp.

The Government Accountability Office has estimated that misclassification of employees as independent contractors results in a loss of $2.72 billion a year in unpaid Social Security, unemployment, and income tax, according to a new report by the National Employment Law Project (pdf).

The problem is large and growing in Illinois, according to a 2006 study (pdf) by economists at the University of Missouri-KC cited by NELP, which found that 19.5 percent of employers in 2005 were found to have misclassified employees as independent contrators, with misclassification rates up 55 percent from 2001.

Such misclassification costs the state hundreds of millions of dollars, according to the study.  Income tax revenue lost due to misclassification could be as high as $248 million for 2005, and misclassification cost the state’s unemployment insurance system $53 million (in 2005) and the workers’ compensation program $97.9 million (in 2004).  The cost of workers comp is the single biggest reason employers misclassify, according to the report.

That doesn’t include the costs to the state and federal government of the use of permatemps, a massive and growing employment sector offering lousy jobs.  And it’s just a portion the cost to the regional and national economy of economic development strategies focused on low-wage jobs.

It would be difficult to apply new regulations or contract provisions to warehouse workers who work as temps for subcontractors, says Meyerson.  He calls for strict enforcement of wage and hour laws – and recalls the labor department’s 1990s anti-sweatshop effort, which held large retailers accountable for labor law violations by their contractors and subcontractors.

In the Chicago area, though, WWFJ is exploring the possibility of structuring development deals to limit the use of temporary labor in warehouse complexes built using state subsidies, as the region’s shipping industry continues to expand.

Why not use economic development subsidies to promote good jobs?

Grading Daley on community issues

How will Mayor Daley’s record be judged on the issues that impact Chicago’s communities?  One primary source is a report card issued earlier this year by a coalition of community and civil rights groups, and it’s not particularly favorable.

The Developing Government Accountability for the People project rated the city’s record on a range of issues in March, giving an overall grade of D and finding that the city’s performance in several areas had declined since a previous assessment three years earlier.

On criminal justice, DGAP gave the city a D, citing the failure to institute an effective early warning system for abusive cops or to fund alternative crime models like CeaseFire.

On economic development, the city got a D, with the O’Hare expansion serving as “a prime example of the inequity and corruption that plagues economic development in Chicago: money is ill-spent and goes to the people who need it least.”  DGAP called for living wage protections for big box and TIF-backed development, and for stepped up funding for jobs, including TIF funding for summer youth jobs.

On education, DGAP gave the city a D+ and called for a moratorium on school closings and for support for LSCs.  On the environment the city got a B+, with DGAP calling for action on recycling and coal power plant pollution.

On ethics and corruption, the city got a D+, with DGAP calling for enacting Shakman Decree protections, making budget information transparent, limiting campaign contributions, and requiring public hearings and independent evaluations of privatization deals.

The city got an F on housing, with DGAP reporting that the CHA Plan for Transformation has been a disaster for many residents, and the city’s ten-year plan to end homeless has only two years left and “there is still no city investment in creating permanent housing for homeless people.”

On transportation, with CTA service cuts “exacerbating inequities in service provision across the city,” DGAP gave the city a D and called for a congestion tax, full accessibility on public transit, a new formula for RTA funds, and a commitment to the Gold Line and the Red Line extension “to rectify the huge transportation inequity on the southeast side.”

The report showed that “despite all of its efforts to beautify and modernize the city, local government does not adequately and equitably serve all of its communities,” said DGAP coordinator Michaela Purdue in a statement with the report’s release.

“Where residents have expected to be actively engaged in the implementation of equitable policies that benefit all residents in every neighborhood across the entire city, they have instead found themselves in a constant struggle against forces that ultimately exclude their voices from the democratic process,” according to the report.

The Mayor still has several months to get his grades up.

Company store: Pullman to Wal-Mart

Wal-Mart’s effort to move into Pullman invites a comparison of the 21st century company store with the 19th century version.

“The parallels are almost too obvious too mention,” said Jeff Helgeson, a Pullman resident who teaches labor studies at the University of Illinois-Chicago.  “There’s a sense in which [Wal-Mart] is very much like the model community of Pullman.”

Built by George Pullman as a planned community for workers at his railroad car plant, the town of Pullman was “celebrated internationally as a utopia,” but “within 15 years was the scene of one of the largest labor strikes in U.S. history,” Helgeson said.  He’s one of a group of neighborhood residents who’ve organized Labor Day celebrations to mark Pullman’s history.

Like Wal-Mart, the Pullman Company paid lower wages than other employers. (In 2004 a University of California-Berkeley study found Wal-Mart’s wages for non-managerial employees were 31 percent lower than the average retail wage; Chicago’s Center for Labor and Community Research estimated that Wal-Mart wages were $2 to $3 below those of its competitors.)

Both companies banned trade unions.  Both companies are known for spying on their workers to prevent any stirrings of organization.

The Pullman Company also owned every home, every store, every school, and every church in the town – even the town library – until the Illinois Supreme Court ordered the sale of all non-manufacturing property in 1898, ruling that company towns are “opposed to good public policy and incompatible with the theory and spirit of our institutions.”

A low-income cycle

Wal-Mart has commonly been called a “company store” because, in economist R.J. Eskow’s words at Huffington Post, “Wal-Mart lowers your living standards then sells you cheap goods that are all you can afford.”

“Wal-Mart has created and perpetuated a low-income cycle of worker/consumer,” said Al Norman of Wal-Mart Watch in an interview with Grist.  “Wal-Mart’s 1.5 million workers have to shop at the company store because they can’t afford to shop elsewhere. It’s a great closed-loop system, akin to a plantation where the field workers went to the company store with their day’s wages.”

“In a chilling reversal of Henry Ford’s strategy, which was to pay his workers amply so they could buy Ford cars, Wal-Mart’s stingy compensation policies…contribute to an economy in which, increasingly, workers can only afford to shop at Wal-Mart,” wrote Liz Featherstone in the Nation in 2004.

A couple years later Barbara Ehrenreich wrote of “signs… that Wal-Mart was beginning to be priced out of the reach of its own employees.”  Workers getting $8 or $9 an hour buy their clothes at thrift stores, she pointed out, and the store’s electronics and lawn and garden products “weren’t even on the distant horizon.”

In at least one other country, an old-school solution was attempted – company scrip.  But in September 2008, the Mexican Supreme Court ordered Wal-Mart’s Mexican subsidiary to stop paying its employees in vouchers redeemable only at Wal-Marts.  (The company called the program its “Social Welfare Plan,” according to one report.)

The court held that the practice was “similar to what happened in old company stores” that were outlawed by the constitution of 1917, Reuters reported.

Food stamps: a double boost

Another approach may be on view in Wal-Mart’s store on Chicago’s West Side.  Employees there interviewed by Chicagoist said “the company purposely cut worker’s hours [so they] can remain eligible for the Link Card,” the state’s food assistance program.

“There’s a lot of workers on Link,” says one employee, and when workers’ hours are cut, their Link Card allocation goes up.  And “shoppers that use their Link card at Wal-Mart include many Wal-Mart employees,” according to Chicagoist.

The use of public assistance programs like food stamps and Medicaid by underpaid Wal-Mart employees has long been an issue.  In 2004 California Assemblywoman Sally Lieber released Wal-Mart’s “Instructions to Employees” telling them how to sign up for food stamps and health assistance.  “Public assistance is very clearly part of the retailer’s cost-cutting strategy,” Featherstone wrote.

But with Wal-Mart supercenters now selling food – and accepting Link Cards – the company gets a double boost to its bottom line.

The old company store merely recouped the wages the employer had paid out.  In this innovative twist, the money paid by taxpayers to supplement Wal-Mart’s low wages can now be spent at Wal-Mart, contributing even further to the Walton family’s riches.

It gives an entirely new meaning to the term “corporate welfare.”

Pullman split on Wal-Mart

With a proposed Wal-Mart in Pullman on the agenda for Wednesday’s zoning committee meeting, public opinion in the community remains divided, as an unsuccessful effort to  win an endorsement by the Pullman Civic Organization shows.

It was only a week and a half ago, at a meeting of the civic group, that residents learned that Wal-Mart has signed a tentative agreement to anchor Pullman Park, a massive development project south of 104th Street and west of the Bishop Ford Expressway.

At the end of a long meeting, a vote in favor of the project was moved, but Wal-Mart skeptics won a vote to postpone a decision.

Buses are being provided for residents who support the Wal-Mart to come downtown for the zoning meeting en masse.

But some Pullman residents are asking how well the project has been marketed to other retailers, why economic development assistance isn’t flowing to small businesses in the area, and whether the rush to close a deal will foreclose an opportunity to impact Wal-Mart’s employment policies.

“They say nobody else is going to come but Wal-Mart, and we’d better take it or we won’t get anything,” said longtime Pullman resident Tom Shepherd.  “Why don’t we try a little harder?”

Developers have said that Jewel, Dominick’s, Target, Costco, and Ikea have turned down the spot.  But spokespersons for several of the companies told the Chicago Reader last week that they hadn’t been contacted.

David Doig of the Chicago Neighborhood Initiative told the Reader he’d worked through brokers, though reports on those contacts weren’t provided.  Alderman Anthony Beale told the Reader that he’d contacted retailers about a development at 115th and Michigan and assumed that if they turned that down, they wouldn’t be interested in Pullman Park.

Resident Ellen Garza would prefer to patronize small businesses, and thinks economic development should support that sector.  “Beale has done nothing for small business,” she said, mentioning commercial strips along 115th and 111th where “small businesses are limping along.”

“Where’s the economic development that would promote them and help them grow?” she asks, arguing that “small businesses help the community, make the community richer.” [Newstips explored this issue in 2006.]

Garza objects to the argument that any job is a good job, especially in economically-depressed minority areas. “Why are African Americans always treated like second-class citizens?” she asked.  “They don’t need unions, they don’t need a living wage, they don’t need benefits – it’s racist.”

“I think it’s a terrible idea to have a Wal-Mart in our neighborhood,” she said, calling the company “the worst employer on the face of the earth.”

Another resident, Jeff Helgeson, says Chicago has an opportunity to influence Wal-Mart. The company is “not a lost cause,” he said.  “They have changed – they stopped locking employees in their stores overnight, for example – and they did that in response to public pressure.”

“If they want to come into this market, they need to be kept to Chicago standards, not bring Chicago down to the level of other places,” he adds.  He’s afraid that “we might be giving in at a moment when we have some leverage.”

It’s been a long haul for the Pullman Park proposal since Park National Bank acquired the old Ryerson Steel site for $24 million in 2008.  A series of meetings seeking community input for development plans were held; PNB talked about building 1,000 single-family homes in keeping with the architecture of the Pullman Historic District, along with big box and smaller retail, a hotel, senior housing and a community center.

But the bank was seized by the FDIC last October and sold off to U.S. Bank, the nation’s sixth largest bank.  Not until this March did U.S. Bank announce that the PNB’s development efforts would be spun off in the Chicago Neighborhood Initiative.

“Park National Bank was really responsive to the community,” says Helgeson. “They were trying to do it without going to Wal-Mart. When U.S. Bank came in, suddenly Wal-Mart is the only option.”

Also subject to change is the financing of the project.  Before U.S. Bank and Wal-Mart, city financing through a new TIF zone passed last summer was said to be crucial to the feasibility of the project.  Now, according to residents who attended the presentation at the PCO meeting, developers say that phase one of the project – building the Wal-Mart store – will only use private funds.

This could avoid getting the project tangled up in the Finance Committee – or, perhaps, coming under the sway of a proposed ordinance that would require that beneficiaries of city subsidies pay a living wage.  Wal-Mart has consistently rejected such a requirement.

Wal-Mart “breakthrough” – or hype?

City Hall sources told Fran Spielman that “Wal-Mart has agreed to hold an unprecedented face-to-face meeting with organized labor,” and that got a front page headline suggesting a “Big-Box Breakthrough.”

But in the story, Wal-Mart’s Steven Restivo said company officials “have not made any commitment to meet,” and Jorge Ramirez of the CFL said a scheduled meeting had been called off, and Wal-Mart hadn’t yet rescheduled.

It wasn’t clear who had set up the meeting – or whether Wal-Mart had actually agreed to it in the first place.  The company has been completely consistent in refusing to discuss wages or benefits with anyone, ever.

It was only 9th Ward Alderman Anthony Beale who thought it was significant, calling the meeting (or the suggestion of a  meeting) a “huge” breakthrough, according to Spielman.

That remains to be seen – as does Beale’s repeated claims that he has the votes to win City Council approval for a Wal-Mart in Pullman.  He said so in February, in March, and in  April, even as he postponed presenting the matter to the Zoning Committee.

It’s worth recalling Beale’s 2007 boast to Mick Dumke that Wal-Mart would open in his ward within a year.

UFCW Local 881 President Ronald Powell issued a statement saying “Wal-Mart has not met nor committed to meet” with labor representatives.  “While we have requested that such a meeting take place, Wal-Mart has previously stated it was not interested,” Powell said.

Noting Wal-Mart’s “long, well-documented history of egregious violations of labor, worker, taxpayer, and human rights,” Powell said Chicago has “a unique opportunity” to require the company to do business differently here.

The union called for “a set of enforceable standards…that ensure living wages, comprehensive and affordable health benefits, [and] workplace rights” covering all big box retailers.  Powell reiterated Local 881’s stance:  “No Wal-Mart expansion in Chicago until Wal-Mart comes to the table to negotiate solid, enforceable wage and benefit standards for their workers.”

Local 881 represents workers at Jewels and Dominick’s groceries, where it’s likely that a new Wal-Mart supercenter would lead to pressure for benefit reductions.  After Wal-Mart moved into southern California in the early 2000s, the proportion of grocery workers with health benefits in that area dropped from 97 percent in 2003 to 54 percent in 2007, as noted here last year.

It’s hard to say where the Pullman Wal-Mart proposal stands right now, and Beale’s enthusiasm may not be the best guide.  What is clear is that Mayor Daley, hoping to move the proposal forward, is calling on Wal-mart to sit down with its critics, and Wal-Mart is refusing.

The Cleveland Model

If there’s a “Chicago model” (or “Daley model”) of urban development, it’s this: use public TIF subsidies to attract corporate headquarters and big-box retailers that sometimes pay poverty-level wages and send employees to public health programs, and to subsidize high-end real estate development that gentrifies and displaces; and privatize public services from schools to parking to airports, in a mad scramble for revenue.

Meanwhile, in the search for ever-elusive “bipartisanship,” federal jobs and economic stimulus policies are sapped by tax cuts while shortchanging direct stimulus like unemployment assistance and aid to states, and a “green” energy and jobs policy spends billions of dollars to subsidize nuclear power and “clean coal.”

Cleveland offers a better way.  As detailed in the Nation this week (and Yes magazine last year), Evergreen Cooperatives of Cleveland are creating large-scale employee-owned green businesses aimed at serving “anchor institutions,” particularly hospitals and universities, which purchase billions of dollars of goods and services every year.

Backed by the Cleveland Foundation and Shorebank Enterprise Cleveland among others, Evergreen Cooperative has launched  the Evergreen Cooperative Laundry to provide green services to hospitals and Ohio Cooperative Solar, which is weatherizing residences and installing solar panels on nonprofit and municipal buildings.  Also in the works is Green City Growers, a massive year-round hydroponic greenhouse which will be the largest urban food-production operation in the nation, and Neighborhood Voice, a community-based newspaper.

Based in low-income communities, all the businesses will pay living wages and provide health coverage.  And unlike multinational chains, where profits are whisked back to Wall Street, they will build assets for low-income families:  employee-owners are projected to build a $65,000 equity stake within eight years.  On top of that, 10 percent of profits from each enterprise will go back to the Evergreen Cooperative Development Fund to develop more jobs.

Here’s the video.  It’s pretty inspiring.

The project is modeled on the Mondragon Cooperatives, begun by a priest and five workers in Spain in 1953 and now comprising 200 enterprises in 40 countries with 100,000 employee-owners and annual sales of 16 billion Euros.  As Carl Davidson explains, Mondragon workers build buses and appliances and high-tech machine tools and operate a chain of supermarkets—and they run their own banks, health clinics, schools, and Mondragon University, all worker-owned co-ops.

Last year the United Steelworkers announced a partnership with Mondragon to develop manufacturing cooperatives here.  According to Davidson, the partnership is now looking for viable small enterprises where owners are interested in cashing out.

“Too often we have seen Wall Street hollow out companies by draining their cash and assets and hollowing out communities by shedding jobs and shuttering plants,” said USW President Leo Gerard.  “We need a new business model that invests in workers and invests in communities.”

Daley’s economic development joke

Mayor Daley was just kidding when he said he would go after Oregon businesses last week, after the state voted for a modest income tax hike for the top 3 percent  of its wealthiest residents, and for an equally modest reform of the state’s corporate income tax.

At least that’s a what a Daley spokesperson told the Portland Business Journal Friday.

Even as a joke it doesn’t make sense.  What business is going to leave a state with responsible fiscal policies for one like Illinois with a $13 billion deficit?  What businessperson would choose a state with public education and urban transit in crisis, and with social services in danger of closing with the state unable to pay its bills?

Meanwhile, as Oregon House Speaker Dave Hunt tells the Oregonian, Chicago has the highest sales tax in the country.  (And even with the minimums just enacted by the voters there, the corporate income tax is still higher here than in Oregon.)

Daley’s “economic development” policy throws millions upon millions of public dollars at multinational corporations to bring a relative handful of jobs here, while cutting funding for neighborhood development groups that support small business, which is the strongest engine of job growth. Meanwhile a maze of fees and regulations makes Chicago “hostile to start-up businesses and self-employed people,” as a study by the Institute for Justice found last year.

Check the list of organizations backing the Vote Yes For Oregon Coalition in its call for what the Nation termed “budget sanity.”  Look on the right side of that list for the many small business endorsers.  They knew the measures that passed were needed to “protect the foundations of our community — our schools, our health and human services, our public safety system,” as the Oregon Center for Public Policy put it.

Progress Illinois wonders why Daley still calls himself a Democrat.  Is he really against progressive taxation?  Last year, when Democrats in Springfield were unsuccessfully wrestling with budget reform, he was out of town, lobbying for the Olympics.

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