Taking From The Poor To Feed The Rich

Vol. 7, No. 3

September, 2004

-- How the IMF, World Bank, and Inter-American Development Bank Thrive on Subsidies from a Disenfranchised City

by Ike Nnedu
50 Years Is Enough Network

Taking From The Poor To Feed The Rich
How the IMF, World Bank, and Inter-American Development Bank Thrive on
Subsidies from a Disenfranchised City
By Ike Nnedu
50 Years Is Enough Network

"Taxation without Representation" persists in the capital of the United States.
Washington, DC is not represented in the U.S. Senate, and its delegate in the
U.S. House of Representatives cannot vote outside of committees, but
Congress ultimately acts as DC's "state legislature.” Congress can overrule
the elected mayor and city council, and can overturn citizen-passed ballot
initiatives.

Nestled in this paradox between democratic theory and practice are the World
Bank, the Inter-American Development Bank (IDB) and the International
Monetary Fund (IMF). Washington, DC cuts spending on social programs
while federal law forces the District to in effect give the World Bank, IMF and
IDB huge yearly subsidies. This year’s subsidy, borne by DC taxpayers, was
over a billion dollars – a whopping $1,022,465,776.40.

Poverty and Taxation

Federal land and property in DC (26.65% of the real property base) is tax-
exempt. Federal law also grants tax-exempt status to organizations,
embassies, and institutions that own an additional 14.35% of DC’s real
property. In sum, 41% of the District’s real property, much of it in the city’s
most desirable locations and worth at least $32 billion, is tax-exempt –
denying the city $2 billion in possible property tax revenue.

The District is home to an unusually high proportion of low-income taxpayers.
Despite the presence of many well-paid politicians, lawyers, and lobbyists,
Washington is one of the poorest cities in the U.S. In 1999, DC had the
highest overall poverty rate of all US states. In 2003, the District’s poverty rate
was 17.6% (the national rate was 12.1%).

From this constricted tax base, DC must provide services provided by city,
county, and state governments including state courts, driver licensure, liquor
control, unemployment compensation, food and drug inspection, health care,
professional licensure and designation of development zones.

Federal and state tax-emption denies property tax revenues to other
jurisdictions in the USA, but DC is unique:

(a) DC has no voice in the federal decision-making that governs local tax-
exemption. Other states with federal lands have voting Representatives and
Senators.
(b) Other major cities with similarly high poverty rates get financial assistance
from their state governments; Washington, DC does not.
(c) Other major cities have options to tax non-resident workers who use city
services and infrastructure. The federal government denies DC this privilege
(70% of District workers are non-residents; they earn 70% of all income in
DC).
(d) The District receives federal funds, but so do all other municipalities and
states.

The General Accountability Office (GAO) estimates a $450 million to $1 billion
gap between the revenue DC can raise, and full the cost of providing an
average level of public services and infrastructure. Washington will make
$312,284,128.00 in loan repayments in 2004.

In DC, the individual income tax burden is substantially higher than the
average of cities that levy income taxes. Property taxes in DC are
substantially lower than most cities. Budget difficulties led to the closure of DC
General Hospital. DC General, the city’s only public hospital, was the leading
caregiver the city’s poorest and uninsured residents. The effect of the closure
on this segment of residents has been negative. Ambulances search for
hospitals to accept uninsured residents. Some of the cost of treating the
uninsured has been passed to neighboring jurisdictions, one of which is
demanding $5 million from the DC government. This is minuscule compared
to the $1 billion in taxes that the IMF, World Bank and IDB do not pay. Just
$180 million would have kept DC General open.

The IMF, World Bank, and IDB pay no taxes, but continue to enjoy the best of
city infrastructure and services, and will never feel the pinch of the city’s
budget cuts.

Payments In Lieu of Taxes (PILOTs)

Payments In Lieu Of Taxes (PILOTs) are voluntary payments made by tax-
exempt organizations to the cities and counties in which they own property.
Public, governmental, and legal pressure has inspired some tax-exempt
organizations to make PILOTs. The payments represent a concrete
acknowledgment of the importance of property taxes to local revenue, and the
fact that tax-exempt organizations consume public services like anyone else,
and thus add to the costs of local government.

The PILOT is often negotiated by the organization and the local government
based on the fair tax value of the land, the cost of providing services, the local
government's need, and the organization's ability to pay. The multilateral
financial institutions own high-value land, and consume public goods.

Washington definitely has a lot of need. And with over $4 billion in profits, the
IMF, the IDB, and World Bank can certainly pay.

Who makes PILOTs?
• The U.S. Bureau of Land Management (BLM) pays over $218 million in
PILOTS to 1,900 local governments – and payments are increasing every
year
• The Massachusetts Port Authority makes PILOTs ($10 million in 2000) to the
city of Boston.
• The New Hampshire State Port Authority makes annual payment to the city
of Portsmouth for highway maintenance, fire protection and other services.
• The Massachusetts Institute of Technology (MIT) has been making payments
to the city of Cambridge since 1928.
• Harvard and Yale Universities also have PILOT agreements with Boston and
New Haven, respectively.
• Brown University, Johnson and Wales University, Providence College and
the Rhode Island Institute of design will pay $48.5 million in PILOTs over the
next 20 years to the city of Providence, Rhode Island.
• The National Education Association is willing to make PILOT payments as
soon as Washington develops an official PILOT program.
• The "District of Columbia Fair Federal Compensation Act of 2004" was
introduced in Congress in 2004. If it passes, the federal government would
make annual fixed payments to DC in lieu of taxes on federal land in the
District.

The Institutions’ Impact

The World Bank and IMF are public institutions owned by the world’s
governments. The Inter-American Development Bank is like the World Bank,
but works exclusively in the Americas. All three institutions were ostensibly
intended to promote "development.” But their record raises doubt about their
competence.

Of a group of 83 poor countries that received substantial IMF financing
between 1978 and 1997, most experienced increased unemployment, a fall
in real wages, a more unequal distribution of income, a rise in poverty, a
decline in food production per capita, growth in the external debt, and cuts in
social expenditures over the time period. World Bank loans mandate policies
practically identical to the IMF’s, while its infrastructure project loans have
increased the debt burden of those countries and in many cases caused
environmental damage and led to involuntary resettlement of thousands.

The Status of the IDB, IMF and World Bank

The U.S. Congress passed the International Organizations Immunities Act in
1945; the Act exempts international organizations from customs duties,
judicial processes, taxes on revenue or property, and sales taxes.

There is an undeniable logic to offering international and multilateral
organizations immunity from local laws in the country where they are based.
But unlike the majority of such organizations, the IMF, the World Bank and the
IDB are profit-making entities. They are neither charities nor aid agencies –
they are profit-making behemoths operating under laws meant to protect
nonprofit bodies.

To determine the amount lost to Washington through the institutions’ tax-
exempt status, the amount a commercial profit-making enterprise would pay
in property taxes and corporate income taxes must be considered.
Conservative estimates of those figures appear in the accompanying charts.
The institutions are also exempted from sales tax, which for most
merchandise is a hefty 10% in Washington. The data needed to estimate how
much is lost through this exemption are not available.

TABLES: Unpaid Property Taxes - see pdf version or hard copy

Do As I Say But Not As I Do

The District of Columbia Tax Revision Commission was created by the DC
Council in 1996 to conduct research on the city’s economy and make
recommendations for changes to the city’s tax and revenue structure. In its
May 1998 report, the commission recommended that tax-exempt international
organizations (like IMF, World Bank, and IDB) should pay PILOTs; and if that
was not possible, that the federal government should make in lieu payments
on their behalf.

The IMF, World Bank, and the Inter-American Bank champion “cost-recovery”
as a route to sustainable public services. All three insist that debt-ridden
nations in Africa and Latin America should not provide free public services to
the poor. They seek the imposition of user-fees for infrastructure and
services.

Hypocritically, the multilateral institutions get free public services from DC,
and prevent the District from achieving “cost-recovery.”

They oppose pricing schemes that charge wealthy citizens more for services
in order to charge poor citizens less. Yet they enjoy free services by shifting
the full cost to DC’s taxpayers.

The World Bank advises poor countries to simplify their tax system, and to
minimize special tax categories and tax exemptions. The billionaire
multilateral institutions can show the way by rejecting their special-category
status and tax-exemption through immediately paying PILOTs.

In 2001, the 50 Years Is Enough Network made inquiries about having the
World Bank, IMF and IDB pay PILOTS. The World Bank responded by
commissioning a study by Dr Stephen Fuller of George Mason University on
the economic benefits the World Bank brought to the Washington
metropolitan area by its mere presence. The implication is that the World
Bank does not need to pay for public services, because it otherwise
contributes to the regional economy.

But this argument is flawed. Every business in the District and surrounding
region contributes to the regional economy. Economic activity by individuals
and businesses adds to the Gross Regional Product every day. But these
businesses and individuals still pay taxes, and their tax payments help fund
public services and infrastructure.

There are costs associated with the provision of public goods and services. If
individuals and local businesses did not pay for common goods through
taxes, provision would be unsustainable. The World Bank, IMF, and IDB use
these common goods, but refuse to help fund them. They want a free lunch.
Washington DC’s mostly low-income taxpayers basically subsidize these
multi-billion dollar enterprises. This is neither moral nor just. It is time for the
World Bank and the IMF to pay their fair share.

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