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In Volkswagen Meddling, Did Tennessee Officials’ Actions Violate a Supreme Court Ruling?

April 10, 2014

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Update on 4/21/14: Hours before today’s scheduled NLRB hearing, the United Auto Workers withdrew their election appeal and urged Gov. Bill Haslam to reinstate his $300 million offer of expansion subsidies with no strings attached this time. Saying that Tennessee officials could again interfere with an election re-run, the UAW said it will ask a federal Congressional inquiry to look into the role of federal funds in the conditioned-subsidy dispute. “The UAW is ready to put February’s tainted election in the rearview mirror and instead focus on advocating for new jobs and economic investment in Chattanooga,” said UAW President Bob King in a statement.

Recent revelations by NewsChannel5 investigative reporter Phil Williams in Chattanooga explicitly raise an issue that I hinted at in my blog on public officials in Tennessee interfering with the vote among Volkswagen workers about joining the United Auto Workers. In that blog, I pointed out that Gov. Bill Haslam asserted that the past granting of subsidies to the plant gave him a right to weigh in on the vote and that a state legislator broadly hinted he would oppose new subsidies to expand the plant if the workers voted to unionize.

The Channel 5 revelations make these links much more vivid. The secret expansion negotiations were dubbed “Project Trinity,” and an August 23, 2013 “Project Trinity Final Summary of Incentives,” in which the state offers $299.8 million in subsidies, has as its first line of content: “The incentives described below are subject to works council discussions between the State of Tennessee and VW being concluded to the satisfaction of the State of Tennessee.”

I am not a lawyer, but that stipulation stands out to me because of the 1985 Supreme Court Case Golden State Transit Corp. v. Los Angeles. In this case, the Court ruled that state and local governments may not pre-empt the power of the National Labor Relations Board in enforcing those private-sector matters governed by the National Labor Relations Act. Specifically, the Court found that Los Angeles, by canceling a taxi franchise, interfered in “permissible economic tactics” being used by the company and its Teamster workforce during a strike.

The Channel 5 revelations suggest Tennessee officials were committing an equivalent act: they were using the conditioned offer of future subsidies to influence a representation election. It looks like impermissible interference in private-sector labor relations.

Indeed, the Haslam administration now admits that it withdrew the August expansion-aid offer in January as the UAW vote neared. While a state official told Channel 5 that the offer had a standard 90-day duration (which had already been extended two months), Channel 5 reports that the offer it obtained “contains no reference to any sort of 90-day deadline.”

The leaked emails also make it clear that Tennessee Department of Economic and Community Development officials were paying close attention to the vote. Indeed, Gov. Haslam even wrote Volkswagen a letter on February 4th protesting what he considered an unfair lack of access to the plant for anti-union organizers (Volkswagen allowed UAW organizers access).

The emails also show that high-level Tennessee officials, including the chief of staff to U.S. Senator Bob Corker, and chief of staff to Gov. Haslam’s commerce department, were interacting with anti-union consultants during the union election.

The United Auto Workers have seized upon the Channel 5 revelations to broaden the evidence for their Labor Board case seeking to invalidate the vote as tainted by the officials’ actions. The UAW for an April 21 NLRB hearing in Chattanooga has subpoenaed: Gov. Haslam, his economic development commissioner Bill Hagerty, and Hagerty’s chief of staff; Grover Norquist of Americans for Tax Reform; State Senator Bo Watson; Sen. Corker’s chief of staff; Peter List of LaborUnionReport.com; and Tennessee House Majority Leader Gerald McCormick, among others.

Among the materials requested of the witnesses are records of “Government Incentives” defined as “…aid or relief of any nature – whether proposed, contemplated, or effectuated…” by the state for the benefit of Volkswagen.

We await that hearing with interest.

 

Subsidy Tracker Reveals Big-Business Dominance of Job Subsidies

February 25, 2014

With Parent-Subsidiary Ties Linked, Database Reveals Big-Business Dominance of Job Subsidies

Washington, DC, February 25, 2014—Three-quarters of all the economic development dollars awarded and disclosed by state and local governments throughout the United States have gone to just 965 large corporations.

Some of these big recipients, such as Boeing (at more than $13 billion) are well known for aggressively seeking tax breaks by pitting states against each other for jobs. However, 16 other companies, many less intuitive, have received awards totaling more than $1 billion, often to subsidiaries with names bearing no similarity to their corporate parents.

Warren Buffett’s Berkshire Hathaway, for example, has received 310 subsidy awards totaling $1.06 billion to subsidiaries with names such as Geico, NetJets, Nebraska Furniture Mart, General Re Corporation, Lubrizol Advanced Materials, and Webb Wheel Products.

These are the key findings in Subsidizing the Corporate One Percent, a report published today by Good Jobs First summarizing information brought to light by an extensive enhancement of GJF’s Subsidy Tracker database.

Good Jobs First is a non-profit, non-partisan research center in Washington, DC focusing on economic development accountability. The report and the database can be found at http://www.goodjobsfirst.org/subsidizingthecorporateonepercent.

“Subsidy Tracker can now demonstrate that a dominant share of the subsidies awarded by state and local governments in the name of job creation is ending up in the hands of a limited group of companies which can be regarded as the Corporate One Percent,” said Good Jobs First Research Director Philip Mattera, who created the original database and the newly released version 2.0.

Subsidy Tracker now contains parent-subsidiary linkages for more than 25,000 entries with aggregate values of $110 billion, or 75 percent of the total dollar value of all the entries in the Tracker universe. Those entries have been connected to 965 parent companies drawn from the Fortune 500, the Forbes list of the largest private companies and similar lists. The total of about 1,300 corporations checked for Tracker matches represent a good proxy for big business.

The Fortune 500 alone account for more than 16,000 subsidy awards worth $63 billion, or about 43 percent of total Tracker dollars.

“In our Megadeals study last year, we found that since 2008, there has been a spike in the number and cost of gold-plated deals, even though overall deal flow remains depressed,” said Good Jobs First Executive Director Greg LeRoy. “It looks like the corporate rich are getting richer at the expense of public goods that benefit all employers.”

Subsidy Tracker 2.0 shows for the first time which companies have received the most cumulative awards, both in dollar terms and numbers of awards. After Boeing, whose $13 billion total reflects the giant deals it has gotten in Washington and South Carolina as well as more than 130 smaller deals around the country, the others at the top of the cumulative subsidy dollar list are: Alcoa ($5.6 billion), Intel ($3.9 billion), General Motors ($3.5 billion) and Ford Motor ($2.5 billion). A total of 17 companies have received cumulative subsidy awards worth more than $1 billion; 182 have received awards of $100 million or more. 

The company with the largest number of awards is Dow Chemical, with 416. Following it are Berkshire Hathaway (310), General Motors (307), Wal-Mart Stores (261), General Electric (255), Walgreen (225) and FedEx (222). Forty-eight companies have received more than 100 individual awards. The award numbers include some for which no dollar amount has been disclosed (reflecting the inconsistent quality of state and local disclosure).

Among the 965 parents identified as subsidy recipients, the average number of awards is 26 and the average total dollar amount (from awards for which this information is disclosed) is $102 million.

Given the decline of manufacturing in the United States, it is interesting that the list of top parent companies is dominated by industrial firms. Of the ten biggest recipients, only one – Cerner – is primarily a service provider. As for specific industries, auto is well represented, with GM, Ford, Fiat (which now owns Chrysler) and Nissan in the top ten. Toyota is no. 16 and Volkswagen is no. 22. Other heavy industries represented include aerospace (Boeing, no.1), semiconductors (Intel, no.3), petroleum (Royal Dutch Shell, no.7), chemicals (Dow, no.12) and steel (ArcelorMittal, no.13).

Also significant is the presence of foreign-based corporations. There are three in the top ten (Fiat, Royal Dutch Shell and Nissan) and another five in the next 15.  Since private equity firms are treated as big-business parents, the list includes several of those firms. The most-subsidized is Silver Lake Partners, which now controls the computer company Dell and thus has Dell’s megadeals in North Carolina and Tennessee attributed to it.

The list of most-subsidized parent companies overlaps considerably with the companies in the Megadeals report Good Jobs First issued last June. Of the 100 most-subsidized parent companies, 89 received at least one megadeal (worth $75 million or more).

“Both our new findings and our Megadeals study clearly suggest a ‘corporate rich getting richer’ trend,” LeRoy added.

 

MSNBC Hears Us Out on Recent Studies

February 17, 2014

Yours truly recently had a chance to thumbnail three of our recent studies on daytime TV (and preview a fourth). For really busy people, here’s a brisk summary of our key findings on state revenue lost to subsidies and loopholes, state disclosure practices, and interstate job piracy.

Small Business Owners Say: Cut Taxpayer Subsidies to Big Business (And Taxes Matter Least to Top-Growth Entrepreneurs)

February 17, 2014

A large national poll of independent business owners finds that cutting taxpayer subsidies to big business is their top-rated public policy priority. And a smaller survey of high-growth entrepreneurs finds that the last things they are concerned about are low taxes or business-friendly regulations.

The large poll, conducted by the Institute for Local Self-Reliance and Advocates for Independent Business, surveyed 2,602 small business owners nationwide. It asked them which two public policy changes would most help their business. Their single most common reply (36 percent) was “eliminate public subsidies for big companies.”

The smaller survey, by Endeavor (a global network for accelerating entrepreneurship), surveyed 150 founders of some of the fastest-growing companies in the United States. It asked them why they chose the locations in which they built their businesses. Their typical answer: before starting their company, they moved to a city of one million or more because of personal connections and quality of life. Their most critical business reason for staying was a pool of talented labor, followed by access to customers and suppliers.

Only five percent cited low taxes and only two percent cited business-friendly regulations as a reason for choosing their successful location.

Watch this blog for big news soon from Good Jobs First on the issue of subsidies to big business.

In Volkswagen Union Vote, Conservatives Declare Open Season on Free Markets

February 16, 2014

Update: Citing “what appears to have been a coordinated and widely-publicized coercive campaign” by at least six named Tennessee elected officials, the UAW filed a complaint to the National Labor Relations Board on February 21 claiming interference and seeking that the vote be set aside and held again.

A common platitude among conservatives is that government should not interfere with free markets. Yet in last week’s vote among Volkswagen workers in Chattanooga on whether they wanted to join the United Auto Workers (UAW), Tennessee politicians and outside ideologues went to extraordinary lengths to meddle in the business of one of the world’s most successful corporations. Their meddling prevailed when the workers voted not to unionize, 712 to 626.

A governor asserted that past subsidies give him the right to interfere. A United States Senator claimed to know more than Volkswagen Chattanooga’s CEO and chairman. And a state senator called the company’s behavior “un-American” and threatened to oppose future subsidies to expand the plant if the workers unionized.

This was not some runaway clutch plant from Ohio; it is Volkswagen’s only U.S. assembly plant, producing the Passat. VW is neck-and neck with General Motors to become the #2 car producer in the world. The workers in virtually all of its other 105 plants worldwide are union members, and also have works councils, a cooperative structure that Volkswagen credits for high quality, morale and productivity.

VW clearly signaled openness to the Chattanooga workers voting to unionize, allowing UAW organizers into break rooms and publicly stating that the outcome of the vote will not affect its future decisions about where to locate new product lines. “Our strong desire is to have a works council present in Chattanooga,” said a VW executive in November.

Despite the company’s global success and clear signals that outsiders should butt out, elected officials in Tennessee couldn’t restrain themselves.

Tennessee Gov. Bill Haslam was consistently opposed to the workers unionizing. “I’ve been fairly vocal in a way that some people have said, ‘Why is it your business?’” Haslam told newspaper editors and publishers. “I think it is our business in the state of Tennessee. We have a considerable investment in that plant. The state of Tennessee put a whole lot of money in that plant,” the Chattanooga Times Free Press reported.

Just before and during the three-day vote, U.S. Senator Bob Corker made a string of remarkable statements, even dissing VW’s U.S. management. Corker was mayor of Chattanooga when the city landed the plant, has often spoken of his friendship with VW executives, and recounts that two key meetings to land the deal were held in his home. State and local subsidies to the plant totaled $554 million, the second-costliest package for a foreign-owned auto plant in U.S. history.

On Wednesday, the first day of voting, in what Reuters called a bombshell, Corker said “I’ve had conversations today and based on those am assured that should the workers vote against the UAW, Volkswagen will announce in the coming weeks that it will manufacture its new mid-size SUV here in Chattanooga.” Corker refused to name his source and his spokesman refused to say if Corker was also saying the SUV line would go to Mexico if the workers voted to unionize. (That is, Corker’s statement left open the possibility that he was told the new line is coming no matter which way the vote went.)

The same day, Corker called a Washington Post reporter. He discussed legal opinions about U.S. labor law and works councils, and claimed he doesn’t oppose work councils. Yet although the National Labor Relations Act prohibits company unions (which were rampant in the 1920s and early 1930s, as a device to subvert independent workers’ organizations), Corker said: “We’ve even told Volkswagen that, ‘why don’t you guys create your own union within the plant, if you feel like that is something that is necessary to fully implement this in a way you see fit.’”

On the second day of voting, Corker told Reuters he was “‘very certain that if the UAW is voted down,’ the automaker will announce new investment in the plant in the next couple weeks,’” and again refused to identify his source.

Volkswagen Chattanooga CEO and Chairman Frank Fischer disputed Corker’s claim: “There is no connection between our Chattanooga employees’ decision about whether to be represented by a union and the decision about where to build a new product for the U.S. market,” Chattanoogan.com reported. Corker then dissed Fisher by claiming higher knowledge: “Believe me, the decisions regarding the Volkswagen expansion are not being made by anyone in management at the Chattanooga plant …Frank Fischer is having to use old talking points when he responds to press inquiries.”

Corker’s intrusive statements were a flip-flop; the previous week he had pledged silence: “During the next week and a half, while the decision is in the hands of the employees, I do not think it is appropriate for me to make additional public comment,” the Chattanooga Times Free Press quoted him saying. Corker’s animus towards the UAW is well-established; during the federal bailout of GM and Chrysler (which helped save the GM plant in Spring Hill, Tennessee that not only reopened but is now expanding), Corker demanded that UAW members take pay cuts to equal the non-union transplants.

Finally, State Senator Bo Watson, from a Chattanooga suburb, called Volkswagen’s actions “un-American” and made a thinly veiled threat to block subsidies for an SUV line expansion. “…Volkswagen has promoted a campaign that has been unfair, unbalanced and, quite frankly, un-American in the traditions of American labor campaigns,” Watson said. “Should the workers choose to be represented by the United Auto Workers, then I believe additional incentives for expansion will have a very tough time passing the Tennessee Senate.”

In calling a German corporation “un-American” without irony, Sen. Watson also overlooked the fact that the Marshall Plan installed members of Germany’s metalworkers union, IG Metall, on Volkswagen’s board of directors (10 of its 21 members are union members). Restoring works councils and union representation, which the Nazis had abolished, was meant to help prevent the return of fascism.

Collusion between employers and Southern politicians against unions is a many decades-old story. But usually it all happens behind closed doors—even in cases like this where the employer is not anti-union. At a time when states mortgage their futures to land high-impact trophy deals like an auto assembly plant, it is stunning to see elected officials publicly denounce a company’s business model just because it includes unions.

It’s also a teachable moment on how development subsidies get perverted, akin to Boeing using 22 states’ subsidies bids as a bludgeon for wage and benefit concessions against Machinists in Puget Sound several weeks ago.

As for the UAW and Volkswagen, they are clearly not giving up. In the wake of the vote, the union lauded “Volkswagen for its commitment to global human rights, to worker rights and trying to provide an atmosphere of freedom to make a decision.” Volkswagen sang harmony: “Our employees have not made a decision that they are against a works council. Throughout this process, we found great enthusiasm for the idea of an American-style works council both inside and outside our plant,” the Washington Post reported. “Our goal continues to be to determine the best method for establishing a works council in accordance with the requirements of U.S. labor law to meet VW America’s production needs and serve our employees’ interests.”

Postscript: Washington Post business columnist Steven Pearlstein wrote eloquently on a similar theme as I was finishing this blog.

Footnote: contrary to some press accounts, there have been at least three foreign-owned U.S. automotive assembly plants whose workers have enjoyed UAW membership: Mazda’s plant in Flat Rock, Michigan; the Diamond-Star (Mitsubishi) plant in Bloomington, Illinois; and the New United Motors Manufacturing, Inc. (Toyota/GM then Toyota) in Fremont, California. As well, workers voted to join the UAW at two small Freightliner (then DaimlerChrysler) inspection facilities in North Carolina.

Stunning TV Exposé: Indiana’s Fishy (Privatized) Jobs Numbers

February 16, 2014

For reasons that will hopefully become clear as more evidence comes out, Indiana’s privatized Economic Development Corporation (IEDC) continues to play games with its jobs numbers.

And in Indianapolis, WTHR-TV’s tenacious 13 Investigates unit continues to document the IEDC’s record with outstanding coverage, looking into failed deals, shuttered workplaces, and the IEDC’s misleading transparency website.

Take a few minutes and watch these two remarkable TV segments by reporter Bob Segall.  Has your local TV station ever done job-subsidy reporting so robust?

The Indiana Job Numbers Still Don’t Add Up (1/31/14)

Indiana lawmakers to state job agency: “Tell the truth” (2/13/14)

 

 

States Ranked on Job-Creation Transparency

January 29, 2014

For Release January 29, 2014

Contact: Phil Mattera 202-232-1616 x 212

“Show Us the Subsidized Jobs” Ranks the States

Report: Nearly All States Disclose Some Development Deals, But Outcome Reporting Remains Mostly Poor

January 29, 2014—All but four states now post at least partial information online showing which companies are receiving economic development subsidies. But the quality and depth of that disclosure varies widely, both among and within states. Three-fourths of major state development programs still fail to disclose actual jobs created or workers trained, and only one in eleven discloses wages actually paid. The best disclosure practices are found in Illinois and Michigan, but even their scores would be near-failing as report card grades.

These are the key findings of Show Us the Subsidized Jobs, a report issued today by Good Jobs First, a non-profit, non-partisan research center based in Washington, DC.

“Aside from a handful of holdouts, state governments now accept the idea that the public has a right to online data about which companies are receiving taxpayer-funded job subsidies.” said Good Jobs First executive director Greg LeRoy. “But with unemployment still high, Americans need to know how many jobs and what kind of wages and benefits their taxpayer investments are generating.”

Show Us the Subsidized Jobs is the third in a series of reports Good Jobs First has produced on subsidy transparency since 2007. In that period the number of states with at least some online disclosure has doubled from 23 to 46. The District of Columbia has also embraced transparency. Over the course of the reports, Good Jobs First has raised the bar in its rating criteria, reflecting rising public expectations about government transparency and improving web technology.

“Transparency by itself is no guarantee that a subsidy program is accountable or effective,” said Good Jobs First research director Philip Mattera, principal author of the report. “But it is the foundation for any meaningful assessment.”

Show Us the Subsidized Jobs rates the reporting practices of 246 key state economic development subsidy programs on how well they disclose online information such as company-specific award amounts, job-creation and wage-rate figures, the geographic location of subsidized facilities, and details on the recipient company and the project. Programs are also evaluated in terms of how easy it is to find and use the online data. Each program is rated on a scale of 0 to 100, and the program scores for each state are then averaged to derive a state score.

The report’s key findings:

  • Forty-six states and the District of Columbia provide online recipient disclosure for at least one key subsidy program. This is up from 37 in late 2010 and 23 in 2007.
  • The states with the best average program scores are: Illinois (65), Michigan (58), North Carolina (48), Wisconsin (46), Vermont (43), Maryland (42) and Texas (40). The most-improved state is Oregon, which had no disclosure in 2010 and is now in the top ten with an average of 38.
  • The four states still lacking online disclosure are: Arkansas, Delaware, Idaho and Kansas.
  • Of the 246 programs examined, 135 of them, or 55 percent, have online recipient disclosure (up from 42 percent in 2010). The average score for the programs with disclosure is 39. Only seven programs score 75 or better. 
  • Of the 135 programs with disclosure, 101 require some degree of job reporting, but only 59 report actual jobs created or workers trained. Only 47 provide any form of wage or payroll data, and only 21 provide wage data on jobs actually created or workers trained
  • Only six states practice consistency by providing online recipient reporting for all of the key programs we examined: Maryland, Michigan, North Carolina, Vermont, Washington and Wisconsin.
  • States with disclosure often have major discrepancies in the quality of reporting from one program to another. In Minnesota and Virginia, for example, there is a spread of more than 50 points between their highest and lowest program scores.
  • Consistent with our previous state accountability report cards, the existence and quality of subsidy transparency follow no partisan pattern. There are “red” and “blue” states among both disclosure leaders and laggards.

“With most programs still failing to disclose actual jobs created or wages paid, taxpayers cannot even begin to weigh costs versus benefits,” LeRoy concluded. “Taxpayers have the right to know exactly what they are getting in return for their economic development investments.”

A summary of state scores and ranks can be found in the table below. Details on each state’s program scores can be found in online appendices at www.goodjobsfirst.org/showusthesubsidizedjobs.

State Subsidy Disclosure Scores By Rank and Alphabetically

 

Rank

State

Average

 

State

Average

Rank

1

Illinois

65

 

Alabama

3

44

2

Michigan

58

 

Alaska

17

26 (tie)

3

North Carolina

48

 

Arizona

14

32 (tie)

4

Wisconsin

46

 

Arkansas

0

-

5

Vermont

43

 

California

21

21 (tie)

6

Maryland

42

 

Colorado

19

25

7

Texas

40

 

Connecticut

33

14 (tie)

8 (tie)

New York

38

 

Delaware

0

-

8 (tie)

Oregon

38

 

District of Columbia

17

26 (tie)

10 (tie)

Louisiana

36

 

Florida

32

16

10 (tie)

Washington

36

 

Georgia

4

41 (tie)

12

Kentucky

35

 

Hawaii

1

45 (tie)

13

Indiana

34

 

Idaho

0

-

14 (tie)

Connecticut

33

 

Illinois

65

1

14 (tie)

Missouri

33

 

Indiana

34

13

16

Florida

32

 

Iowa

27

19

17

Wyoming

29

 

Kansas

0

-

18

Virginia

28

 

Kentucky

35

12

19

Iowa

27

 

Louisiana

36

10 (tie)

20

Pennsylvania

25

 

Maine

4

41 (tie)

21 (tie)

California

21

 

Maryland

42

6

21 (tie)

Minnesota

21

 

Massachusetts

16

29 (tie)

21 (tie)

Ohio

21

 

Michigan

58

2

24

Montana

20

 

Minnesota

21

21 (tie)

25

Colorado

19

 

Mississippi

12

34 (tie)

26 (tie)

Alaska

17

 

Missouri

33

14 (tie)

26 (tie)

District Of Columbia

17

 

Montana

20

24

26 (tie)

New Jersey

17

 

Nebraska

10

37

29 (tie)

Massachusetts

16

 

Nevada

1

45 (tie)

29 (tie)

Tennessee

16

 

New Hampshire

5

40

31

Oklahoma

15

 

New Jersey

17

26 (tie)

32 (tie)

Arizona

14

 

New Mexico

7

38

32 (tie)

Rhode Island

14

 

New York

38

8 (tie)

34 (tie)

Mississippi

12

 

North Carolina

48

3

34 (tie)

Utah

12

 

North Dakota

4

41 (tie)

36

South Dakota

11

 

Ohio

21

21 (tie)

37

Nebraska

10

 

Oklahoma

15

31

38

New Mexico

7

 

Oregon

38

8 (tie)

39

West Virginia

6

 

Pennsylvania

25

20

40

New Hampshire

5

 

Rhode Island

14

32 (tie)

41 (tie)

Georgia

4

 

South Carolina

1

45 (tie)

41 (tie)

Maine

4

 

South Dakota

11

36

41 (tie)

North Dakota

4

 

Tennessee

16

29 (tie)

44

Alabama

3

 

Texas

40

7

45 (tie)

Hawaii

1

 

Utah

12

34 (tie)

45 (tie)

Nevada

1

 

Vermont

43

5

45 (tie)

South Carolina

1

 

Virginia

28

18

-

Arkansas

0

 

Washington

36

10 (tie)

-

Delaware

0

 

West Virginia

6

39

-

Idaho

0

 

Wisconsin

46

4

-

Kansas

0

 

Wyoming

29

17

 

-30-

The Apoplectic States of America

December 18, 2013

Image

At the risk of sounding like newscaster Howard Beale in the movie Network, when he instructs his viewers to go to their windows and yell out: “I’m mad as hell and I’m not going to take this anymore!” the state of economic development in America today is positively apoplectic.

I don’t say this flippantly, and I’m not saying this just because we here at Good Jobs First swim every day in reports of job subsidies gone awry. I think it’s objectively true that the ruinous economic war among the states is boiling over. Here’s my evidence:

The number of deals for which states and cities can compete remains very depressed, so those elite companies that can move lots of capital and jobs—or threaten to move—are taking it to the bank. That’s why the number of big-ticket “megadeals” has surged since 2008. The corporate rich are getting richer—on subsidies. That’s why Boeing can get 22 states to rapidly assemble bids for its third public auction in 10 years. That’s why “job blackmail” for eight and nine figures at a pop is rampant in states like Ohio and New Jersey and Illinois.

Deal supply is down and demand for deals is up (i.e., anxious politicians). Put those curves together and the price soars: you get megadeals averaging $456,000 per job. Does anyone seriously believe taxpayers can ever break even on such gold-plated giveaways?

Never before has a governor made interstate job piracy a partisan sport. But there goes Texas Gov. Rick Perry doing it six times since February and pledging to continue. And there sit the National Governors Association—and all the regional governors’ associations—mute and MIA.

Never before has there been a concerted effort by a group of business leaders in a multi-state metro area to forge a two-state cease-fire. But since April 2011, seventeen business leaders in the Kansas City metro area have tenaciously yelled publicly at and negotiated privately with Missouri Gov. Jay Nixon and Kansas Gov. Sam Brownback to fix the abuse of job subsidies that has already wasted more than a quarter-billion dollars on short-distance corporate relocations.

Jobs have become so politicized that some governors have chosen to create captive non-profit corporations —“public-private partnerships”—and privatize critical economic development functions, loading their boards with campaign contributors and creating structures that often evade basic safeguards such as open records laws, audits, and salary caps.

Then last week began a remarkable series of events in Illinois. The state’s House, thwarting the Senate, refused to approve subsidy packages to three companies including Archer Daniels Midland (ADM), the agribusiness giant with $90 billion in sales that wanted $30 million to keep its headquarters in the Prairie State. The stunning turndown spoke to enormous public anger over past job blackmail packages to Sears, CME, Motorola Mobility, Navistar International, and many others—given away while the state substantially raised its personal and corporate income tax rates, and also cut public employee pensions.

Then came the Howard Beale moment: Illinois House Speaker Michael Madigan, who has been Speaker for 28 years, and who holds enormous power that he exercises with great caution and restraint, put out a scorching statement:

We must resist the temptation to cave to corporate officials’ demands every time they impose a deadline for payment in exchange for remaining in Illinois, and end the case-by-case system of introducing and debating legislation whenever a corporation is looking for free money from Illinois taxpayers. This practice creates an unsettling and worrisome appearance of some new kind of corporate pay-to-play, which should be troubling to other business leaders and their shareholders, public officials and Illinois taxpayers. …Presently, four Illinois corporations are seeking… tax breaks or incentives. If their requests are approved by the Legislature, these corporations would, collectively, see their tax burdens decrease by approximately $67 million. The companies requesting these taxpayer-funded breaks currently pay little to no corporate income tax to the state, contributing little or nothing to help fund the very services from which they benefit significantly. Meanwhile, middle-class families continue struggling through a recession and job loss. So I find it very difficult to support tax giveaways for corporate CEOs and millionaire shareholders whose companies pay little in state taxes. I question our priorities when corporate handouts are demanded by companies that don’t pay their fair share while middle-class families and taxpayers face an increasing number of burdens. According to the 2011 census data, the per capita income for an Illinois resident is $29,376. Assuming a 5% state tax rate, more than 45,000 new individuals would need to begin paying income taxes to make up for the lost revenue… … without new revenue, these giveaways are only possible by making additional cuts to crucial programs that impact working men and women across Illinois.

What’s in your Speaker’s blog?

And now comes news this morning that ADM has decided to keep its corporate headquarters in Illinois, relocating it from Decatur to Chicago (although some tech center jobs remain in play). The state called ADM’s bluff! Howard Beale prevailed!

Buckle up for 2014; we’re heading into turbulence!

ALEC and the State Policy Network

December 10, 2013

Last week brought three major investigative articles about the American Legislative Exchange Council (ALEC), the corporate-backed network of state legislators, and its ties to the State Policy Network (SPN), a group of conservative think tanks often associated with proposals to suppress wages, cut social safety net spending, and make tax systems more regressive (among many other things).

The articles—based on leaked internal ALEC documents— were published by The Guardian, the U.K.-based newspaper that also broke many of Edward Snowden’s NSA revelations.  Find the articles themselves here and here and here.

Readers may remember that ALEC gained harsh attention in the wake of the Trayvon Martin killing because of its advocacy for “stand your ground” laws like the one that shielded Martin’s killer. The Guardian articles indicate that the ALECexposed.org revelations from the Center for Media & Democracy and related exposés from Common Cause, Color of Change and others have taken a toll on ALEC, costing it more than 40 corporate members and almost 400 state legislator members.

But specifically regarding the State Policy Network, the Guardian’s most important revelation is a summarized list of funding proposals from SPN groups to the Searle Freedom Trust, a conservative foundation. The proposals were to be reviewed and ranked by Stephen Moore, a conservative activist who wears multiple hats, including Wall Street Journal editorial board member.

Only brief summaries of the proposals were disclosed (one can only hope The Guardian has more to reveal). Published in cooperation with the Portland [Maine] Press Herald and the Texas Observer, they are remarkable, outlining work to eliminate state income taxes, reduce public employee pensions, oppose Medicaid expansion, create a single tax-free county (no income taxes but right to work), privatize a state department of transportation, criticize the streamlined sales tax, encourage workers to leave their union, and promote new super-majority requirements to raise local taxes.

On economic development subsidies specifically, consider these tantalizing nuggets from the leaked documents:

The Advance Arkansas Institute sought “$35,000 to conduct a campaign for the elimination of tax subsidies and the lowering of income tax rates on citizens of Alabama.”[sic] 

The Kansas Policy Institute sought “$46,800 to conduct a campaign calling for deregulation as an alternative to economic development incentives.” Its work plan included a “research report detailing the inefficacy of economic development incentives…”

The Mackinac Center for Public Policy (Michigan) sought “$35,000 to research and report on the inefficacy [of] state-funded tourism incentives.”

The John Locke Foundation (North Carolina) sought “$50,000 to discredit the use of the IMPLAN model in regional economic impact analyses,” including publication of a primer and six staged events. This request struck us as odd: IMPLAN is a widely used, mainstream input-output modeling software product (like its commercial rival REMI or the federal Bureau of Economic Analysis tool, RIMS-II). IMPLAN is 37 years old and moved from Wisconsin to North Carolina earlier this year—with no subsidies.

As Good Jobs First regularly points out, economic development subsidy abuse is not a partisan issue and many reform episodes have been bi-partisan. Transparency is the most common left-right common ground, but differences often emerge when it comes to alternatives: if a program is eliminated or curtailed, is it better to spend the resulting savings on corporate tax cuts and deregulation or on skills and infrastructure?

Also of note: The Beacon Hill Institute shows up at least three times in the leaked SPN proposals. BHI describes itself as “the research arm of the Department of Economics at Suffolk University in Boston,” and it is listed as an associate member of SPN. In the SPN proposal summaries, BHI is listed as requesting $38,825 to study the eight-state Regional Greenhouse Gas Initiative. “Earned media and legislative efforts to repeal or diminish the RGGI will be determinants of success.”

The summary also shows BHI as having received grants in both 2010 and 2011 from the Searle Freedom Trust: an uncompleted project on “Pension Reform” and another including “a large time series database that contains valuable detailed characteristics of public employees—data BHI is now sharing with researchers at other SPN organizations.”  BHI also shows up in the John Locke Foundation proposal in North Carolina, which said it “will partner with the Beacon Hill Institute” in the aforementioned review of IMPLAN. Finally, the Empire Center for New York State Policy’s proposal summary says it will issue a study on the state’s estate tax in conjunction with BHI.

(Clawback readers may recall that BHI is one of those groups issuing rankings of state “business climates” that we criticized in our Grading Places study last May.)

The BHI proposal that would be considered successful if it helped repeal or diminish the Regional Greenhouse Gas Initiative was apparently news to Suffolk University: when the Guardian inquired, the University “sharply criticised the research proposal to the Searle Foundation” and said in a statement that it would never have approved the BHI proposal if it had been submitted for prior review.

For more context, see the Center for Media and Democracy’s reports on “Extreme Pressure Groups Masquerading as Think Tanks.”

 

 

 

How Boeing Pilots Inequality

December 6, 2013

I laud the recent statements by Pope Francis and President Obama on inequality—and urge them and everyone else to acknowledge how the escalating Economic War Among the States is a growing part of the problem.

Take, for example, The Boeing Company. For the third time in 10 years, it is staging a public economic development subsidy auction for some of its jobs. It is hard to imagine a more regressive event. Let us count the ways.

On two days’ notice last month, the company prevailed upon the Washington State legislature to go into special session and offer Boeing and its suppliers a subsidy package valued at $8.7 billion—the largest “megadeal” in U.S. history.

If Boeing takes the offer (and that is hardly assured, read on), that would be more than half a billion dollars per year for 16 years—more than twice what the state provides to the University of Washington. It would mostly consist of a discount on the state’s Business & Occupation tax, a gross receipts tax. Given Boeing’s enormous marketplace power (only Airbus really competes with its commercial lines), the company would likely pass along that normal tax-rate cost to its customers, most of whom are foreign-based airlines, as well as U.S. airlines based in other states.

In other words, Washington residents would either have to pay higher taxes or suffer lousier public services (or some of both) instead of having Boeing’s out-of-state customers support better services.

Washington State lacks an income tax. In fact, as the Institute on Taxation and Economic Policy has found, it has the most regressive tax system of any state in the U.S.: low-income families there pay more than six times the share of their income in taxes than do one-percenters. So any new tax burden shifted from Boeing’s customers would fall extremely unequally.

Boeing’s tax dodging is hardly limited to Washington State. As Citizens for Tax Justice has documented, the company received net rebates of $96 million in state corporate income taxes for the decade 2003 through 2012 despite making more than $35 billion in pre-tax U.S. profits.  For the same decade, Boeing also received federal income tax rebates totaling $1.8 billion.

Of course, the financial benefits of Boeing’s tax avoidance flow to its shareholders, who are disproportionately the global wealthy.

Boeing has also used its power to whipsaw states against each other as a way to suppress wages and benefits. Washington State thought it won a 21-state sweepstakes for the 787 “Dreamliner” line in 2003 with a subsidy package valued at $3.2 billion. But Boeing later built a second 787 line in South Carolina, publicly denouncing Machinists members in Puget Sound for striking.

I say it’s hardly assured Boeing will accept the $8.7 billion offer from Washington State, because it simultaneously demanded a deeply concessionary contract from the Machinists. The day after workers voted it down 2-to-1, the company launched a very public auction for the 777X, with bids already reported in the works from Alabama, California, Georgia, Kansas, Missouri (special session), North Carolina, Pennsylvania, South Carolina, Texas, Utah, and Wisconsin.

Among the union concessions Boeing sought was the termination of defined pension benefits, which would earn, as Seattle Times columnist Dan Westneat explained, a 30-year Machinist about $2,700 a month on retirement. Instead, the company seeks to replace defined benefits with a lesser 401(k) plan. Boeing CEO Jim McNerney has also led the Business Roundtable, the elite U.S. corporate group that has called for raising the Social Security retirement age to 70 and reducing benefits by changing inflation calculations.

But as Westneat points out, McNerney would get a pension of $265,575 per month if he retired tomorrow.  As Westneat put it: “The man presiding over a drive to slash retirement for his own workers, and for stiffs in the rest of America, stands to glide out on a company pension that pays a quarter-million dollars per month.”

The Economic War Among the States, which Boeing is openly stoking and which we have documented is on steroids with a surge in “megadeals” since 2008, is absolutely driving inequality in the United States. Those elite companies with the greatest ability to move capital and jobs—or threaten to move—are taking it to the bank: dodging taxes, enriching shareholders, and using taxpayer-financed subsidy bids as a crowbar to drive down wages and benefits.

What would the Pope and the President say?

 

 


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