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GJF’s Analysis of GASB’s Proposed Standard for Tax Abatement Disclosures

November 3, 2014

For Immediate Release October 31, 2014

Contact: Greg LeRoy 202-232-1616 x 211

Good Jobs First Releases Analysis of GASB’s Proposed Standard for Tax Abatement Disclosures

Washington, DC—Good Jobs First today issued its analysis of the Governmental Accounting Standards Board’s (GASB) proposed new accounting standard for economic development tax subsidies. Using the umbrella term “tax abatements,” for property, income, sales and other tax expenditures, GASB’s proposed new standard will for the first time require state and local governments to report how much revenue they lose to economic development subsidies.

Good Jobs First’s overview page about GASB and the “Exposure Draft” is at www.goodjobsfirst.org/gasb.  That page also links to a detailed summary and critique of the proposed standard at http://www.goodjobsfirst.org/gasb_analysis .

“We applaud GASB for finally ending their long, conspicuous silence on this issue, which costs taxpayers an estimated $70 billion per year,” said Greg LeRoy, executive director of Good Jobs First. “We consider this absolutely tectonic news in the long history of economic development incentive reform. There are many laudable aspects of the proposed new standard. However, we also have many concerns about the draft standard, especially because it could miss many forms of economic development tax spending.”

The Good Jobs First analysis lays out five different tax-based subsidies that might elude GASB’s definition, including tax increment financing (TIF), personal income tax diversions, sales tax diversions, payments in lieu of taxes, and so-called performance-based incentives. It also questions GASB’s decision not to call for project-specific disclosure or for the reporting of future-year obligations.

“Taxpayers and public officials now have until January 30 to file comments with GASB,” said LeRoy.  “We hope everyone concerned will take the time to read our analysis, look at the draft standard, and file comments.”

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GASB Finally Prepares to Step Up! And Who is GASB, You Ask?

October 7, 2014

For many years, we at Good Jobs First have criticized GASB—the Governmental Accounting Standards Board, or “GAZ-bee”— for failing to require state and local governments to disclose economic development subsidy spending in a uniform way.

It appears that’s finally about to change, and if it does, it will be hard to overstate the significance of the news.

As the group that has been successfully shaming states and cities to disclose on subsidies all these years, with our 50-state and 50-locality “report card” studies, and as the group that has been collecting all the public data—and also lots of previously unpublished data—in our Subsidy Tracker database, we are intimately familiar with the irregularities and gaps that exist in these vital public records. And we have long shown how to fix them in our model legislation.

First, a quick primer on GASB: it is the public-sector counterpart to the Financial Accounting Standards Board, or FASB, which issues private-sector accounting rules. Each body oversees its respective set of rules, which are constantly under review and improvement, known as Generally Accepted Accounting Principles, or GAAP.

Adhering to GASB, cities, counties, states (and other government bodies such as school boards and sewer districts) must account for their finances in conformity to GAAP if they want to receive ratings from the major credit ratings agencies (Moody’s, Standard & Poors, Fitch), which they must earn if they wish to sell bonds.

The same is true for corporations of all kinds if they wish to satisfy shareholders, sell debt, or even get foundation grants. Indeed, Good Jobs First’s auditors have to certify us as GAAP compliant in our annual financial statement. All of which is to say: the influence of GASB and FASB is enormous and ubiquitous; they are the arbiters of sound United States bookkeeping standards that protect investors, taxpayers, and consumers every day. (Both are part of the non-profit Financial Accounting Foundation.)

Now, GASB is preparing rules that say: to meet GAAP, governments will have to publish an annual accounting of the revenue lost to economic development subsidies. The proposed wording of these rules has not been issued; all we have are board-meeting minutes of a low-profile process spanning more than two years, as GASB gathers information and debates how best to achieve this new standard.

GASB is using the term “tax abatement” as an umbrella term (not just specific to local property tax exemptions) but “a reduction in taxes… in which (a) one or more governmental entities forgo tax revenues that [an individual] taxpayer otherwise would have been obligated to pay and (b) the taxpayer promises to take a specific action that contributes to economic development or otherwise benefits the government(s) or its citizens.” This would appear to also cover state corporate income tax credits and state or local sales tax exemptions, but apparently not tax increment financing.

As part of that process, GASB even commissioned a survey that included citizens groups, county board members and bond analysts. Tellingly, the bond analysts said they are most keen to see both current and future-year costs. For cities like Memphis, where we recently found that Payments in Lieu of Taxes (or PILOTs) cost the city almost one-seventh of its property tax revenue, such losses are apparently becoming bigger concerns for bond investors.

GASB will have a three-month comment period on its proposed rules starting next month (November).

For all the cost-benefit debates featuring inflated ripple-effect claims that beg the more fundamental issue of cause and effect, we have always said: the only thing that can be said for sure is that development subsidies are very expensive, so costly that they undermine funding for public goods that benefit all employers. Therefore, at the very least, taxpayers have the right to know the exact price of every deal and every program (and the outcome of every company-specific deal). GASB now appears to be moving to make some form of standardized disclosure of tax-break costs a reality for reporting periods after December 15, 2015 (and sooner on a voluntary basis).

Some important details remain to be clarified. Based on the board minutes, it appears that GASB will propose giving governments the option of disclosing individual deals or only programs costs in the aggregate (the latter option would be far inferior). We’ll know for sure when the draft standards are published sometime this month. Good Jobs First will publish a detailed analysis of the draft when it comes out.

But for now, the big picture is simply huge: the body that effectively controls how taxpayer dollars are accounted for is finally catching up to the Wild West of record-keeping known as economic development incentives.

California Bans a Tax-Break Commission

September 17, 2014

For Immediate Release September 17, 2014
Contact Greg LeRoy 202-232-1616 x 211

Good Jobs First Congratulates California for First-Ever Ban of Consultant Commissions on Job Subsidies

Washington, DC – Good Jobs First today congratulated the State of California Governor’s Office of Business and Economic Development (“GO-Biz”) for the first-ever effective ban in the United States of consultants receiving percentage commissions on a major economic development tax-credit program. It also criticized the prominent tax-consulting firm led by G. Brint Ryan of Texas for seeking to overturn the ban.

“This is historic good news for taxpayers and for the economic development profession, and a teachable moment for the public about a questionable practice,” said Greg LeRoy, executive director of Good Jobs First. “We expect it will provoke a backlash from site location and tax-break consultants who may threaten to blacklist California and any state that follows suit, but California is in a strong position to withstand such threats. The best thing that could happen is that many more states adopt the same rule.”

The California ban was installed in emergency regulations issued by GO-Biz on August 8 that became law August 18. It covers one program: the California Competes Tax Credit, a discretionary program totaling about $150 million gearing up for its second competitive round this month. The regulations allow consultant fees, but state in part: “Any contingent fee arrangement must result in a fee that is less than or equal to the product of the number of hours of service provided to the applicant and the industry standard hourly rate for such services.”

LeRoy’s 2005 book The Great American Jobs Scam explicitly called for site location consultants, especially those who negotiate tax breaks, to be registered and regulated as lobbyists so that success fees, a.k.a. commissions, would become illegal. “For decades, secretive site location consultants have profited greatly by orchestrating the economic war among the states, sometimes pulling down commissions of as much as 30 percent of the discretionary subsidies they win for their corporate clients,” explained LeRoy. “They have used confidentiality agreements and the unwritten threat of blacklisting to keep their business practices low-profile. California has just violated this etiquette that is so lucrative for some tax-incentive consultants.”

The California regulations were quickly challenged in a lawsuit by Ryan, the large Texas-based tax services firm that was described at length in the New York Times’ December 2012 series “United States of Subsidies.” Its founder G. Brint Ryan, is a major political donor in Texas and his firm helps fund TexasOne, the organization behind Gov. Rick Perry’s job-piracy trips to other states that Good Jobs First has criticized for their unprecedented levels of political partisanship.

“We congratulate California for a gutsy reform that should inspire many states to follow suit,” concluded LeRoy.

Good Jobs First is a non-profit, non-partisan resource center promoting accountability in economic development. Founded in 1998, it is based in Washington, DC.

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Nevada (for Tesla): Birthplace of the Tax Credit-Capture Zone

September 16, 2014

September 12, 2014

Greg LeRoy, executive director of Good Jobs First, today released the following statement about Nevada legislation for the Tesla “gigafactory” project.

“We are struck by several aspects of this massive subsidy package, which we price at $1.287 billion, or the 12th largest in U.S. history.

“Despite months of rhetoric about 6,000 jobs, the fine print actually does not require Tesla Motors itself to create any specific number of jobs in order to be eligible for the tax credits and abatements. Apparently, the bulk of hiring could be at suppliers.

“The only project requirement to trigger all but one the tax breaks is a total of $3.5 billion in capital investment over 10 years—and that figure covers capital expenditures by Tesla (the so-called ‘lead participant’) and all of its co-located suppliers (named along with Tesla in the bill as ‘participants’). [trigger on pages 2 and 8] [definitions on pages 6 and 7]

“In a scheme we have never seen before, ‘lead participant’ Tesla is entitled to all of the refundable tax credits (up to $195 million) even when the hiring or the capital expenditures generating those credits are made by the other ‘participant’ suppliers. Effectively, this would make the massive industrial campus CEO Elon Musk envisions a Tesla Tax Credit-Capture Zone. [pages 16 and 17] And $120 million of the refundable credits is tied to the $3.5 billion in capital expenditures; only $75 million is tied to hiring. [page 3]

“We also note that the bill requires that only half of the temporary construction workforce and half of the permanent manufacturing workforce be Nevada residents. This supports our argument that a Reno-area facility will likely draw its workforce heavily from nearby California. California could become a huge winner here, with lots of job-creation benefits and no economic development subsidy costs. And the residency requirement, even as low as it is, can be waived. [pages 9 and 11]

“The disclosure requirements for reporting of tax credit transactions and other project activities have numerous problems and grant too much final authority to the Governor’s Office of Economic Development to withhold information from the public.

“The big winners in this deal are Tesla Motors and possibly the state of California. In the history of high-stakes economic development poker games, Nevada will go down as the birthplace of the Tax Credit-Capture Zone.”

An Open Letter to Arizona, California, Nevada, New Mexico, and Texas Officials About Tesla Motors

August 25, 2014

For Immediate Release August 25, 2014

Contact: Diane E. Brown (Arizona) dbrown@arizonapirg.org (602) 252-9227
Chris Hoene (California) choene@cbp.org (916) 444-0500
Bob Fulkerson (Nevada) bfulkerson@planevada.org 775-348-7557
Javier Benavidez (New Mexico) javier@swop.net 505-315-3596
Craig McDonald, (Texas) craig@tpj.org 512-472-9770
Greg LeRoy goodjobs@goodjobsfirst.org 202-232-1616 x 211

An Open Letter to Arizona, California, Nevada, New Mexico, and Texas Officials About Tesla Motors

There is no question that state officials should place a high priority on boosting employment and fostering economy opportunity. But recently our states have been pitted into a race to the bottom from which no real winner may emerge. Tesla Motors’ proposed “Gigafactory” – undoubtedly a valuable source of economic growth for its eventual home state – has been offered to you in an unusual public auction, with the opening bid set at $500 million in subsidies. Since Tesla has chosen to make the process public, we write as unified voices from Arizona, California, Nevada, New Mexico, and Texas to argue that our states have more to gain from cooperation than from competition.

We call upon you to communicate and cooperate across state lines to strike a fiscally responsible deal that is fair to residents and businesses alike. It is time to break the harmful pattern of one state “winning” a high-profile competition, with other states left believing they need to offer even larger tax breaks to win future deals.

Overspending on Tesla – or any other company – could be a net-loss game in which fewer public resources are then available for investments in areas that benefit all employers, such as education and training, efficient infrastructure, and public safety. All state and local taxes combined equal less than 2 percent of a typical company’s cost structure, but lost tax revenue comes 100 percent out of public budgets.

What’s needed are smarter deals, recognizing that all of our states could potentially spend $500 million on other vital public services. Any agreement struck must be fully transparent – no law requires you to negotiate with Tesla or any company behind closed doors – and, furthermore, should include robust provisions for disclosing actual costs and benefits over time. Our states’ residents should feel confident that there are strict performance requirements and money-back guarantees to ensure Tesla delivers what it promises.

Tesla might even be receptive to a multi-state dialogue. The iconoclastic company, internationally known for innovation, could help chart a new path in how economic development is done. The automotive industry – with its far-flung supply chains and 50-state market – is a poster child for the idea that states are interdependent and that the main goal is the long-term growth of American jobs, not any single state’s ribbon-cutting.

We call upon our elected officials to seize this rare opportunity: talk to each other, let the public into the process, and when the time comes, strike a smarter deal that will preserve the tax base for the benefit of all.

Signed,

Diane E. Brown, Arizona PIRG

Chris Hoene, California Budget Project

Bob Fulkerson, Progressive Leadership Alliance of Nevada

Javier Benavidez, Southwest Organizing Project (New Mexico)

Craig McDonald, Texans for Public Justice

Greg LeRoy, Good Jobs First

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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.


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