Archive for the ‘Subsidies’ Category

Tesla Open Letter Electrifies Gigafactory Debate

August 29, 2014

Early this week Good Jobs First joined its voice with those of progressive organizations in Arizona, California, New Mexico, Nevada and Texas to express concerns about the pending subsidy bidding war over Tesla’s proposed Gigafactory.  In case you missed it, an open letter signed by Arizona PIRG, the California Budget Project, Progressive Leadership Alliance of Nevada (PLAN), New Mexico’s SouthWest Organizing Project, Texans for Public Justice  and Good Jobs First regarding the multi-state competition has been generating growing media attention.  The letter calls for state leaders to seize the opportunity presented by Tesla’s subsidy demands, communicate with each other, and reject the harmful Race to the Bottom.

Much of our daily work at Good Jobs First consists of monitoring massive subsidy packages that often don’t receive much attention in the media.  But events like the Gigafactory bidding war provide an opportunity to break down these complicated issues into smaller pieces that allow a practical public dialogue about job creation, competition, and fairness.

If the growing media coverage of our open letter is any indication, people have been waiting for a vehicle to talk about these issues.  The Tesla competition has allowed stakeholders in all five states an opportunity to express their concerns about business subsidies to their lawmakers as well as be heard by sympathetic ears outside their states.   “We are asking for more transparency, to talk and avoid this hypercompetitive race to the bottom,” Bob Fulkerson of the Progressive Leadership Alliance of Nevada reasoned in an interview with the Reno Gazette Journal.

Chris Hoene of the California Budget Project appealed to fairness: “Why should Gov. Brown (California) and Gov. (Rick) Perry in Texas be acquiescing to the demands of one particular company? They’re running states with multibillion-dollar economies, with much more important issues to be addressed,” he told the Desert Sun.  The subsidy-favoritism angle was also seized upon by conservative columnist Timothy P. Carney, who Tweeted “Two cheers for the Left…” to promote his glibly titled piece “Progressives, for a change, take lead in opposing corporate welfare (for Tesla)” in the Washington Examiner.

In New Mexico, Javier Benavidez of the SouthWest Organizing Project (SWOP) warned the Santa Fe New Mexican about the risks inherent in major economic development subsidies:  “We’re very pro job growth, but these deals don’t always pan out.”   The U.S. Public Interest Research Group echoed SWOP’s caution in Arizona, stressing the need for taxpayer protections.  “Let’s make sure that whatever state ends up with this, however the process is, the company is held accountable for actually delivering on the promises that it’s making,” said Phineas Baxandall.

What began as regional print coverage has developed into a national controversy covered by USA Today, CNBC, CBS News, The Fiscal Times, the Christian Science Monitor and other outlets that have the ability to depict this competition for what it is – symbolic of a multi-state problem in need of a multi-state solution.  The country needs journalists, lawmakers, and the public to engage in a dialogue about how we will together level the playing field for all businesses, how to best pursue economic growth, and at what cost.  At Good Jobs First, we hope the national conversation continues.  It’s past due.

North Carolina Puts the Brakes on Subsidy Spending but Moves Ahead on Privatization

August 25, 2014

North Carolina State Capitol. Image by Abbylabar (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)], via Wikimedia Commons

North Carolina State Capitol. Image by Abbylabar (Own work) [CC-BY-SA-3.0 (http://creativecommons.org/licenses/by-sa/3.0)%5D, via Wikimedia Commons

For the past decade, North Carolina has spent heavily on subsidies, abandoning its previous economic stinginess. In an encouraging new reversal, the Tar Heel State is returning to its old ways. In a just completed short session, the state legislature took two important steps to limit giveaways: it ended one of the country’s biggest film tax credit programs and it defeated a proposal by Gov. Pat McCrory and Secretary of Commerce Sharon Decker to create a deal-closing slush fund. The defeat of the fund also meant the rejection of an expansion of several existing subsidy programs and a special deal for a paper mill.

Not everything coming out of the session was positive. Lawmakers moved ahead with an ill-conceived plan to privatize job recruitment functions of the state’s Commerce Department. The plan was approved despite warnings of problems with similar quasi-public agencies across the country and despite revelations by the N.C. Policy Watch that the Partnership’s CEO lacks experience in economic development and led his company into bankruptcy.

It was the second attempt by the Governor and Commerce Secretary to pass this bill. During the previous legislative session, a similar proposal failed when an amendment that would lift the state moratorium on hydraulic fracturing was added to the bill (the North Carolina chapter in our Creating Scandals Instead of Jobs study has more details on that plan).

The elimination of the film tax credit does not mean that movie producers are being denied all assistance. Replacing the tax credit, which last year cost the state $61 million, is a grant program that is limited to $10 million a year and caps the subsidy amount available to a production at $5 million. Michigan, Iowa and most recently Florida decided that subsidizing movie productions is not a wise investment of public money and eliminated their film subsidy programs entirely.

During the last week of the session, the Governor and the Secretary of Commerce also pushed a package of economic development bills. One of the proposals would have created a special $20 million subsidy fund to lure big projects. However, lawmakers on both sides of the political spectrum were uncomfortable with this “walking-around” money. Some Representatives voted against the bill because they were afraid that the lack of oversight would weaken the state’s control over subsidies (North Carolina has been one of the better states in attaching clawbacks to subsidy deals and disclosing information on the deals).

It was not the first time Gov. McCrory and Secretary Decker tried to create a slush fund. A similar proposal failed the previous legislative session, along with the Commerce privatization bill.

The failed economic development package also killed provisions that would have expanded the Job Development Investment Grant (JDIG) program, one of the most widely used subsidy programs in North Carolina funded by workers’ personal income tax withholdings. The lawmakers also rejected $12 million for Evergreen Packaging’s paper mill in Haywood County. The company is required by the Environmental Protection Agency to replace its old coal-fired boilers. The public financial support would pay for almost one-fourth of the replacement costs.

Gov. McCrory might be calling the legislature for a special session on subsidies before the year ends. Hopefully, lawmakers will stick to their decision to limit the state’s subsidy giveaways.  

The Golden State Gives Out the Gold

August 21, 2014

California traditionally avoided the lavish subsidy packages that other states offer to large corporations to attract investment. In the Good Jobs First Megadeals report last year, there were only two California entries, and they both involved local rather than state money.

In a dramatic reversal, the Golden State is now giving out big pots of gold. The California legislature recently awarded cash-flow
special corporate tax breaks
worth more than $420 million each to two of the country’s largest military contractors.

The state also boosted the pot of money available for film tax credits from $100 million to $400 million. And it may put up a substantial amount to try to win the contest for the huge battery plant planned by Tesla.

The first of the defense megadeals went to Lockheed Martin in connection with its role as a major subcontractor for Boeing on a $55 billion contract the Air Force will award for next-generation stealth bombers.

When the legislature approved the subsidy deal in July, Northrop Grumman, the only known competitor for the bomber contract, cried foul play because the tax break gave Lockheed an unfair advantage.  To appease the company the legislature passed a similar subsidy bill for Northrop last week that was then signed by Gov. Jerry Brown.

Like other defense contractors, Lockheed and Northrop know that to attract political support for their projects, they need to spread their operations around. And in doing so, they manage to get state and local subsidies as well. The Good Jobs First Subsidy Tracker shows that Lockheed has received $134,349,564 in subsidies in 18 states.  Northrop Grumman has received $499,567,863 in subsidies in 9 different states.  Northrop’s most recent subsidy is a $471 million package from Florida. (This megadeal is included in the total and will be added to our database in a forthcoming update.)

Until now Lockheed and Northrop received only modest subsidies in California, mostly in the form of training assistance. California clearly wants to revive its shrinking aerospace industry, but it is unclear that the big giveaways are the way to go.

Defense contracting is a particularly risky bet these days.  With calls for cuts in the military budget coming from both the left and the right, the future of the new stealth bomber program is anything but certain.  If the program goes on the chopping block, California will have nothing to show for its new embrace of megadeals.

What’s Wrong with ALEC’s Subsidy Critique

July 25, 2014

alexexposedAt Good Jobs First we are normally pleased when another organization takes an interest in our issue and adds its voice to the campaign to end the wasteful subsidies given to corporations by state and local governments. Yet when it’s the American Legislative Exchange Council (ALEC) signing on, we can’t be quite so welcoming.

ALEC, a lightning rod for controversy relating to its role in promoting voter suppression, private prisons and “stand-your-ground” policies (read Trayvon Martin), has just issued a report entitled The Unseen Costs of Tax Cronyism: Favoritism and Foregone Growth.

At first glance, the study echoes many arguments we have made since our founding 16 years ago and which Greg LeRoy cataloged in The Great American Jobs Scam. It points out how the granting of special tax breaks for certain corporations (Boeing’s $8 billion deal in Washington State is cited as a “notorious example”) tends to increase the tax burden on other companies and puts them at a competitive disadvantage. ALEC also notes, using the example of the producers of the Netflix series “House of Cards” in Maryland, how companies that get subsidies to locate in a state may later threaten to leave unless they receive even more giveaways.

Yet the similarities to our work go only so far. Rather than an independent research group, as ALECExposed has documented, ALEC is essentially a front for powerful corporations to transmit their state legislative wish lists to business-friendly legislators. Although ALEC’s board is made up of elected officials, the real power in the organization comes from its corporate backers. The most important of these are the 10 companies represented on its Private Enterprise Advisory Council.

We checked those companies against our Subsidy Tracker database (which the ALEC authors choose not to mention, citing instead a New York Times compilation based largely on our data). It turns out that all but one of the 10 companies have received state and local subsidies. In some cases the aggregate subsidy amounts have been enormous: $340 million to Exxon Mobil, $278 million to Peabody Energy, $202 million to Pfizer, $133 million to United Parcel Service, and $89 million to Koch Industries, run by the supposedly free-market purist Koch Brothers. The total for the nine companies is more than $1 billion. The one company in the group that has apparently not received direct subsidies is Energy Future Holdings, but the struggling Texas utility (now in Chapter 11 bankruptcy) is owned by private equity firms led by KKR, whose other portfolio companies have received $55 million in subsidies.

We have no idea whether advisory council members reviewed the report before it was published, but one thing that may have placated them is that the document bends over backward to avoid criticizing companies that accept subsidies. Although the term “cronyism” implies some kind of improper collusion, the ALEC authors claim that taking subsidies should not be viewed as tax avoidance. “Businesses should generally not be vilified or blamed for tax cronyism,” they argue. “The key issue rests with the policymakers who introduce these laws.” The ALEC authors even go so far as to depict targeted tax breaks as a form of “central economic planning.”

We find ALEC’s analysis here historically ill-informed and refer the authors to Jobs Scam for a primer on how corporations and their site location consultants drive the subsidy-industrial complex. Given that history, it is ridiculous to equate the haphazard nature of subsidy policies with any kind of planning.

Although ALEC wants to blame poor policymaking for tax cronyism, the report also fails to acknowledge that big subsidy giveaways are common in states celebrated in the Rich States, Poor States reports written for ALEC by the unreconstructed supply-sider Arthur Laffer. For example, Utah, which Laffer ranks first in terms of its economic outlook and second in economic performance, has given generous packages to companies such as Procter & Gamble, Goldman Sachs, eBay and Adobe Systems.

Besides the hypocrisy and lack of historical awareness, ALEC’s report has another fundamental problem (akin to that of other conservatives such as those at the Mercatus Center): their alternative to “tax cronyism” or targeted corporate tax giveaways are generalized corporate tax giveaways. That is, after decades of declining corporate tax rates and corporate contributions to state treasuries, they want big business to pay even less of a fair share of the cost of public services.

At Good Jobs First, subsidy reform is intended to improve economic conditions for working families and give small businesses a fairer shake; it isn’t about reducing tax rates for corporations like those bankrolling ALEC.

Cook County, IL Succeeds at Truth in Taxation!

July 11, 2014

Screen Shot 2014-07-11 at 3.07.30 PM

One year ago today, Cook County Clerk David Orr announced plans to print TIF revenue diversions on county property tax bills. We previously blogged about this effort, eagerly awaiting this TIF transparency enhancement.

Wait no longer! The Cook County Clerk’s office made good on its promise of taxpayer transparency and has issued property tax bills containing information about TIF for each individual property owner. For that we congratulate them on bringing needed sunlight to TIF in Chicago and other municipalities in Cook County.

We hope jurisdictions across the country take notice of Cook County, Illinois. Taxpayers have a right to know how their taxes get spent. With so much property tax revenue in Chicago never ending up in the city’s general revenue fund, printing TIF costs on tax bills enables citizens to make better judgements about the value of TIF projects and how their taxes get spent. We applaud such efforts.

For more Good Jobs First research on TIF revenue diversions in Chicago, see our 2014 report.

For more about how Cook County printed TIF on property tax bills, see the County Clerk’s website and watch the Youtube Video below:

Missouri Seeks Cease-Fire in Kansas City Border War

July 2, 2014

borderwar01-1200xx900-506-0-85A bill signed this week by Missouri Governor Jay Nixon has the potential to solve one aspect of the wasteful jobs border war currently ravaging the Kansas City metropolitan economy: the use of state subsidies to fuel intra-regional business relocations.  Senate Bill 635 would prohibit the state’s business subsidies from being awarded to businesses relocating within the two-state metro area from Kansas to Missouri.  However, the law will only go into effect if Kansas enacts a companion law limiting its own use of state business incentives in the Kansas City metro within the next two years.

The legislation was sponsored by state Sen. Ryan Silvey (R-Kansas City), who called the practice of subsidizing companies to hop the border “senseless.”  The bill also had the support of the Kansas City Chamber of Commerce, which stated that it was one of its “highest legislative priorities.”  One of the most vocal supporters of the effort to end the border war is a coalition of metropolitan business leaders, who in 2011 submitted an open letter to governors in both states demanding a cease-fire on the use of subsidies for intra-regional relocations.  And in June, while awaiting Gov. Nixon’s signature on SB635, the business coalition again appealed to both leaders in an open letter:

“For the last several years, both states have followed a destructive practice of encouraging a cross border job shuffle. This has cost taxpayers hundreds of millions of dollars and it has generated little or no new economic activity. Neither state is a winner in this game as one state loses tax revenue while the other state forgives it.”

For its part, Kansas has signaled little interest in supporting a companion bill, citing the need of local suburban jurisdictions to pursue their own economic development agendas.  This is an ironic position to take, given the extent to which state subsidies have interfered in metropolitan economic dynamics in the region.  The best way to allow localities to pursue their own economic development agendas would be for both states to stop providing ammunition for the border war.

Subsidizing Corporate Offenders

June 5, 2014

moneybagsontherunIt’s been clear for a long time now that, despite recurring calls to get tough on corporate crime, companies can essentially buy their way out of legal entanglements. In most cases this has come about through the U.S. Justice Department’s willingness to offer companies deferred prosecution agreements. The recent Credit Suisse guilty plea, which is not doing much to impair the bank’s operations, shows that big companies can even go about their business with a criminal conviction.

That’s not the worst of it. It turns out that many of these corporate offenders have received tax breaks and other forms of financial assistance from state and local governments around the country. This does not come as a complete surprise, but it is now possible to quantify the extent to which this unfortunate practice is taking place.

This estimate comes from mashing up two datasets. The first is the Subsidy Tracker I and my colleagues at Good Jobs First have compiled. In recent months we have enhanced the database by matching many of the individual entries to their corporate parents. For 1,294 large companies we now have summary pages that provide a full picture of the subsidies they and their subsidiaries have received.

The other data source is a list of the companies that have entered into deferred-prosecution and non-prosecution agreements with the Justice Department to settle a variety of criminal charges. (Although I refer to these firms as corporate miscreants or offenders, it must be pointed out that they were never formally convicted.)

The list appeared in the May 26, 2014 issue (print version only) of Russell Mokhiber’s excellent Corporate Crime Reporter. Mokhiber obtained it from University of Virginia Law Professor Brandon Garrett, author of a forthcoming book on corporate crime prosecution, and used it for an article showing that the bulk of those agreements are negotiated by a small number of law firms.

I took the liberty of using the list for another purpose: determining how many of the companies also appear in Subsidy Tracker. The results are striking: more than half of the miscreants (146 of 269, or 54 percent) have received state and local subsidies. These include cases in which the awards went to the firm’s parent or a “sibling” firm.

Even more remarkable are the dollar amounts involved. The total value of the awards comes to more than $25 billion. A large portion of that total ($13 billion) comes from a single company — Boeing, which is not only the largest recipient of subsidies among corporate miscreants but is also the largest recipient among all firms. Boeing made the Justice Department list by virtue of a 2006 non-prosecution agreement under which it paid $615 million to settle criminal and civil charges that it improperly used competitors’ information to procure contracts for launch services worth billions of dollars from the U.S. Air Force and NASA.

To be fair, I should point out that not all the subsidies came after that case was announced. In the period since 2006, Boeing has received “only” about $9.8 billion.

The other biggest subsidy recipients on the list are as follows:

  • Fiat (parent of Chrysler): $2.1 billion
  • Royal Dutch Shell (parent of Shell Nigeria): $2.0 billion
  • Toyota: $1.1 billion
  • Google: $751 million
  • JPMorgan Chase: $653 million
  • Daimler: $545 million
  • Sears: $536 million

Altogether, there are 26 parents on the DOJ list that have received $100 million or more in subsidies. As with Boeing’s $13 billion figure, the amounts for many of the companies include subsidies received before as well as after their settlement.

These results suggest two conclusions. The first is that state and local governments might want to pay more attention to the legal record of the companies to which they award large subsidy packages. A company that ran afoul of federal law might not be punctilious about living up to its job-creation commitments.

More broadly, the ability of companies caught up in criminal cases to go on getting subsidies suggests that there is insufficient stigma attached to involvement in such cases. If companies know that they can not only avoid serious punishment but still qualify for rewards such as tax breaks and cash grants, they are more likely to give in to temptations such as fraud, bribery, tax evasion, price-fixing and the like. Without real deterrents, the corporate crime wave will continue.

Reposted from the Dirt Diggers Digest.

Virginia Governor Vetoes Bill That Would Ban Pay-To-Play on Subsidies

May 30, 2014

This week, Virginia Governor Terry McAuliffe vetoed a bill that would have banned corporations seeking Governor’s Opportunity Fund (GOF) subsidies from making contributions or gifts to the elected official awarding those subsidies: in other words, the Governor himself. The bill had unanimous two-chamber support among both Republicans and Democrats, and members of both parties criticized the Governor’s action.

Governor McAuliffe’s primary objection cited in the veto to the bill was that state legislators ought to be held to the same standards. The statute and guidelines state that GOF subsidies are awarded primarily at the discretion of the Governor, though the General Assembly and the Attorney General have a modest oversight role. One co-sponsor of the bill stated that he hopes to re-introduce the bill again next session, though it’s unclear whether the bill will stay in its current form.

It’s a strange moment in Virginia politics. The bill arose out of concern related to the previous Governor’s gift scandal. Just after leaving office in January, former Governor Bob McDonnell was indicted, something that had never happened before in the state.

Is such legislation needed in Virginia?

Good Jobs First previously highlighted an apparent pay-to-play issue in Virginia when McDonnell awarded Northrop Grumman $3 million in GOF subsidies after receiving major campaign contributions from the company.

While banning contributions to politicians from companies seeking subsidies is one way to encourage stronger ethics in government, another approach could be to ban companies from receiving subsidies if they have given or subsequently give contributions to officials awarding or enforcing subsidy contracts. Both would deter pay-to-play practices. Excluding subsidies to campaign contributors would be far easier to implement by shifting implementation away from elected officials and onto agencies awarding subsidies. Just as failing to create jobs can result in recapture or rescission of subsidies, a subsidy contract can undergo a clawback if the agency finds that a company has given to key public officials.

Apparent pay-to-play subsidies are not a problem isolated to Virginia. For example:

  • Texas: As we blogged previously, several newspapers have suggested that economic development subsidies controlled by Texas Governor Rick Perry are tied to fund-raising.
  • Wisconsin: Investigative Reporter Mike Ivey reported this week that the Wisconsin Economic Development Corporation, a privatized economic development agency, has awarded more than 60 percent of $975 million in subsidies to companies that have contributed to Governor Scott Walker or the Republican Governor’s Association.

For decades, state and cities have taken strong stances against allowing gifts and campaign contributions to contractors. Why not ensure the same level of integrity when it comes to economic development spending?

New ProgressOhio Report: JobsOhio Unaccountable and Ineffective

May 29, 2014

ProgressOhioLogo_transp1

ProgressOhio released a report today questioning the accountability and effectiveness of JobsOhio, the privatized economic development agency created by Gov. John Kasich in 2011.  The organization found that JobsOhio “exaggerated its impact, funneled state money to companies that did not create or retain the promised jobs, and has a pattern of helping companies with ties to its politically potent governing board.”

The report was released in conjunction with a discussion hosted by the American Constitution Society.    ProgressOhio Executive Director Brian Rothenberg told the event audience that “JobsOhio is secret because it is private. But we still get glimpses of the toxic mix of public money and private gain.”

Read the full report here.

The Latest from Subsidy Tracker

May 28, 2014

detectiveEarlier this year, my colleagues and I at Good Jobs First introduced a major overhaul of our Subsidy Tracker database. The big change in Tracker 2.0 was the addition of parent company information for entries representing three-quarters of the total dollar value of the dataset. This allowed us to document for the first time the outsized share of subsidy awards received by big business.

In the past three months we have been enhancing the enhancements. We have increased from 965 to 1,294 the number of matched parent companies, which together are linked to more than 31,000 individual awards with a total value of more than $113 billion. Our parent coverage now extends to the full Fortune 1000 as well as the Fortune Global 500, the Forbes list of the largest privately held companies, the Private Equity International list of the top 50 private equity firms (and their portfolio companies) and the Uniworld list of the 300 largest foreign firms doing business in the United States.

Each parent company has its own summary page, which can be accessed through a drop-down menu at the top of the Tracker search form. These pages include cumulative totals for the subsidies received by the company and all its units and subsidiaries; the states in which it has received the most awards; and a list of all the individual awards that went into those totals. Those lists are sortable and downloadable, and they include links to pages with details on the individual entries.

Since the release of 2.0 we have added a variety of new features to the parent summary pages, including indications of the time period covered by the data and the following identifying information: the company’s ownership structure, the location of its headquarters and its primary industry group. (See below for a summary of what these identifiers show.) We have also begun to add other key info sources on the companies, beginning with links (where available) to the firms’ CTJ-ITEP Tax Dodgers pages and to our Corporate Rap Sheets.

Along with the parent pages, we’ve created summary pages for each of the states and the District of Columbia. They show cumulative totals, the parent companies with the most awards and a sortable and downloadable list of all the listings for the state. The top states in terms of cumulative disclosed subsidy awards are New York ($21 billion), Washington ($13 billion) and Michigan ($10 billion).

We have not neglected the task of gathering new data. Led by my colleague Kasia Tarczynska, our effort to find new online and unpublished data has during these past three months resulted in 13,000 new listings, bringing our total to 258,000. Kasia is getting ready to implement a plan for systematically filing FOIA requests for missing data with state and key local agencies.

NEW CUMULATIVE SUMMARY DATA FOR SUBSIDY TRACKER PARENT COMPANIES

Top Parent Companies:

  • Boeing: $13.2 billion
  • Alcoa: $5.6 billion
  • Intel: $3.9 billion
  • General Motors: $3.6 billion
  • Ford Motor: $2.5 billion

Top Industry Groups:

  • Aerospace & military contracting: $14.3 billion
  • Motor vehicles: $13.9 billion
  • Steel & other metals: $8.2 billion
  • Semiconductors: $5.7 billion
  • Oil & gas: $5.3 billion

Top States Based on the Location of Parent Company Headquarters:

  • Illinois: $16.2 billion
  • New York: $13.6 billion
  • Michigan: $8.4 billion
  • California: $8.0 billion
  • Texas: $4.5 billion

Foreign Countries Whose Companies have Received the Most Subsidies for their U.S. Affiliates:

  • Japan: $5.3 billion
  • Germany: $2.4 billion
  • Netherlands: $2.2 billion
  • Italy: $2.1 billion
  • Canada: $1.8 billion

Subsidy Tracker 2.0 has a wealth of new information. Check it out today.


Follow

Get every new post delivered to your Inbox.

Join 52 other followers