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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.

GE Receives Record Subsidy for Cincinnati, Ohio Operations Center

July 22, 2014

Ohio and Cincinnati have agreed to give General Electric a record subsidy deal which will be 1229gemostly composed of its workers’ personal income taxes.  About 1400 jobs will be relocated, from undisclosed locations, as GE locates its Global Operations Center to downtown Cincinnati.  GE projects another 300 new jobs to accept this $98 million subsidy package; that’s about $326,600 per job.

It’s not just the exorbitant cost per job, but also the source of the subsidy dollars: an estimated $51.6 million will Ohio’s  Job Creation Tax Credit (JCTC) program, a subsidy derived from employees’ state personal income taxes.  Essentially the state of Ohio will use the employees’ state withholding taxes to credit GE.  (For more information see Paying Taxes to the Boss.)  This represents the largest JCTC deal Ohio has agreed to since 2003, according to the Ohio Development Services Agency.

Not only will the state sacrifice tens of millions of dollars in tax revenue, but so will Cincinnati. Offered in conjunction with the state JCTC is the City of Cincinnati municipal JCTC estimated at $23.9 million via GE’s local earnings tax.   In short, other states and localities are losing tax revenue, while Ohio and Cincinnati forgive it.

Although the GE jobs will have a projected average salary of $79,000, it is unclear how many of the 1,500 existing jobs are coming from other cities in Ohio versus out of state. To the extent the jobs are already in Ohio, the JCTC will cause a revenue loss for the Buckeye State.

At the very least, Good Jobs First recommends truth in taxation: when a worker’s taxes are deducted from her paycheck and do not actually go to the state treasury, the pay stub should clearly state that GE is getting the money.  Instead of fixing roads or supporting education, healthcare, or public safety, the money will flow into GE’s books.  Those same books stash profits in offshore tax havens like Bermuda and the Bahamas, according to recent findings by Citizens for Tax Justice.