Posts Tagged ‘Yankee Stadium’

Will North Carolina have Nothing to Show for Its Dell Subsidies?

September 9, 2008

Public officials in North Carolina and several other states are reeling from the revelation that Dell is considering the shutdown or sale of its assembly plants. The news that the computer maker is considering an exit from the manufacturing side of the business came in a front page story in the Wall Street Journal. Dell has not denied the report, which said the company might sell some of the plants to contract manufacturers and shutter the rest, but it has not provided specific details on its intentions.

Anxiety about Dell’s plans is especially intense in North Carolina, which went to great lengths in 2004 to put together a state and local subsidy package worth more than $250 million for an assembly plant in Winston-Salem. The deal was negotiated by the Department of Commerce and pushed through the state legislature in a special session with scant debate or analysis. The incentives package included a computer manufacturing tax credit, job investment grants, tobacco settlement fund grants, training incentives, transportation infrastructure grants, workforce development grants, sales tax refunds, waiver of property tax for 15 years and 200 acres of free land. In 2004, Governor Mike Easley estimated that the Dell plant would employ 8,000 people; so far, however, it has hired only about 1,150.

Along with the Winston-Salem plant, Dell owns 11 other manufacturing and distribution centers in Austin, Miami, Nashville, Brazil, Ireland, China and Poland.

Last March, however, Dell closed its facility in Round Rock, TX eliminating 900 jobs.

According to the Journal, Dell is in talks with manufacturers in Asia, who could either operate the plants on a contract basis or buy them outright. It is unclear whether those contractors would be willing or able to operate plants such as the one in Winston-Salem. A key complication would be the subsidies. There is no apparent precedent in North Carolina for transferring incentives to a new owner, which might not want to take on the job-creation provisions of the deal.

Dell spokesman David Frink has declined to comment on the report, instead stating, “we will continue to evaluate and optimize our global manufacturing and distribution network.” Bob Leak, president of Winston-Salem Business Inc., the local economic development agency, said he was not aware of any changes to Dell’s future in Winston-Salem.

In their negotiations of the Dell deal, North Carolina, Forsyth County and Winston-Salem bent over backwards for the company. They assumed that throwing subsidies, tax breaks and other incentives at a successful corporation was a smart economic development tool. Now they may regret putting so many of their eggs in one corporate basket.

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Posted in Clawbacks, Subsidies | 1 Comment »

Indiana City Enacts Clawbacks Extending Past Tax Abatement Period

September 4, 2008

A growing number of state and local governments are applying clawback provisions to economic development subsidies to be sure companies live up to their job-creation promises. Unfortunately, these provisions are not always enforced and usually are unenforceable after the subsidy period has expired.

The city of Portage, Indiana (east of Gary) recently took the unusual step of strengthening its clawback provisions relating to business tax abatements so that they remain in effect for five years beyond the duration of the abatements. The Portage City Council approved the new rules after growing frustrated at the number of companies that were leaving town after the abatements expired.

“A lot of times, we made investments, and companies got up and left,” Edward Gottschling, Portage City Council Member told Good Jobs First. “We want businesses that are going to stay here, not ones that will pick up and leave after abatement period ends.”

The new rules also strengthen the ability of the city to seek payment of abated taxes even during the subsidy period. Companies are required to provide an annual report to the City Council with the number of employees and level of wages to ensure that they are following the stipulations of their application. The penalties for infractions include discontinuation of the abatement and repayment of remitted taxes. The current abatements are grandfathered in and are not subject to the new clawbacks. If a company wants to apply for an additional abatement, however, they are required to meet the new requirements. As Donna Pappas, Clerk Treasurer of the City of Portage told me over the phone, “We’re trying to develop a diversified economy within our municipalities and at the same time look out for our residents and this is going to help us.”

A similar clawback provision is on the books in Ohio, where a company receiving state income tax abatements must stay at its original location for at least twice the number of years as the term of the tax credit. Other cities would be wise to follow suit and enact similar provisions to hold companies accountable to communities.

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Posted in Clawbacks, Subsidies | Leave a Comment »

Volkswagen’s Tennessee Subsidy Deal: Are Taxpayers Being Taken for a Ride?

July 24, 2008

Tennessee officials are still celebrating Volkswagen’s announcement last week that it will build a new assembly plant in Chattanooga, describing it as a big step toward their state becoming the nation’s number one auto producer. The state has apparently at least gained the more dubious status of providing the biggest subsidies to date for a foreign-owned carmaker–a package reportedly worth at least a half billion dollars.

According to reporting by Chattanooga Times Free Press reporters Andy Sher and Dave Flessner, the state and Chattanooga-area local governments have pledged the following to land the $1 billion investment and related 2,000 jobs:

1,350 acres of land worth $81 million.

At least $30 million for worker training improvements, and a $6 million technical training center.

$43 million in road and highway improvements, and $3.5 million for rail connections.

$200 million in job tax credits over 20 years.

Between $150 million to $350 million in property tax breaks over 30 years, depending on how well Volkswagen meets job and investment targets. However, VW will pay the education portion of property taxes, about $5.5 million yearly.

Other subsidies of unspecified value, including machinery sales tax exemptions, and low cost loans and energy credits from the federal Tennessee Valley Authority.

Michigan and Alabama were reportedly Tennessee’s main competitors for the VW plant, although the strong United Autoworkers presence in Michigan seems to have made that state a distant third.

Putting the cart before the horse, Tennessee’s economic development commissioner said the University of Tennessee would do a cost-benefit analysis of the VW deal later this year, after its costs are fully known. That this evaluation will be very critical may be doubted since a previous UT study of the Nissan headquarters deal (which cost Tennessee state and local governments $197 million) reportedly attributed to it an unlikely economic benefit of half billion dollars a year.

Tennessee Governor Phil Bredesen, a Democrat and former Nashville Mayor with a history of getting big subsidies for computer giant Dell, Nissan and a football stadium is unembarrassed by the deal’s cost:“I don’t know whether it’s fair that a Mercedes Benz costs $90,000, I just know if I want one that’s what I’ve got to pay.”

Whether a half billion dollars, or $250,000 per job, is in fact the real going rate for an auto plant is less clear, however. The exact importance of subsidies in a company’s location decision remains locked in “a black box”, but is generally limited. In fact, VW spokespeople acknowledged the attraction of the incentives but stressed the particular importance of those for worker skills and site preparation, which form a comparatively small part of the mammoth package.

Successive interstate competitions for big auto assembly plants–which began in the Midwest in the 1970s and have occurred repeatedly in the South over the past decade–have often led to overspending as states try to outbid each other, and then to a sense of fiscal hangover when the competition is over.

Although the euphoria and industrial recruitment folklore surrounding the deal—Senator Lamar Alexander serenading VW executives with a rendition of “Chattanooga Choo-Choo”– seem to have at least delayed that hangover’s onset. The euphoria has also muted concerns about whether, how and when Tennessee will recoup its “investment,” but those concerns are real.

For example, Tennessee officials promise that new auto supplier firms —which may themselves get subsidies to locate near VW– will help offset the deal’s costs. But Business Week has suggested that numerous such firms already located in Alabama and elsewhere in the South could serve the plant with existing capacity. And Alabama is already scheming to land suppliers for the new plant. Continued intense competition like this between Tennessee and other states, and between VW and its competitors, may eventually make the state’s huge subsidy deal seem more like a costly gamble.

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Posted in Federal Job Subsidies, Jobs, Property Taxes, Subsidies, Unions | 2 Comments »

North Carolina Group Calls for More Sunshine on Tax Breaks

May 15, 2008

The Corporation for Enterprise Development (CFED) is making hay with a new calculation that 90 percent of economic development spending in North Carolina last year was funded through tax incentives. That’s up from 77 percent in 1995/96. Moreover during the same period, the state’s outlay for economic development has about doubled, growing to $1.29 billion.

Tax breaks for economic development are huge in most states; it’s no exaggeration to call appropriations the tip of the iceberg and tax expenditures the bottom. However, since tax spending is often poorly accounted for, legislators often continue to approve more of it while cutting outlays to other programs, even when states struggle with deficits. In At What Cost? North Carolina’s “Budget” for Economic Development, CFED recommends increasing accountability standards for state tax expenditures.

CFED obtained the data from a one-time report released by Fiscal Research Division of the North Carolina General Assembly. CFED recommends that the state continue to publish these reports on a regular basis and adopt universal performance measures on which to judge all subsidy programs. To date, only a few states have institutionalized regular reports (called Unified Economic Development Budgets or UDBs) on spending line items for economic development, including the cost of subsidies.

However, several state watchdog groups have created their own UDBs. In Kentucky, the Mountain Association for Community Economic Development published an exemplary UDB in 2005. However, watchdog UDBs are not a permanent solution, since it is ultimately too much work for a non-profit and should be the states’ responsibility.

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