Business Incentives: Corporate Grand Larceny

Each year, as the New York Times reports in a major expose series, corporations are tapping America’s state and local governments for at least $80 billion in cash grants, free buildings, income tax credits and exemptions, property tax abatements and more.

And what are the companies providing in return? Promises, promises. They assure some city, county or state that with a payout from the public treasury they’ll move their office or plant into the “lucky” jurisdiction. Or alternatively, they won’t desert a facility that’s already there. The companies assure local officials that the payoffs will cement a long-term, special relationship.

For governors and mayors desperate to create jobs, it’s tough to say no. But as the Times notes in its coverage by Louise Story, they’re easily “outmatched” by powerful, billion-dollar global corporations. They have almost no way to fact-check what the corporations tell them about their long-term fiscal viability. They can’t be sure the company won’t skip town if it can capture an even better subsidy from another state or city.

Plus, there’s the immediate politics. The essence of the corporate message to governors and mayors – often relayed by consultants who themselves get a percentage of the payoff – is direct and frightening: “Approve our terms or we’ll go elsewhere. Your state or city won’t get the jobs we’re offering.” The message, subliminally: “Just explain that to your voters.”

The Times reports that General Motors and other automakers have been especially unconscionable players, playing up to one town after another for large subsidies, then pulling out when market conditions shift a few years later.

Stark evidence is offered by the Ann Arbor-based Center for Automotive Research, which reports $13.9 billion in incentives to auto firms since 1985, with General Motors the top recipient. The center found that automakers have closed at least 267 U.S. plants since 1979, with half of the facilities still empty.

The big winners of the subsidy game encompass manufacturers, oil and coal conglomerates, technology and entertainment firms, banks and big-box retailers. General Motors alone has received $1.7 billion in local incentives in the past five years. Caterpillar has garnered more than $196 million in local aid nationwide since 2007. Twitter recently got exempted from $22 million in payroll taxes to agree to stay put in San Francisco – even though it had received some $1.1 billion in fresh private investments.

The Times series is a landmark in U.S. investigative journalism, built on reporter Louise Story’s 10 months of research, in which she interviewed hundreds of sources nationwide. But her work also builds on, and in part draws its data from, Good Jobs First – the gutsy Washington-based nonprofit founded by Greg LeRoy, which has been blowing the whistle on corporate rip-offs for years.

LeRoy’s 2005 book, The Great American Jobs Scam, told the big story of state and local governments forking over massive tax breaks and outright subsidies to private corporations they want to attract, or figure they have to pay off to stay put. Now Good Jobs First staffer Phil Mattera has developed an on-line, open-access “SubsidyTracker,” which includes some 250,000 entries of subsidy deals going back more than a decade. The Times has mounted its own sophisticated database.

Its findings offer some real shockers. Texas state and local governments, for example, are shown to be shelling out at least $19.1 billion a year in incentive programs, a sum equal to $759 – not $7.59 but $759.00 per Texas resident.

Gov. Rick Perry unabashedly leads the campaign to bring jobs into Texas, hunting for corporate catches in such cities as Chicago, New York and San Francisco. And he makes no secret, the Times reports, of Texas’ lush corporate subsidies.

Texas’ job captures have been striking. But its wages are among the nation’s lowest. And work conditions in some of its tax-induced factories are abhorrent. A Texas tax consultant named G. Brint Ryan, connected at the highest levels of Texas state government, apparently makes extraordinary commissions on location and tax deals for major corporations.

There’s a sad reality in America’s rising tide of public wealth diverted into corporate pockets. No new net wealth is created – one city or state’s gain is another’s loss. Taxpayers are being fleeced. Unconscionable income transfer – from poor and middle-class Americans to the stock portfolio class – is being accelerated. State and local budgets, including education funds critical for the nation’s human capital future, are being cut short.

Unfortunately, state-by-state reforms won’t work well. The “good guy” states simply risk losing jobs to the subsidy hawkers. So far, sadly, it’s tough to see a long-term solution short of a federally imposed restraint under the interstate commerce power of the Constitution.

Neal Peirce’s e-mail is npeirce@citistates.com.