The corporate shakedown of state and local governments had another perpetrator last week in Virginia — the giant IBM corporation, which brought the Toshiba company along for the deal.
“Virginia promised IBM Millions to Get Chip Plant” was the headline in the Washington Post. To attract a new computer plant to Manassas, Virginia, both the state and local government were lavish with taxpayers’ dollars.
In a deal that was negotiated in total secrecy, the state agreed to pay $38.4 million over five years and another $10 million in training and tax credits. Manassas will cut its city taxes to make a $95 million bonanza available to IBM and Toshiba plus other valuable facilities development.
In return, IBM and Toshiba said they would build a $1.2 billion plant with 1200 workers. Not enforceable with a bond, just a promise to keep or not to keep depending on company policy.
Dealing out massive corporate welfare subsidies, without the direct participation or consent of the taxpayers, is now a business for states and cities around the country. They hire industrial incentive specialists to broker the deals and compete in a frenzied kind of auction that savvy companies know how to publicize and manipulate.
Remember the Saturn (GM) frenzy. Six Governors went on the Donahue show to outbid each other for the auto plant to be located in their state. The auto lord of the manor — General Motors -looked on with mouth drooling anticipation.
In the early Eighties, GM got away with another $350 million local, state and federal taxpayer subsidy package in order to agree to build an automated car plant just inside the Detroit city lines instead of a few thousand yards away. GM promised 6000 jobs but delivered less than 3000 jobs. However, none of the 400 acres, property tax abatements and other goodies were reduced proportionately. Hundreds of homes, dozens of small businesses, schools, churches and other artifacts of this working class neighborhood were bulldozed by the city’s power of eminent domain to make way for a plant that never needed more than one quarter of that space.
In New York City, the shakedown has become a staple of the financial industry. Anytime a brokerage firm or investment company lets it be known that nearby New Jersey beckons with an “incentives package’, New York’s city hall works up a $50 million or $100 million “retention” package to keep the firms where they are.
Never mind that the company may have been dissembling about its moving away, in the first place, or secretly intending to establish a plant, for other economic reasons, in the location before stimulating a subsidy package there. What counts is how much a profit-glutted corporation can squeeze out of a desperate community.
The Intel corporation cannot keep up with its profits -expected to reach $4 billion this year and rising. Rio Rancho, New Mexico, a town of over 40,000 people, decided to bet the store to get a new Intel plant, along with other factories. Last April, the Wall Street Journal reported that the town gave away so much of its property and equipment tax base, and incurred so many other liabilities, that its inadequate schools are suffering, with some students having to use outdoor toilets.
Having given what Intel called an “ideal incentive matrix”, Rio Rancho is witnessing selected private affluence and public deprivation of its community.
There is also an inequity inflicted on existing businesses and homeowners when the privileged and immunized big guy comes to town. These local taxpayers either have to pay higher taxes to make up the difference or lose necessary public services.
The taxpayers’ cost for each job that is attracted can be quite sizable. The Indiana subsidy package to United Airlines in 1990 amounted to $50,000 per job, while the Minnesota deal for Northwest Airlines cost $558,000 per job. Foreign companies such as Fuki-Isuzu and Mercedes Benz are playing this get on the taxpayers’ back game as well. Mercedes took Alabama taxpayers for $150,000 per job.
Big taxpayer money is at stake for these so-called free enterprisers. Minnesota shelled out nearly one billion dollars in corporate welfare through tax abatements, direct grants and low interest loans last year.
Is all this economically prudent? Is this at all fair to taxpayers? Numerous academic studies over the years have answered no. They say, companies rely on other factors to decide location, but take the intense bidding by communities as icing on the cake. Cheap labor, energy, water, transport, schools and other factors count more heavily.
So while states and localities grovel and fight it out against one another in a race to the bottom, political leaders make no effort to develop an interstate compact, open procedures and accountabilities to make these companies behave.
This “incentives” game is a one-sided commitment. After GM received $1.3 billion in tax breaks from Ypsilanti, Michigan since 1975, GM decided to close the plant down in 1992 and move to Texas. The town lost a law suit that demanded some refunds. The appeals court ruled that GM had no legal obligation for its part of the “bargain.”