July 2005

Playing state against state, city against city

"The issue isn't just jobs. Even slaves had jobs. The issue is wages." --Jim Hightower


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What do you think of bums who come into our towns asking for handouts as though they have some right to expect us to underwrite their existence? I don’t mean the poor disheveled souls with street names like “Skeeter” and “Gimpy” standing at busy intersections with handwritten cardboard signs saying: “Anything will help. God Bless.” No, I’m talking about the real bums, with names like Wal-Mart, Intel, Tyson, Home Depot, Boeing, Dell, Toyota, and Borders. There are two things that these outfits have in common: They are highly profitable, multibillion-dollar corporations… and they all go town-to-town, state-to-state, with their hands out, bumming subsidies from us taxpayers. It’s not spare change, eitherthe pinstriped bums suck up a whopping $50 billion a year in giveaways doled out by our governors, mayors, and other officials. Rather than tattered cardboard signs, the corporate pitch comes in the form of power-point presentations, using the gobbledygook of “job creation” and “economic growth.” When GreatBigGlobalGiantCorp sweeps into town to meet with wide-eyed local politicos, the pitch goes something like this: “We just might build a new facility right here in Greater Bugtussle, creating beaucoup new jobs and scoring big political points for you, Mr. Mayor. All we’d need to seal this sweet deal is for the city and state to give us a few (ahem) ‘incentives’ to locate herelike, say, a truckload of cash, 40 acres of land, some new buildings and roads, free water and electricity, and an exemption from property taxes. Oh, and by the way, the governor and the mayor up in Recessionville, Ohio, already are promising us all this plus they say they’ll personally wash our cars for us once a week if we locate there. But we like the climate and cheap workforce here, so what say y’all come up with a package that makes our hearts go pitty-pat?” Incredibly, not only does this corporate come-on work, but publicity-seeking politicians all across the country are crawling over each other to be the one who throws the most public money at these hustlers. The giveaway game literally has become a gamea competition between politicians trying to “win” a corporate facility. For example, when Tyson Foods gleefully snapped up the $10 million offered by Texas Governor Rick Perry to locate a plant here rather than in Oklahoma, Perry, who like his predecessor W is a former college cheerleader and dimmer than a burned-out flashlight, gloated about “beating Oklahoma,” as though our team had outscored theirs on the gridiron. Corporations, of course, have become real pros at pitting one state’s politicians against another’s, and they are the only real winners in this rigged game.

"Two wrongs don't make a right, but three left turns do." --Jim Hightower


The Intel shell

If you want to see a massive monument to this scam, come to downtown Austin, Texas. In 1999, the politicos and business establishment of my city were giggling with joy and high-fiving each other at a press conference called to announce that they had “won” a glorious new corporate bauble for us. Intel, the world’s largest maker of semiconductors, would grace our skyline with a 10-story building to house its new chip-design center, bringing hundreds of new jobs to our fair city. The bait that had hooked Intel, our leaders gloated, was $10.6 million in incentives from us lucky taxpayers. Less than two years later, the deal soured. Intel honchos announced that Texas taxes on capital equipment were too high for their taste (never mind that corporate taxes are actually next to zilch in our state), so they were backing out, even though they had already pocketed some of our incentives. No gloating politicos attended this announcement. Intel left us taxpayers not with a gleaming structure but an embarrassing eyesorean unfinished, six-story, concrete skeleton standing starkly on a prime piece of downtown land. Five years later, Intel’s shell is still there, surrounded by an eight-foot chainlink fence, topped with three rows of barbed wire and lit up at night by the glare of security lights. You’ll be delighted to know that you get to help bail us out of this embarrassment. The federal government using your tax dollarshas bought the property from Intel. It will tear down Intel’s Insult to Austin and build a courthouse there. At least taxpayers will get something for their money this time. Meanwhile, Intel has unabashedly moved its shell game down the road, taking the game to a remarkable new level. Even though the corporation admits that it has no actual plans to build a new facility, it has launched a new divide-and conquer competition among such states as Arizona, New Mexico, and Oregon to see which one will bow the deepest and offer the most in tribute just for the possibility that Intel’s ruling lords might sometime in the misty, distant future give them consideration. Arizona, for example, literally changed its business tax laws this year specifically to suit Intel, should it ever deign to expand there. This special gesture was acknowledged by an Intel functionary who snootily noted that without such corporatefriendly tax laws the state was simply unattractive for corporate expansionists. Not every Arizonan was charmed. “Intel, to me, is one of the biggest culprits of trying to pay no taxes and get something for nothing,” says a pro-business state senator who calls such corporate demands “blackmails.” Not to be outdone, Oregon officials jumped into the game with a promise of $579 million in tax breaks should Intel ever choose to smile on their state. And New Mexico has also prostrated itself on the corporate altar by taking on $16 billion in bond debt in order to offer Intel special 30-year tax abatements. Far from being grateful or even modestly humbled, Intel executives see such sacrificial offerings by governments as their lordly due. Indeed, they are now playing the offshore card, proclaiming that state and local governments must do more for them or they’ll haul off to Asia for all future expansion.

The scam

Obviously, the public purse (which is already so strained that most states and cities aren’t meeting basic needs in education, health care, infrastructure repair, etc.) should not be tapped to play this game, diverting huge sums of taxpayer dollars to some of the richest corporations on the globe. The giants certainly don’t need the money, but here’s the carefully kept secret that exposes the incentive game as one of the biggest scams ever pulled: Corporations do not base their expansion decisions on state and local giveaways. It’s nothing but a game, created during the past 30 years by corporate interests to convince gullible politicians, the media, and the public that this “pay to play” scam is a legitimate use of public dollars and a central element of corporate decision-making. Nonsense. Corporations decide where they’re going to locate based on real business factors. It’s after that decision is made that they try to score the taxpayer funds. They whipsaw officials in the state or city of their choice by pretending to be interested in other locations, generating a bidding war to jack up the payola they demand from the place they were going to from the start. It’s simply a scam to extract free money from the public. Paul O’Neill, former CEO of Alcoa and George W’s first treasury secretary, put it bluntly: “As a businessman, I never made a decision based on the tax code… If you are giving money away, I will take it. If you want to give me inducements for something I am going to do anyway, I will take it. But good business people do not do things because of inducements.” Greg LeRoy, a diligent watchdog on these incentive schemes and author of a powerful new book entitled The Great American Jobs Scam, points out that the great bulk of the giveaways are in the form of tax abatements that let corporations dodge paying their share of a community’s public services. Yet, he notes, state and local taxes amount to only 0.8% of the average corporation’s total cost of doing business. CEOs with IQs above room temperature are not moving to East Jesus based on an incremental change in such a small factor. Rather, they move based on proximity to their market and suppliers, availability of good transportation, labor cost and quality, water availability, educational resources, and quality-of-life issues. Again, look to my state for an example. Last year, we Texans ponied up $35 million to CITGO, an oil corporation wholly owned by the government of Venezuela. Again, our dim-bulb governor was giddy, admitting that CITGO’s honcho had called and asked for taxpayers’ money, which he gleefully gave away, claiming that this was the sweetener that prompted the oil giant to transfer its U.S. headquarters and 700 jobs from Tulsa to Houston. But the guv got duped. CITGO chairman Luis Martin confided to the media afterward that he had already chosen Houston because there is a cluster of energy firms and expertise there, it’s closer to CITGO’s Gulf Coast customers and refineries, and it’s within easy reach of the corporate home in Caracas. A Texas state representative, aghast at this mindless giveaway of state money at a time when our school system is grossly underfunded, said: “The chairman of CITGO said that the company would come to Houstonno matter what. I don’t think the leaders of Texas have the right to give millions of dollars to people who don’t need it. This is the rich getting richer off somebody else’s money.”

Jobs, jobs, jobs!

The corporate executives and political henchmen who pull off these heists should have to wear ski masks at their press conferences, but instead they hide behind one little word that they shout incessantly and at full volume: JOBS!!!The invariable claim is that this shoveling of public money into corporate coffers is all about helping the working stiffs by bringing a mother lode of new jobs to town. This is where the scam turns sordid. As documented by LeRoy and others, the suits talk big about jobs, but the promises almost never are put in writing and are rarely fulfilled: • In Kentucky, state officials bestowed tax credits worth $132 million on Willamette Industries as an incentive to expand its paper mill in Hawesville. Under the terms of the deal, the corporation had to create additional jobs. How many? Fifteen. That’s $8.8 million per job! A Willamette exec says that they actually hired 105 new workers. Swell. That brings it down to $1.26 million per job. • In 2003, Boeing set off a bidding frenzy when it announced it would build a $500-million factory somewhere. Forty cities and states came bearing sweet packages to try to “win” the 1,500 jobs Boeing was promising. The top bid came from Seattle, where the city and state offered $3.2 billion in subsidies. Hello! That’s more than $2 million for each job. Even spread over the 20-year term of the deal, taxpayers were putting up $100,000 a year per jobway more than any worker would ever get. • MLT, a subsidiary of Northwest Airlines, announced in 1999 that it would open a 600-job call center in Minot, North Dakota, after accepting $10.7 million in subsidies. Barely two years later, after having consumed the subsidy (even though it had employed only 400 people), MLT said it was cutting 20% of its Minot workforce. A state audit found that officials had no documentation of how many jobs MLT actually created. It was later learned that jobs subsidized by Minot’s economic incentive scheme paid 25% less than the average wage in the area. When the public was given a chance to extend the subsidy program, 68% of Minot voters rejected it. • After a Massachusetts incentive program waived $43 million in state taxes to entice corporations to add jobs, a 2002 report found that a third of the corporations had not bothered to file annual reports on whether they were really creating the promised jobs. That’s just as well, because the economic development agency had not monitored the progress of corporations that did file. Worse, when Fall River officials tried to cancel the tax breaks of 10 companies that failed to meet their obligations, the state agency blocked the city’s action. “They told us they didn’t care that these companies didn’t meet their job creation goals,” Fall River’s mayor said in disgust. Study after study has been done on these giveaways, and the overwhelming conclusion is that they create neither jobs nor economic growth, with the clear winner being the corporations that pocket the one tangible benefit that incentive programs deliver: taxpayer cash. The Council of State Governments, for example, analyzed academic studies and concluded that there is “no statistical evidence that business incentives actually create jobs.” At this year’s National Governors Association meeting, economist Robert Lynch, who has studied corporate incentives extensively, said, “My research over 20 years says they’re not effective. States that give up the most in incentives don’t have more firms relocating than any other state.” Then there’s the “Mississippi Test.” If incentives are such engines of economic growth, why are states like Mississippiwhich is an aggressive player in the giveaway gamestill…well, Mississippi? After decades of enriching corporate saviors, it still dwells at the bottom of state rankings in jobs, wages, health care, education, and other measures of economic well-being. Likewise, my own great state, Texas, which has thrown around incentive money like it’s confetti and held more corporate ribbon cuttings and photo ops than any other state, remains stuck on the bottom rungs of those same state rankings.

Corporatists

As a former comptroller of New York State said, “State economic development would improve when the number of ribbon-cutting events declines.” But governors and mayors of both parties have shown themselves to be corporatists, more interested in the appearance of economic development than in the real thing. Better to get the big splash of publicity that comes with a brand-name corporate “win”even if it won’t really create jobs, much less well-paying jobs; even if it taxes local businesses to pay for a deeppocket competitor to enter their market; even if it shifts the tax burden from the corporate elite to the rest of us; even if it means that government officials are deliberately distorting the marketplace and choosing economic winners; even if it squeezes out independent, grassroots business, which is the real job and growth creator; and even if it diverts public budgets from our real needs into the coffers of global giants. Real economic development comes not with a splash, but from the steady drip, drip, drip of grassroots investment that matters: Topquality schools, job training, good wages, a health-care system that works for all, small-business loans, good transportation systems, a fair tax system, clean air and water, public parks, and libraries. Even the staid Wall Street Journal has opined against “the handout game,” saying that political leaders “ought to attend to competitiveness by maximizing the appeal of their jurisdiction to every kind of enterprise, not just those with a big snout.”

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