States, counties and cities are in a race to the bottom because they are giving away taxpayer dollars to provide incentives for corporations to locate withing their boundaries. There’s a fierce competition going on and corporations are playing one region off against another. Whichever one comes up with the largest package of cash grants and loans, sales tax breaks, income tax credits and exemptions, free services, and property tax abatements wins.
Corporations hire people whose job it is to get them the best package. Mayors and Governors desperate for jobs for their citizens are giving away the store with the consequence that schools, parks and police and fire services are underfunded. City employees are forced to take pay and pension cuts in order that corporations can report to shareholders that they got the best possible deal.
And there is no guarantee that once these corporations have received said financial incentives that they will ever provide the jobs or that they won’t pull up stakes after a short period in order to take advantage of even better incentives elsewhere. According to a New York Times investigation, states, counties and cities in the US are giving up more than $80 billion per year in order to get corporations to build plants or even offices in their areas.
The beneficiaries encompass oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains – even dental offices, architect firms and wineries!
There are mayors and governors who are desperate to create jobs and who don’t have the expertise to negotiate with corporations or even fact check what they are telling them. Corporations demanding subsidies threatened to move jobs overseas if they did not get subsidies in the United States. The state of Texas awards more incentives, over $19 billion a year, than any other state. As a consequence,Texas has the most underfunded school system in the whole country.
Recently there was a border war between Kansas and Missouri. Last year Kansas recruited AMC Entertainment away from Missouri. This required a move of only a few miles from one side of the border to the other. In return Missouri lured Applebee’s headquarters across the border from Kansas. The workers just had a littler farther to commute, that’s all.
The main victims of these wars between states and municipalities are the school systems which become underfunded by virtue of the loss in tax revenues because money is diverted from public education to corporations. Last year states cut public services and raised taxes by a collective $156 billion. Politicians want to be able to claim that they’ve brought new jobs into their state.
The government of South Carolina recently took on a $218 million debt in order to get Boeing to locate a plant there and gave the company tax breaks for ten years.
The state of Michigan gave General Motors $779 million in tax credits in 2009 just a month after GM received a $50 billion Federal bailout and decided to close seven plants there. These are just a few samplings of the horror stories out there that result from the absurd competition going on among various political entities and jurisdictions.
Cabela’s sporting goods chain put the Mom and Pop sporting goods store, Weaknecht’s, out of business in Hamburg, Pennsylvania based on tax giveaways. They had the local politicians in surrounding counties in Delaware, Pennsylvania and New Jersey competing with each other to see who was willing to pay the most in tribute to the sporting goods chain. They wanted at least $32 million. At this rate subsidies would cover more than half the cost of construction. Cabela’s wanted an exemption from paying property taxes. But that wasn’t all. They also wanted to pocket all the sales tax. According to David Cay Johnston in the book, Free Lunch:
“The tribute Cabela’s demanded from Hamburg amounted to roughly $8000 for each man, woman and child in town. Hamburg was not a unique example, but part of a strategy to build Cabela’s stores across the country. Multiply the tribute in Hamburg by as many struggling little towns off the interstates as Cabela’s has plans for retail stores and the figures balloon. Cabela’s plans to build stores until, like Holiday Inns, it is everywhere.
Imagine how many of those towns are run by burghers who could be persuaded to opt for hope and forget about reason. To become the dominant outdoor retailer Cabela’s would need only to find a few dozen or, if it could, a few hundred towns whose political leaders were willing to pay tribute. By doing so it could cut the risks of expansion and gain an advantage over business owners like Jim Weaknecht who offered better service and lower prices. Mining local and state governments for tribute could even turn into a business more lucrative for Cabela’s than actually selling sporting goods.”
President Bush and Dick Cheney campaigned at Cabela’s in 2004 and Dick Cheney let on that it was his favorite place to shop. Presumably, it’s where he bought the gun that shot his hunting companion in the face. Dick and Mary Cabela gave $11,000. to the Bush campaign.
Since he closed his store, Jim Weaknecht has worked as an assistant manager at a grocery store chain. He holds down a second job to in order to make ends meet, and sent his wife out to work for the first time instead of caring for the children. Cabela’s offered him a job for $13.50 an hour.
In California Twitter cashed in on $22 million in payroll taxes after it threatened to leave San Francisco last year. It really didn’t need the money. A Saudi prince invested $300. million and a private consortium, another $800. million. But Twitter was able to report to shareholders that it had made them as much short term money as it possibly could have. While the two investors got Twitter equity, the city of San Francisco got a hollow promise that Twitter would stay put. Of course there would be no consequences if it didn’t. The New York Times reported:
Like many places, San Francisco has been cutting its budget. Public parks have lost about $12 million in recent years, though workers at Twitter will not lack for greenery. The company’s plush new office has a rooftop garden with great views and amenities. Enjoying the perks, one employee sent out a tweet: “Tanned on Twitter’s new roof deck this morning as some dude served me smoothie shots. This is real life?”
Rick Perry likes to brag about all the jobs he’s creating in Texas even though the state has the third highest proportion of hourly jobs paying at or below minimum wage and the 11th highest poverty rate among states.
During a visit to San Diego, he bragged to local officials that about a third of the companies moving to Texas were from California according to Ruben Barrales, the chief executive of the San Diego Regional Chamber of Commerce. Mr. Barrales said that Rick Perry visited San Diego quite often and let companies know that if they chose to relocate,Texas would greet them with open arms. When he was asked if he had qualms about taking jobs from other states, Rick Perry said, “Competition is what drives this country.”
California spends at least $4.17 billion per year on incentive programs, according to the most recent data available. That is roughly:
- $112 per capita
- 5¢ per dollar of state budget
California’s incentives and subsidies include:
- $2.29 billion in Corporate income tax credit, rebate or reduction
- $1.44 billion in Corporate income and personal income tax breaks
- $386 million in Sales tax refund, exemptions or other sales tax discounts
Twitter and Tesla Motors got a combined $42 million in corporate income tax credits, rebates or reductions from the state. Northrop Grumman got $9.8 million in 13 free services from the state. Hyatt Corporation got $3.07 million for 2 free services statewide. Raytheon got $2.74 million for 6 free services. The National Alliance of Business has received $1.08 million for two free services. Dunn-Edwards Corporation received $809,030 for 4 free services. Exxon Mobil received $596,596 for 1 free service.
The following is a not even an exhaustive list of subsidies to corporations in San Diego County:
Foundation College, LLC has received two grants worth $2.95 million for free services. Aetna, Inc has received $2.82 for 4 free services. Foundation Foods LLC has received $2.35 million for 3 free services. Comprehensive Training Systems has received $1.17 million for 4 free services. Prime Healthcare Services received $749,658 for 2 free services. BAE Systems received $688,563 for 5 free services. General Dynamics received $583,364 for 1 free service. Rohr, Inc received $459,432 for 2 free services. Invitrogen Corporation received $387,810 for 1 free service. Coxcom, Inc received $343,477. for 1 free service. Calloway Golf received $338,016 for 2 free services.
The following have received subsidies for various amounts of free services:
San Diego Paradise Point Resort – $331,760. MSS Technologie Inc – $304,709. Pharmingen – $301,252. San Diego-Imperial Counties Labor Council – $278,700. Remek Defense and Space Inc – $192,190. Southwest Marine Inc – $190,320. Geico – $149,682. Ericsson Wireless Communications – $90,320. Elgar Corporation – $171,984. Unisys Corporation – $163,475. Technology Integration Group – $143,691. Viasat Inc – $141,911.
Avail Medical Products Inc – $133,816. Cubic Defense Applications Inc – $114,525. Harbor Packaging – $110,235. Gemini Plastics Inc – $89,896. Sempra Energy – $89,136. Booz Allen Hamilton – $81,844. Spa Builders Support Group Inc – $81,150. Eaton Leonard Inc – $77,586. General Atomics – $76,963.San Diego Convention and Visitors Bureau – $76,640. Stillman Seal Corporation – $66,560. Hughes Network Systems – $64,350. Z Microsystems Inc – $63,084.CSA Travel Protection – $60,343.
Peregrine Semiconductor Corporation – $59,241. Taylor Guitars – $54,860. Greater San Diego Chamber of Commerce – $52,783. Sumitomo Metal Mining USA Inc – $50,684. Nextbio Inc – $49,140. Diversa Corporation – $48,685. Sony Electronics Inc – $44,213. Taylormade Golf Company Inc – $42,666. Standard Pacific Homes – $41,613. Natural Alternatives International Inc – $40,866. Nu Visions Manufacturing Inc – $36,791.NationalUniversity – $32,654. Kyocera America Inc – $30,706.
Finally, Energy Innovations got $3.5 million in cash grants, loans or loan guarantees from the city of Poway and then went out of business costing 70 employees their jobs.
And it goes on and on for 90 pages! There are dental groups, sheet metal fabricators, platers, architects, cab companies, office products companies, engineering companies, bamboo companies, filter companies etc. You name it! If you’re a corporation and you’re not getting a piece of the government pie, you’re a total LOSER.
One notable exception to this list – Qualcomm,San Diego’s largest employer and a Fortune 400 company. I guess they figure they’re profitable enough to pay their own way, but that hasn’t stopped the likes of Exxon Mobil or Chevron from seeking and accepting taxpayer subsidies. My hat’s off to Qualcomm for not picking the public’s pocket.
Whew!!! When you add all this up, pretty soon you’re talking about real money! Money that could have been spent on schools, parks and public services – and this is only a partial list! I challenge a commenter to add it all up and come up wth a total for San Diego County. I don’t have the time or patience to do it.
This represents corporate welfare or another term for it is corporate socialism. So much for the free market. Do you think that this amount of money could have been spent on schools, parks, police, firemen and filling potholes instead? Why the San Diego Free Press would be happy to receive $50,000 in free services. Do you think that’s possible? Don’t bet on it.
The only solution to this mess is a national economic policy that would prevent this race to the bottom and ridiculous competition among states and local governments. The US should have an industrial policy that would promote trade and restrict competition for plant location. Obama has mentioned a cabinet level position of Secretary of Business. That might be a good start.