Report takes aim at subsidies

Nonprofit says ‘megadeals’ don’t impact new-job creation

6/20/2013

Giant subsidy packages awarded by states and local governments in order to attract businesses or keep them from leaving have been growing steadily in size and occurring more frequently since 2008, according to a Washington, D.C.-based policy think tank.

But in many cases, these so-called “megadeals” — packages worth $75 million or more in incentives — involve little, if any new-job creation, said Greg LeRoy, executive director of Good Jobs First, a nonprofit national policy resource center. When the megadeals do create jobs, those jobs cost taxpayers an average of $456,000 per job, Mr. LeRoy said.

On Wednesday, Good Jobs First released a new report, “Megadeals: The Largest Economic Development Subsidy Packages Ever Awarded by State and Local Governments in the United States,” which describes 240 giant subsidy packages that states used to attract or keep businesses dating back to 1976, the year Volkswagen received $100 million from Pennsylvania to locate a new auto plant there.

The report said Michigan, by far, has given away more megadeals — 29 subsidy packages worth a combined $7.1 billion — than any other state. Its first megadeal was in 1984 when it gave $125 million to Mazda for a plant in Flat Rock. In 2010, it awarded four deals worth $2.45 billion to Chrysler Group LLC, Dow Chemical, Ford Motor Co., and PowerCell Inc.

New York had the second most megadeals: 23, worth $11.4 billion. Ohio and Texas tied for third with 12 megadeals.

Ohio’s megadeals total $1.53 billion and include two 2011 deals, $78.5 million for Marathon Petroleum Corp. of Findlay and $148.1 million for American Greetings Co. in Westlake.

Toledo had Ohio’s first megadeal in 1997 when the state and city gave DaimlerChrysler a $232 million incentive package to construct the current Jeep plant, according to Good Jobs First.

Philip Mattera, one of the report’s authors, said it evolved from a “subsidy tracker” database that Good Jobs First had created earlier.

The database at first contained just data released by states, but then the think tank began to augment the database with data from other sources, including government and corporate press releases, newspaper articles, and reports on specific projects.

“It was then that we realized the full extent to which this practice has gotten out of control,” Mr. LeRoy said.

The database revealed that since 2008, megadeals have doubled in frequency.

The incentive packages have gone mostly to the largest and best-known U.S. companies, as well as several foreign ones, including 16 Fortune 50 companies. Every large domestic automaker and all foreign automakers with appreciable U.S. sales have gotten a megadeal.

Other recipients include Exxon Mobil, Royal Dutch Shell, Boeing, Airbus, Citigroup, Goldman Sachs, the Disney Co. and its subsidiary, ESPN, Sears, Cabela’s, General Electric, Dow Chemical, Amazon.com, Apple Corp., Intel, and Samsung.

Why are so many more megadeals occurring?

“It’s mostly simple corporate greed. In most cases [companies] don’t need the money,” Mr. Mattera said.

But states and local governments are convinced they need to offer incentives, companies ask for them, and no one asks whether the company would have located there without them.

For example, Apple Corp. requests and gets government tax breaks when it sets up computer server facilities, but it chooses its locations based on the lowest utility rates, because low-priced electricity is what it really wants, Mr. LeRoy said.

“Apple has more money than it knows what to do with,” he said. “Apple takes tax breaks but it doesn’t need them.”

The most expensive megadeal was a $5.6 billion, 30-year tax break that Alcoa got from the New York Power Authority. General Motors Co. has gotten 11 deals worth $2.7 billion, Ford nine deals worth $2.1 billion, and Nissan four deals worth $1.8 billion.

The report said some of the deals created no new jobs, with 1 in 10 deals involving the relocation of an existing facility, sometimes within the same area.

Some retention deals were “job blackmail” cases where the business threatened to leave if its demands weren’t met, Good Jobs First said.

Businesses seeking megadeals often will claim that, while their projects won’t create a lot of direct jobs, the number of indirect jobs created will be sizable.

Mr. LeRoy said one project the think tank looked at claimed it would create 11 indirect jobs for each actual job.

Such claims are “laughable,” he added.

“Any claim that an economic development project will create more than 1½ jobs beyond the direct jobs is facially implausible. That’s very much a consensus of academic literature,” Mr. LeRoy said.

It’s possible, he added, that in the case of an auto manufacturer building a plant in an area with an already-established parts supplier factory base, that more than 1½ jobs could be created as demand for parts filters through a community. “But that would only apply to states like [Ohio], which has an auto supplier base,” he said.

Contact Jon Chavez at: jchavez@theblade.com or 419-724-6128.