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THE CORPORATE WELFARE STATE
STATE AND LOCAL CORPORATE WELFARE
Large corporations routinely pit states and cities against each other in bidding contests that are structurally biased in favor of Big Business. The price of their doing business, they communicate explicitly and implicitly, is massive subsidization by local and state authoritiesthrough tax abatements, government financing of building projects, improper use of eminent domain, assumption of corporate liabilities, waiver of regulations, or other supports. This is corporate welfare in its rawest formevidenced by the brazen threats to move, the drain on funding for schools and essential state and local services, the shameless opposition to minimalist requests for reciprocity in the form of job guarantees or payment of living wages to employees.
Although many state and local corporate welfare programs are genericsuch as tax increment financing provided to companies locating in a particular geographic areamany tax breaks and abatements are directed to specific companies. They properly raise the public ireas citizens demand to know why the rich and powerful have taxes forgiven while local small businesses are required to pay their fair share without special dispensationand should sharpen the cutting edge of a nascent movement to end corporate welfare as we know it.
THE TOLEDO SHAKEDOWN AND EMINENT DOMAIN ABUSE
In Toledo, DaimlerChrysler has brought a frightened and financially strapped city to its knees. Desperate tokeep a Jeep plant in the city, Toledo showered a $300 million local, state, and federal subsidy package on the multinational corporation to support company plant expansion plans. The package includes a property exemption for 10 years, transfer of free land, including site preparation, transfer of environmental liability from DaimlerChrysler to the city, and assorted other handouts. All of this is offered in exchange for a Jeep facilities expansion plan that is expected to result in a reduction of Jeep jobs from the current 5,600 to 4,900 (DaimlerChrysler's public claim) or 4,200 (the level the company specifies it will try to preserve in an unenforceable provision in its agreement with Toledo) or something much lower (a likely result based on United Auto Worker estimates and recent layoffs at the plant).
The Jeep agreement is remarkable, as are many of the special state and local corporate welfare deals, for being so poorly drafted from the city's point of view, so one-sided and tilted in favor of the corporate beneficiary. There is virtually no binding reciprocal obligation on DaimlerChrysler in the agreementto create jobs, maintain a certain job level, or to agree to set wage levels or working conditions. In exchange for no binding commitments and no share of the profits, Toledo has agreed to put up huge sums of money, much of it borrowed.
The most outrageous element of Toledo's Jeep deal is that it requires the displacement of a community near the plant. As it turns out from DaimlerChrysler's plans, the company does not even genuinely intend to use the land that the city will transfer to it from 83 homeowners. In its public explanations, Jeep identifies the community's parcel as a potential truck waiting area; but in its map, the area is to be used for landscapinga truck waiting area is designated for another parcel of land.
Threatening community residents that it would condemn the entire neighborhood, the city offered to buy their homes. Residents first learned they would be thrown out of their homes and their neighborhood bulldozed not from city officials, but from the Blade, Toledo's daily newspaper. The low-ball efforts likely violated the federal Uniform Relocation Act, which requires compensation sufficient to enable displaced people to buy comparable homes or establish businesses in similar or better neighborhoods. Many Toledo residents accepted the city's low-ball offer, others held out for somewhat better deals. A handful have resisted.
This fiasco replicates Detroit and GM's shameful collaboration in 1980, when the city used eminent domain to eradicate Poletown, a stable community of 400 homeowners, twelve churches and dozens of small businesses, schools and a hospital. In the Poletown case, GM ultimately built a Cadillac factory which created far fewer jobs than advertised and did not require the destruction of many of the homes.
Indeed, the Toledo-DaimlerChrysler eminent domain scheme marks what is a growing corporate welfare trend whereby states and localities abuse their eminent domain powers to serve private parties. These are many of the most heart-wrenching instances of corporate welfare, because they often involve the literal destruction of longstanding homes, neighborhoods, and communities. This newly emerging trend echoes the shameful corporate welfare history of ruthless use in the 1950s and 1960s of condemnation powers to uproot inner city communities and transfer valuable property to commercial and real estate developers.
CORPORATE BLACKMAIL AND THE MARRIOTT-MARYLAND CASE
While the implied threat of DaimlerChrysler moving loomed in the background of the Toledo dispute (city officials admitted fear of the company fleeing motivated their extraordinary generosity), the threat of corporate flight was in the foreground of Marriott's recent, successful effort to blackmail the state of Maryland into providing a $31 million to $47 million subsidy package.
In 1997, the company announced that its Bethesda, Maryland headquarters were no longer large enough to house its expanding workforce of 3,800. It created a search committee to decide where the company's new headquarters should be based. Company CEO Bill Marriott announced that the company would be willing to move to a new state if compelling financial reasons justified it. Virginia leaped into the bidding war. Virginia Governor James Gilmore III and former Governor George Allen both actively attempted to seduce Marriott to step across the border to take advantage of Virginia's lower tax rates.
Faced with Virginia's enticements, and with Marriott's cultivated indecision, Maryland progressively augmented its offer to the company.
When Marriott finally announced its intentions to remain in Maryland, state officials celebrated their victory over their neighbors. "Our team is red-hot, Virginia's team is all shot," Maryland House speaker Casper Taylor, told the Washington Post.
But in the bidding war Marriott cultivated between Maryland and Virginia, the only winner was Marriott. The corporate welfare package bestowed on Marriott did absolutely nothing to create new jobs. Marriott had already determined that it would expand its headquarters because of its growth and profitabilityand that decision was made without regard to whether it would receive tax breaks in the state where it would base its headquarters.
After the giveaway, William Skiner, president of the Maryland Taxpayers Association, suggested that companies that receive public money should issue stock to state residents. "They have my address. Where are my shares?" he asked.
Of course the answer to that entirely reasonable question is: there are none.
Nor are there similar subsidies available to small businesses. They do not have the political clout, nor the plausible threat to move out of state, to leverage comparable corporate welfare packages. This imbalance creates a very real competitive, and local services as a 20-room inn or other small business, but do not pay a proportionate share of the taxes that fund these services.
After the tax subsidy deal was completed, the Baltimore Sun reported that Marriott had decided on remaining in Maryland before the state made its last, more generous offer. According to the Sun's report, Virginia officials were aware of the Marriott decision, but remained silentenabling the company to extract more money from the state of Maryland.
PLAYING FOR ALL THE MONEY: STADIUMS, GAMBLING, AND CORPORATE WELFARE
Among the most outrageous types of bidding for business involves sports stadiums. The pattern is now familiar: the local sports team, owned by a megamillionaire in virtually every case except for the publicly owned Green Bay Packers football team, threatens to move unless the city bestows a glamorous, and extraordinarily expensive, publicly financed new stadium on the team. Inevitably, the stadium is required to contain luxury boxes and high-priced seats which help fill the teams coffers, but put watching the local team out of reach for significant portions of the town's population. If the city refuses to capitulate to the team's demands, the team, especially if it is a football team, typically follows through on its threat, and moves to a new location.
That creates a lose-lose situation for the city: either lose the team, or spend hundreds of millions of dollars for a public facility that will be used entirely or primarily to support a private sports team. Most, but not all, cities choose to subsidize the team, even in the many cases where scholastic athletics, not to mention the schools themselves, are massively underfunded.
Cities that have capitulated to this kind of sports mogul blackmail include Baltimore, Cleveland, Denver, San Diego, Nashville, Indianapolis, Pittsburgh, Miami, San Francisco, St. Louis, Seattle, and Detroit.
Now gambling casinos are looking for similar subsidies. In Detroit, after the city decided to give three giant corporate casino companies an effective license to tax lower-income people by running casinos, it decided to sweeten the offer further by providing $50 million in development funding and using eminent domain to take prime locations for the gambling houses.
In Atlantic City, the state of New Jersey is contributing more than $200 million in taxpayer dollars for a road-tunnel project and more than 100 acres of free land to entice Steve Wynn's Mirage Resorts to build yet another casino in the city. Building Steve Wynn's driveway has required the destruction of nine houses in the city's most prosperous African-American neighborhood.
(Such tax subsidies, incidentally, are not the only corporate welfare now granted to increasingly politically powerful gambling interests. Public Citizen reports that the Senate Majority Leader inserted a provision into the 1998 IRS Reform Bill that permits employers and employees solely in the casino industry to receive 100 percent tax exemptions for employer-provided meals, regardless of whether workers need to eat on the premises to do their jobs properly. This provision is estimated to save the industry approximately $30 million a year.)
GIULIANI'S CORPORATE WELFARE SPENDING SPREE
"This is a free-market economy. Welcome to the era after Communism." So said New York City Mayor Rudolph Giuliani in explaining his foiled plans to sell 112 community gardens to private developersdestroying urban green space that helps build community.
But while Mayor Giuliani may be tough on gardeners and poor people who receive welfare, his free-market credentials are sorely lacking. Under his tenure, New York has practiced an unrestrained form of corporate socialism. New York's previous mayors, Ed Koch and David Dinkins, also embarked on the giveaway path, but Mayor Giuliani is blazing new trails, offering subsidies at about twice the rate as Mayor Dinkins.
Take the $900 million package for the New York Stock Exchange, a naked subsidy to the high capitalist temple of free markets that is ostensibly designed to keep it from moving to New Jersey (an unlikely bluff). This deal, which provides for about $200,000 in subsidies for each "retained" job, isn't the only corporate-welfare arrangement the Mayor has struck with a financial exchange. He has bestowed similar gifts on the American Exchange, the Mercantile Exchange and the Coffee, Sugar and Cocoa Exchange.
Mayor Giuliani has also provided dealsincluding sales-tax exemptions, property-tax abatements and discounted electricity pricesfor media corporations. The beneficiaries include ABC, NBC, Ziff-Davis, McGraw-Hill, Reuters, Condé Nast, Time Warner (expected soon), and Rupert Murdoch's News America. The Mayor gave CBS $10 million in tax breaks and subsidies even though it had already committed to stay in the city through 2008.
For his closest corporate friends, one set of tax breaks is not enough. Some large companies that had already received welfare packages were extended new tax breaks and other subsidies. Among the double dippers: Reuters, Condé Nast, Smith Barney, and Bear, Stearns.
If the Mayor had shown even a little of the toughness he displayed to the city's small gardeners, perhaps the corporate socialism reigning in the financial capital of the world might be a bit more restrained.
CORPORATE WELFARE IN THE GUISE OF COMMUNITY DEVELOPMENT
A more regularized and pervasive form of corporate welfare is commonly described as community development and made available not on a negotiated case-by-case basis, but to all businesses locating in certain areas or meeting certain criteria. By providing a variety of local, state, and federal tax breaks through creative financing mechanisms (including tax increment financing), city, state and community development agencies seek to assist businesses locating in targeted areas. The economic development agencies administering these programs are, in many cases, sincerely trying to facilitate community development, especially in low-income areas. But there is generally little reciprocal obligation placed upon the beneficiaries, either to provide certain kinds of jobs, or jobs at a living wage, for example. There is also serious reason to question whether some of the investments would have occurred in the absence of the incentive, or whether the tax incentives shift some investments from a nearby area with little net social gain.
The UCLA Center for Labor Research and Education and the Los Angeles Alliance for a New Economy recently conducted one of the most comprehensive reviews of a local community development effort, focused on the Los Angeles Community Redevelopment Agency. This project, it would be fair to say, was favorably disposed to such community development efforts, but was designed to help direct public expenditures to realize higher returns in terms of public benefits. Among the project's findings and recommendations (which apply directly only to the Los Angeles agency but probably apply widely): large subsidies to retail operations did not pay off; there was an under-investment in industrial relative to retail development; small neighborhood shopping centers represented a better investment than large retail complexes; and that record keeping on the results of subsidized ventures is inadequate and needs improvement.
ENDING LOCAL AND STATE CORPORATE WELFARE
No category of corporate welfare is more ripe for a citizen movement to restrain government giveaways than local and state subsidies. It is the arena in which organized citizens can most effectively move policy and change outcomes; and its direct impact in stealing from other budgetary items and the identifiability of beneficiaries should exert a galvanizing effect.
In addition to opposing local and state giveaways, such a movement should support a series of corrective policy initiatives.
First, states and localities should follow the Minnesota lead and adopt a policy of annual disclosure of all corporate welfare recipients.
Second, where state and local governments decide that taxpayer support for business is necessary, they should include binding commitments that recipients deliver on job creation and other promiseswith "clawback" provisions that require return of tax and other monetary supports if the promises are not kept.
Addressing state and local corporate welfare will obviously require state and local initiatives. But there is an important federal role, as well.
Third, Congress should authorize and encourage states to enter into compacts in which they refuse to enter a race to the bottom against each other in terms of special tax breaks and related benefits.
Fourth, the federal government should levy a surtax on companies receiving state and local tax breaks, at the very least treating the value of the tax breaks as income upon which federal taxes should be paid. Representative David Minge has introduced legislation towards this end.
On the stadium issue in particular, Senator Arlen Specter's proposal to require Major League Baseball and the National Football League to pay half the costs of any new stadium for teams in their leagues represents a useful starting point for determining how to ensure that the private corporate beneficiaries of stadiums pick up at least a significant part of the tab for their construction.
Fifth, Congress should conduct a review of the use of tax-exempt municipal bonds. Their use to fund corporate welfare, private projects, or public projects that will benefit a narrow business interest (classically, a sports team) should be prohibited. (There may also be merit to considering a replacement of the tax exemption with direct federal transfers to state and local governmentsaccording to Citizens for Tax Justice, such as scheme could transfer more money to state and local governments at less federal cost, while eliminating one kind of local and state corporate welfare.)
Finally, there must be court tests of the claim that the provision of tax subsidies and similar incentives distort economic decision-making concerning the location of business activity and therefore constitutes an unconstitutional infringement on Congress's power to regulate interstate commerce, as has been suggested by Northeastern University Law Professor Peter Enrich. Enrich and Toledo lawyer Terry Lodge are pursuing such a court challenge to the Toledo-DaimlerChrysler deal.