Q & A With Philip Mattera: Tens of Billions in State and Local Subsidies Annually Go to Big Business

States and local governments strike deals with corporations all the time – deals that normal people like you and I would have a hard time getting and deals that often deprive our governments of revenue even as promises of job creation often disappoint. These tax breaks, publicly funded cash incentives, free buildings, and worker training are done in the name of keeping or wooing businesses. Until relatively recently, the public mostly knew about these subsidies on an anecdotal basis. But over the last half decade, Good Jobs First, a nonprofit research group that promotes accountability in economic development, has conducted some much needed sleuthing that finally gives the public a broader view of the universe of these state and local “economic development awards.”

Their latest release is an update of the Subsidy Tracker database, which allows the public to search and browse through some 245,000 awards from all 50 states – up from 64,000 awards from 34 states when it first was unveiled in December 2010. It allows searches by company, parent company, size of the subsidy, value of subsidy, state, city, and more. The group also knitted together numerous connections between parent companies and subsidiaries.

Good Jobs First also released a report last month that accompanied its database, called “Subsidizing the Corporate One Percent,” that summarizes some of the key takeaways from its database, such as:

  • “In dollar terms, the biggest recipient by far is Boeing, with a total of more than $13 billion, reflecting the giant deals it has gotten in Washington and South Carolina as well as more than 130 smaller deals around the country.”
  • “The others at the top of the cumulative subsidy dollar list are: Alcoa ($5.6 billion), Intel ($3.9 billion), General Motors ($3.5 billion) and Ford Motor ($2.5 billion).”
  • “A total of 17 companies have received cumulative subsidy awards worth more than $1 billion; 182 have received awards of $100 million or more.”
  • “The parent companies on the Fortune 500 alone account for more than 16,000 subsidy awards worth $63 billion, or about 43 percent of total Tracker dollars.”

This painstaking work has been done by few others, such as The New York Times, which conducted its own multi-month long investigation culminating in a three-part series in December 2012, with detailed looks at Texas and at a Michigan town offering film subsidies. As the Times put it in its lead article, “Over the years, corporations have increasingly exploited that fear, creating a high-stakes bazaar where they pit local officials against one another to get the most lucrative packages. States compete with other states, cities compete with surrounding suburbs, and even small towns have entered the race with the goal of defeating their neighbors.”  The database posted on the Times website to accompany the series drew heavily from the Good Jobs First Subsidy Tracker.

The Center for Effective Government asked Philip Mattera, Good Jobs First’s research director, about why the public should care about these incentives, why governments are sometimes bending over backwards to provide them, and what can be done.

1)      Why should regular people care about state and local economic development awards? What are some of the concerns?

They should care because a substantial amount of taxpayer money is involved – more than $70 billion each year. This is one of the largest transfers of financial resources from the public sector to the private sector.

Besides the sheer expense, there are numerous problems with the way the money is spent. Subsidies frequently go to companies to get them to do what they were already planning to do without the financial assistance. They favor Big Business: in a recent analysis of the entries in our Subsidy Tracker database, we found that about 75 percent of the total dollar value of those awards has gone to large corporations. Subsidized projects often fail to create the promised number of jobs, or those jobs turn out to be sub-standard.

Subsidies also contribute to a burden shift: when these large corporations pay less in state and local taxes, families and small businesses have to pay more – or else vital services such as education and public safety get curtailed. Some types of subsidies, especially property tax abatements and tax increment financing, directly undermine school funding.

2)      Why are state and local governments providing these subsidies?

State and local officials have been made to think they have no choice but to offer lucrative subsidies to companies to get them to invest and create jobs. This misconception has been fostered by secretive middlemen known as site location consultants, who get states and localities to bid against one another. The officials often end up overpaying, while the consultants walk away with hefty fees for getting big subsidy packages for their corporate clients.

Another factor contributing to the tendency of public officials to offer inflated subsidy packages is the fact that the number of desirable projects has been declining. Those few companies planning major job-creating investments can (with their consultants) drive a hard bargain.

3)      What are some things that can be done to address concerns? What has been done already? What would you like to see happen?

Ideally, the federal government would bar companies from pitting states and localities against one another. Yet there is virtually no chance that such regulation will be enacted for the foreseeable future. In the absence of a national solution, public officials and business leaders in places such as Kansas City have sought to solve the problem by negotiating agreements not to use subsidies to lure jobs from one another.

Another approach is to try to control subsidies by making them more transparent and more accountable. Good Jobs First works with groups around the country on an agenda that includes: better disclosure of subsidy awards and outcomes; job quality standards for subsidized jobs relating to wage rates and benefits; and more effective use of clawbacks and other recapture techniques when subsidized companies fail to deliver on jobs or wages. 

This is part of an occasional Q & A series the Center for Effective Government is publishing that highlights the work and views of researchers, activists, and others.

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