Money for Nothing
It was the dream of economic development that inspired officials in Caledonia, Minnesota, to give a Dairy Queen franchise a $275,000 tax subsidy in 1996. One problem: The largesse created exactly one job, at $4.50 an hour. The return on public investment wasn't much better in Pennsylvania a year later when the state--led by then-Governor Tom Ridge--and the City of Philadelphia ponied up $307 million worth of incentives to persuade Kvaerner ASA, a Norwegian global construction company, to reopen a section of Philadelphia's moribund shipyard. That created 950 jobs that paid around $50,000 a year--not bad, until you calculate the cost to taxpayers: $323,000 per job.
Mercedes-Benz cadged $253 million in state and local incentives in 1993 to build a plant near Tuscaloosa, Alabama. The school in the adjacent small town of Vance lacks the funding to add permanent classrooms to meet capacity, while Mercedes employees enjoy a $30 million training center built at taxpayer expense. The jobs created cost the public $168,000 each.
Despite such boondoggles, it's been accepted as nothing less than gospel that public bodies must give out subsidies to private companies to fuel economic growth. State and municipal leaders dished out an estimated $48.8 billion in subsidies, tax breaks and other incentives to corporations in 1996, the last time the figure was calculated; a more recent figure would likely top $50 billion, says Greg LeRoy, founder of the Washington, DC-based Good Jobs First and author of No More Candy Store: States and Cities Making Job Subsidies Accountable.
The amount of money is even more mind-boggling in light of the fact that much of it is given away no strings attached--without any explicit agreement regarding the numbers and quality of jobs created, or even guidelines on environmental and community impact. "The stuff that corporations call economic development is pretty shabby if you kick the tires," LeRoy says.
In the quest for economic development, states and regions lower their expectations on adherence to environmental regulations and what kinds of jobs are created, frantically bidding each other up beyond the limits of reason. Municipalities in Tennessee, Alabama, Arkansas and Mississippi competed for a Toyota plant last year with incentive packages as high as $500 million. Some of the alluring offers included free land and the naming rights for a sports stadium.
In 1998, then-New York City Mayor Rudy Giuliani championed what may be the biggest subsidy package ever--$1.4 billion in enticements to retain the New York Stock Exchange in Manhattan after NYSE officials made noises about moving to New Jersey. That state's Business Employment Incentive Program had successfully lured such big names as Goldman Sachs, Merrill Lynch and JP Morgan from New York City by offering a total of $710 million in inducements over six years.
The taxpayer's tab on the NYSE deal included a $450 million land purchase, $480 million in cash and $160 million in tax incentives. The NYSE plan eventually unraveled and was declared dead this past February, though taxpayers were still in for an estimated $109 million--just to bail out.
Surprisingly, Giuliani's successor, Michael Bloomberg, founder of capital's town crier, Bloomberg News, stood firm against the NYSE decampment threat and has generally been less than enthused about the notion of dishing out money to retain companies in Manhattan. Before being elected he said, "Any company that makes a decision as to where they are going to be based on the tax rate is a company that won't be around very long."