How Big Businesses Get Big Subsidies (Episode 23)

Greg is the executive director of Good Jobs First, a resource center for community organizations and public officials looking to shed light on all the subsidies and tax incentives that cities and states are giving to big companies. They do a lot of great work on advocating on how we can reform these programs to better serve communities.

It’s been really hard to get cities to stop doing these deals, but there’s actually a new rule taking effect this year that could be a big help, and that’s one of the things we’re going to talk about. Before we get started though, a reminder to please subscribe to this podcast and rate us on iTunes, Stitcher, or wherever you find your podcasts. Each review helps us reach a wider audience, so it would be great if you could help us in that way. Greg, welcome to the show.

But it seems like what your research finds is that that’s just not actually the picture of how these deals work. Tell us a little bit more about the scope of these deals and who is … What companies really are getting this money.

Tax increment financing districts, enterprise zones, industrial revenue bonds, all those come under this category. The truth is, as you said, although some of the programs are justified in the name of helping small businesses or helping struggling neighborhoods, and in some cases that’s the way the programs were originally structured and written, over time they’ve become deregulated. Over time they’ve become give-mes that can go anywhere.

So we have TIF districts at the fringe of urban areas piling up apple orchards for Walmart Supercenters. We have subsidies for Amazon sortation centers that are just undermining Macy’s and K-Mart and Sears and all the other retail chains that are laying people off. We have an affluent suburb of Missouri, Des Peres, Missouri, outside of St. Louis, saying or mall is blighted because we don’t have a Nordstrom yet. We need to give a $31 million TIF deal this multinational REIT that owns this mall so that they won’t be blighted anymore and can subsidize bringing in a Nordstrom. It’s gotten really perverse. The anti-poverty argument has been turned upside down and on its head frankly over and over.

The dirty little secret is that incentives almost never determine where a company expands or relocates. They can’t, because they’re too small. They’re too small a cost factor for companies. But the system has evolved in a way that it’s so easy for companies to get big piles of cash or big piles of cash breaks that they feel remiss if they don’t play the game and play states and cities against each other and whipsaw them back and forth.

It’s a very, very corporate dominated process, I guess is the best way to put it. The underlying ideology from our point of view as taxpayers and people who vote for our elected officials is our public officials are never allowed to cooperate. They’re never allowed to talk to each other. At the moment, when companies are playing governors or mayors or county executives against each other, those public officials must not talk to each other. The unwritten threat is that if they do, if they do cooperate and compare notes and push back, they will be blacklisted the next time by the site location consultants. They will not be allowed to compete for deals that are being steered by the consultants.

But at the end of the day, the workers taking those jobs are going to live all over the place and the tax based benefits of those jobs are going to migrate all over the place, including two states in the case of Kansas City.

Secondly, retail has really lousy ripple effects, right? Where are the upstream ripple effects of a Target or a Walmart? They’re mostly in China. That’s where the things get made that get sold in these big box stores. The downstream ripple effects, that is those generated by the buying power of the people that work at the stores, are also really paltry, because the jobs are poverty wage, part time. People are not eating out and buying washing machines and getting home mortgages based on Target paychecks or Walmart paychecks. We know that, right?

Now, today there’s the whole online revolution going on and we say to public officials if you actually seriously think you know what’s going on in retail and you think you know what it’s going to look like 10 years from now, I’ve got a bridge I’d like to sell you, because there’s all this convulsion going on, right? Malls are getting repurposed. Big box stores are getting closed. Long ago the word word gray fields was coined for dead malls. Long ago the phrase ghost boxes was coined for dead big box stores. It’s a bloodbath out there, and you would throw money at that and think you’re investing in that kind of development? Get real.

Have any regions looked back at all of these deals and done any like … Or maybe you have as well, but have looked back and said, “Look, we gave away all of this money. What did we get for it?”

They said, “We’ve spent $2 billion over a long period of time, maybe 15 or 20 years, mostly for retail. What did we get? What we got was a doughnut. At the fringe we got all these new subsidized malls and big box stores that got the TIF deals, and at the core we got nothing but closed facilities because we had undermined the existing facilities by making the outer ring more attractive than the core. We’ve fuel the hollowing out of our metro area with taxpayer dollars.”

Then in response to some people who said oh, maybe your cherry picking programs or maybe you’re cherry picking states, we weren’t. We said okay, let’s look in very close detail at three states and let’s look at every dollar they spend in the name of economic development. Let’s look at their whole menu, their whole budget, including their technical assistance budgets to small companies, and let’s spread that out too.

The answer was at least two-thirds, maybe three-quarters, there were some dollars we couldn’t assign, going to big business. Less than a third, maybe as little as a fourth, going to small business, even when you count a bunch of stuff that’s not tax breaks, it’s just direct technical assistance and counseling and mentoring and all that jazz, for small businesses.

Subsidy Tracker is kind of the reverse. You can see which cities are giving big dollars to big corporations. So you can go in there and put in your state, you can put in the name of a company, you can put in all sorts of perimeters to see just what you want to see, and it will be really eyeopening. I encourage everyone listening to go check out that tool.

Just this morning I decided to pull up Minnesota and I just looked at recent deals in Minnesota and there were some really big ones for Best Buy, Target. Delta Airlines, boy they got a lot of money from Minnesota, or in the state of Minnesota. You can pull up individual companies and see where they’ve picked up all this money. It’s a great resource. How do you maintain all that data, because I mean it’s a vast collection pulled from all over the place?

About 20% of the data is not from disclosure websites. It’s from us filing Freedom of Information requests with state governments, either tax departments or commerce agencies, and getting the data. We’re the original publishers of about the fifth of the data. We also have a lot of federal data on the website now. We have more than 140 federal programs captured and posted there as well. Then we assign all those awards to the states and cities where the deals occurred.

We update the Subsidy Tracker. In fact, we’re going to post next Tuesday a big new edition where we’ve added a bunch of new program years of data than we had before and some new cities and counties. We’ve also started shaming cities and counties on their transparency practices. In fact, we just in March of this year issued our second local transparency report card study and continue to find that the majority of big cities and counties are still in the Dark Ages. They’re still not disclosing even their property tax abatement recipients or their tax increment financing local recipients. Even just the one or two major local programs are not online yet, which we think is nuts.

The other big value add is that we attach corporate subsidiaries to their parents, which really helps people understand who the real ultimate beneficiary is here. For instance, if you dial up Union Tank and Car Company, you’ll notice that that’s actually owned by Berkshire Hathaway, the big conglomerate led by Warren Buffett, and you’ll see it right next to companies you’ve never heard of before, like Nebraska Furniture Mart or GEICO, the big prominent insurance company, or NetJets, or a bunch of other obscure holdings that are actually the same company.

But just in the last year or so there’s been something that’s happened, sort of an obscure change in an accounting rule, and it sounds like that could make a really big difference. Can you tell us what that is all about and what it might mean?

That’s finally starting to change, thanks to an obscure body called the Governmental Accounting Standards Board, or GASB, which despite it’s name is not a government body. It’s just a professional standards setting group that basically is the traffic cop for how governments keep their books. It was set up decades ago by all the big associations of public officials in the United States as a way to standardize financial record keeping, especially so that local governments can get good credit ratings and lower interest rates when they issue bonds, and that helps us all.

GASB has this body of rules called Generally Accepted Accounting Principles, or GAAP, and they amend GAAP periodically by issuing statements, which are just updates or amendments, improvements, continuous improvements to GAAP. The one we love is called Statement 77 on Tax Abatement Disclosures. That’s the one that’s now in effect. It covers financial reports for calendar year 2016 and beyond, so we’re getting a smattering of reports now from governments who close their books on December 31. We going to get a tsunami of data later this year, because most governments close their books on June 30 and will issue their financial reports between Halloween and Christmas basically.

We think about 50,000 bodies of government will have to report now in their financial report how much revenue they lose to each economic development tax abatement program. By tax abatement, I don’t just mean property tax abatements. I mean sales tax exemptions, income tax breaks, anything in which there’s a deal between government and the private sector for economic development.

There are lots of other kinds that are not economic development, right? When you and I take a mortgage interest deduction on our personal income taxes with Uncle Sam, when companies take accelerated depreciation, when companies take R&D credits automatically or renewable energy retrofit credits or whatever, those are tax expenditures too, but there’s no rules by which any of that spending has to be reported right now. This is a beachhead moment. We’ve landed on the disclosure beachhead about tax expenditures and the first kind are economic development tax abatements.

For the Institute for Local Self-Reliance, I’m Stacy Mitchell. I hope you’ll join us again in two weeks for the next episode of Building Local Power.