MONEY FOR

NOTHING

Strategies for Corporate Welfare

Reform

HISTORICALHISTORICAL Began with subsidies and rights of way Began with subsidies and rights of way

during railroad eraduring railroad era Government non-intervention in Government non-intervention in

economic regulation late 1800s to economic regulation late 1800s to early 1900searly 1900s

New Deal and expansion of federal New Deal and expansion of federal economic programseconomic programs

Modern corporate welfare in response Modern corporate welfare in response to unemployment and stagflation in to unemployment and stagflation in early 1980searly 1980s

WHAT IS IT?WHAT IS IT? Property or income tax deferrals, Property or income tax deferrals,

abatements or creditsabatements or credits Tax Free Enterprise zonesTax Free Enterprise zones Tax exempt bondsTax exempt bonds Tax Increment Financing (TIF) zonesTax Increment Financing (TIF) zones General tax code changes (e.g. General tax code changes (e.g.

accelerated depreciation or off-shore accelerated depreciation or off-shore havens)havens)

WHAT IS IT?WHAT IS IT? Low interest loans or loan Low interest loans or loan

guaranteesguarantees Subsidies for infrastructure, Subsidies for infrastructure,

training or advertisingtraining or advertising No bid contract awardsNo bid contract awards Cash grantsCash grants

HOW MUCH DOES IT COST?HOW MUCH DOES IT COST?(Federal, 1996)(Federal, 1996)

$85,000,000,000 $85,000,000,000 CATO INSTITUTE (Libertarian)CATO INSTITUTE (Libertarian)

$167,000,000,000$167,000,000,000 CENTER FOR RESPONSIVE LAW & ESSENTIAL CENTER FOR RESPONSIVE LAW & ESSENTIAL

INFORMATION (Liberal)INFORMATION (Liberal)

$265,000,000,000$265,000,000,000 PROGRESSIVE POLICY INSTITUTE (Moderate)PROGRESSIVE POLICY INSTITUTE (Moderate)

HOW MUCH DOES IT COST?HOW MUCH DOES IT COST?

Job Creation and Worker Job Creation and Worker Assistance Act of 2002Assistance Act of 2002

Jobs and Growth Tax Relief Jobs and Growth Tax Relief Reconciliation Act of 2003Reconciliation Act of 2003

Projected to cost $175 Billion Projected to cost $175 Billion over three years over three years

Arguments Against Corporate Arguments Against Corporate WelfareWelfare

Federal Gov’t has a disappointing record Federal Gov’t has a disappointing record of picking winners and losersof picking winners and losers

Huge drain on Federal TreasuryHuge drain on Federal Treasury

Creates an uneven playing fieldCreates an uneven playing field

Fosters an incestuous relationship Fosters an incestuous relationship between business and governmentbetween business and government

Arguments Against Corporate Arguments Against Corporate WelfareWelfare

Anti-consumer—results in higher pricesAnti-consumer—results in higher prices

Anti-capitalist—leads to the creation of Anti-capitalist—leads to the creation of the “statist businessman”the “statist businessman”

Unconstitutional--outside Unconstitutional--outside Congressional spending authority Congressional spending authority

Arguments in Favor of Arguments in Favor of Corporate Welfare Corporate Welfare

Protection of domestic industries and Protection of domestic industries and preservation of jobspreservation of jobs

Funds important research that private Funds important research that private industry could not otherwise affordindustry could not otherwise afford

Insures “level playing field” against Insures “level playing field” against competitors subsidized by foreign competitors subsidized by foreign governmentsgovernments

Arguments in Favor of Arguments in Favor of Corporate WelfareCorporate Welfare

Maintain viability of strategic industries Maintain viability of strategic industries necessary to national securitynecessary to national security Privatization/Military Industrial ComplexPrivatization/Military Industrial Complex

Ventures are financed that would Ventures are financed that would otherwise be too riskyotherwise be too risky Presumes ventures are socially desired or Presumes ventures are socially desired or

usefuluseful

Assists socially disadvantaged groups in Assists socially disadvantaged groups in establishing new businessesestablishing new businesses

DOES IT CREATE JOBS?DOES IT CREATE JOBS? State of Alabama paid Mercedes-State of Alabama paid Mercedes-

Benz $168,000 per jobBenz $168,000 per job Philadelphia paid a Norwegian Philadelphia paid a Norwegian

shipping company $323,000 per shipping company $323,000 per jobjob

Caledonia, MN paid a Dairy Caledonia, MN paid a Dairy Queen franchise $275,000 for Queen franchise $275,000 for one job paying $4.50 per hourone job paying $4.50 per hour

DOES IT CREATE JOBS?DOES IT CREATE JOBS? Former FL Gov. Jeb Bush compares Former FL Gov. Jeb Bush compares

economic potential of biotech to economic potential of biotech to coming of the railroads.coming of the railroads.

$510 million pledged to Scripps, $310 $510 million pledged to Scripps, $310 million to Burnham Institute for million to Burnham Institute for Medical Research and $90 million to Medical Research and $90 million to Torrey Pines Institute for Molecular Torrey Pines Institute for Molecular StudiesStudies

Average cost per job: $814,666Average cost per job: $814,666

DOES IT CREATE JOBS?DOES IT CREATE JOBS? Seaboard closes hog processing plant Seaboard closes hog processing plant

after receiving $2.9 million from Albert after receiving $2.9 million from Albert Lea, MN. Lea, MN.

JP Morgan Chase receives almost $100 JP Morgan Chase receives almost $100 million from Tampa, FL for various million from Tampa, FL for various benefits over 10+ years. Chase closes benefits over 10+ years. Chase closes Tampa credit card center in January, Tampa credit card center in January, 2005, laying off 1,900 workers. 2005, laying off 1,900 workers.

Does it Motivate Does it Motivate Businesses?Businesses?

Studies show that business location Studies show that business location decisions are made more on basis of decisions are made more on basis of skilled work force, cultural amenities skilled work force, cultural amenities and access to suppliers, customers and access to suppliers, customers and markets.and markets.

A $50 billion per year industry of site A $50 billion per year industry of site location and “business climate” location and “business climate” consultants scavenges unclaimed consultants scavenges unclaimed subsidies and drives up bidding subsidies and drives up bidding warfare. warfare.

Does It Motivate Does It Motivate Businesses?Businesses?

““If you are giving money away, I If you are giving money away, I will take it. If you want to give me will take it. If you want to give me inducements for something I am inducements for something I am going to do anyway, I will take it.” going to do anyway, I will take it.”

Paul O’Neill, former CEO of Alcoa and Paul O’Neill, former CEO of Alcoa and former US Secretary of Treasury former US Secretary of Treasury

REFORM ATTEMPTSREFORM ATTEMPTSFederalFederal

Bipartisan McCain-Kennedy legislation Bipartisan McCain-Kennedy legislation in 1995 creates Corporate Subsidy in 1995 creates Corporate Subsidy Reform CommissionReform Commission

Some of Commission’s recommended Some of Commission’s recommended eliminations for less controversial eliminations for less controversial programs are adoptedprograms are adopted

Incremental, one-time modest Incremental, one-time modest successsuccess

REFORM ATTEMPTSREFORM ATTEMPTSState and LocalState and Local

1995 legislation in MN created first 1995 legislation in MN created first aggressive disclosure and aggressive disclosure and accountability mandatesaccountability mandates

Today, 11 states have some form of Today, 11 states have some form of disclosure requirementsdisclosure requirements

Local action has been driven by Local action has been driven by community activist groups against community activist groups against specific project or industryspecific project or industry

POLITICAL BARRIERS TO POLITICAL BARRIERS TO REFORMREFORM

Corporate campaign finance Corporate campaign finance donationsdonations

Corporate lobbyingCorporate lobbying ““Pork barrel” parochialismPork barrel” parochialism Fear of competitive disadvantageFear of competitive disadvantage Fear for political career if official is Fear for political career if official is

perceived to be “anti-jobs”perceived to be “anti-jobs”

CULTURAL BARRIERS TO CULTURAL BARRIERS TO REFORMREFORM

““Primacy of the Market”Primacy of the Market”

Corporate welfare is not Corporate welfare is not considered to be redistributiveconsidered to be redistributive

Benefits are presumed and do Benefits are presumed and do not need to be “proven” not need to be “proven”

FLA vs. MINNFLA vs. MINN

FLORIDA LEGISLATIONFLORIDA LEGISLATION Chapter 288, Fla. Stats. Chapter 288, Fla. Stats. Encourages gov’t-private partnerships Encourages gov’t-private partnerships

in foreign trade, export finance, in foreign trade, export finance, international affairs, film & international affairs, film & entertainment, etc.entertainment, etc.

Enterprise Florida—not a government Enterprise Florida—not a government agency—selects eligible businessesagency—selects eligible businesses

Enterprise Florida is expressly exempt Enterprise Florida is expressly exempt from public records disclosure from public records disclosure (Sunshine) law(Sunshine) law

MINNESOTA LEGISLATIONMINNESOTA LEGISLATION ““Right to Know” requires all economic Right to Know” requires all economic

development subsidies submit reports development subsidies submit reports to a single, centralized agency.to a single, centralized agency.

Mandates net increase of jobs within 2 Mandates net increase of jobs within 2 years of receiving assistanceyears of receiving assistance

““Clawbacks”—gov’t must be repaid if Clawbacks”—gov’t must be repaid if business fails to meet wage and job business fails to meet wage and job creation goals creation goals

FLORIDA FLORIDA INCOME and EMPLOYMENT INCOME and EMPLOYMENT

DATADATA

Source: US Source: US CensusCensus

% Employed 56.0 54.9% Unemployed 3.4 3.2Median Family Income $32,212 $45,625Per Capita Income $14,698 $21,557% Families in Poverty 9.0 9.0% Individuals in Poverty

12.7 12.5

2000200019901990

MINNESOTA MINNESOTA INCOME and EMPLOYMENT INCOME and EMPLOYMENT

DATADATA

% Employed 66.0 68.2% Unemployed 3.6 2.9Median Family Income

$36,916 $56,874

Per Capita Income $14,389 $23,198% Families in Poverty 7.3 5.1% Individuals in Poverty

10.2 7.9Source: US Source: US

CensusCensus

19901990 20002000

% Change, 1990-2000% Change, 1990-2000

% Employed -2.0% -3.0%% Unemployed -5.9% -19.4%Median Family Income

41.6% 54.1%

Per Capita Income 46.7% 61.2%% Families in Poverty 0.0% -30.1%% Individuals in Poverty

-1.6% -22.5%

FLFLAA

MINNMINN

INTERGOVERNMENTAL INTERGOVERNMENTAL EFFECTSEFFECTS

Commerce Clause (Art I, Section 8) Commerce Clause (Art I, Section 8) Congress has greatly expanded federal control Congress has greatly expanded federal control

over states through Commerce powerover states through Commerce power States may not enact legislation that burdens States may not enact legislation that burdens

or discriminates against interstate commerce or discriminates against interstate commerce But…states may regulate so long as “valid But…states may regulate so long as “valid

factor unrelated to economic protectionism” factor unrelated to economic protectionism” Globalization,Treaties and Supremacy Globalization,Treaties and Supremacy

Clause Clause

INTERGOVERNMENTAL INTERGOVERNMENTAL EFFECTSEFFECTS

Interstate rivalry and the prisoner’s Interstate rivalry and the prisoner’s dilemmadilemma

1993—National Governors 1993—National Governors Association passed a resolution to Association passed a resolution to restrict subsidies to individual restrict subsidies to individual corporations. Was not binding or corporations. Was not binding or enforceable and did not work. enforceable and did not work.

INTERGOVERNMENTAL INTERGOVERNMENTAL EFFECTSEFFECTS

Difficult to trace money across Difficult to trace money across multiple layers of governmentmultiple layers of government

Accounting and auditing functions Accounting and auditing functions add costsadd costs

Creation of quasi-independent public Creation of quasi-independent public authorities in 1970s and 1980s has authorities in 1970s and 1980s has aggravated public-private aggravated public-private interdependencyinterdependency

WHAT TO DO? WHAT TO DO? Disclosure/Exposure/SunshineDisclosure/Exposure/Sunshine Stringent accountability and Stringent accountability and

clawbacksclawbacks Design analytical tools for “de-Design analytical tools for “de-

politicized” data collection and cost-politicized” data collection and cost-benefit determinations benefit determinations

Means testing? Means testing?

Federal or State Federal or State Enforcement? Enforcement?

““It is one of the happy incidents of the It is one of the happy incidents of the federal system that a single courageous federal system that a single courageous State may, if its citizens choose, serve State may, if its citizens choose, serve as a laboratory; and to try novel social as a laboratory; and to try novel social and economic experiments without risk and economic experiments without risk to the rest of the country.”to the rest of the country.” Justice Brandeis in Justice Brandeis in New State Ice Co. v. New State Ice Co. v.

LiebmanLiebman, 285 US 262, 311 (1932), 285 US 262, 311 (1932)