Accountable USA - Alabama

Alabama’s economic development history is replete with high-profile deals that cost the state hundreds of millions of dollars. Foreign-owned auto-makers such as Mercedes-Benz, Honda, and Hyundai have received Alabama’s lavish subsidies, as have other manufacturing industries such as steel. But Alabama’s remarkable tax giveaways have not brought the state broad prosperity; indeed, it still has one of the nation’s highest poverty rates – and one of the most regressive tax structures. Despite its $586 million FY 2011 budget deficit, Alabama raised the borrowing limit on its Capital Improvement Trust Fund by $400 million to provide $195 million to ThyssenKrupp. (For more information on major deals in the state, see below.)

Alabama offers a diverse array of subsidies that reduce or eliminate almost every major corporate tax:  corporate income tax credits reimburse capital costs; sales, use, income, and franchise tax abatements are granted for locating in high-priority areas; the Industrial Development Grant program not only issues low-interest bonds, but also abates local property taxes; and a large-scale workforce recruitment and development program underwrites hiring costs. Alabama’s programs, when accessed simultaneously, generate very large corporate tax breaks, which shift much of the tax burden to middle and low-income residents. At the beginning of 2015, Gov. Bentley proposed a six-bill package called Accelerate Alabama Jobs Incentives that would replace bond-based subsidy programs with more tax-based programs.  

Neither the Alabama Development Office nor the Alabama Department of Revenue discloses company-specific subsidy information on the web. The Alabama Industrial Development Training program, which is run by the State Commerce Department provides some online recipient information. However, the online data mixes together grant money with vendor, travel, and other program outlays, precluding cost-benefit analysis.

Key Subsidy Programs

Subsidy Program Recent Annual
Cost
Online Recipient
Disclosure
Recipient Disclosure
Score
Job-Creation/
Job-Quality Score**
Monitoring/
Enforcement Score***

Alabama Industrial Development Training

workforce training and development grant program run through the State Department of Education

not available
16/100
50/100
43/100

Enterprise Zone Credit

state income, sales and use, and franchise tax credits for firms locating in economically distressed areas

not available
0/100
38/100
42/100

Film Production Rebates

film subsidy enacted in 2009 to provide rebates on qualified expenses, including payroll costs for workers who are state residents

$13 million (2013)
0/100
10/100
38/100

Income Tax Capital Credit

credits against business income taxes based on capital spending

$55.6 million (2012)
0/100
60/100
68/100

Industrial Development Grant Program

grants to businesses to develop sites, which are made exempt from property taxes

not available
0/100
10/100
28/100

* The score is derived from the Good Jobs First report Show Us the Subsidized Jobs (January 2014).

** The score is derived from the Good Jobs First report Money for Something (December 2011).

*** The score is derived from the Good Jobs First report Money-Back Guarantees for Taxpayers (January 2012).

Major Subsidy Deals

ThyssenKrupp (2007)

An announcement by German steelmaker ThyssenKrupp that it would build the largest new steel plant in the United States in more than two decades led to a ferocious competition between Alabama and Louisiana. Up for grabs was a $3.7 billion facility with a projected manufacturing workforce of some 2,700 fairly well-paying jobs. Alabama was chosen in May 2007 after offering a subsidy package initially valued at a staggering $811 million. The deal included $461 million in upfront grants from state, county, and local governments; $111.5 million in state tax credits and exemptions; and $238 million in local tax abatements. The upfront grants included $314 million for site preparation, including a new shipping terminal near the Port of Mobile; $45 million for land acquisition; $25 million in public roads improvement; $40 million for workforce development and training; $12 million for a training center; $25 million over five years for training center operations; and $85,000 for application for foreign trade zone status.

The state tax breaks cover 20 years of business personal property taxes, three years of sales taxes during construction, and ten years of utility taxes. Local abatements cover all taxes with the exception of those earmarked for the state’s education trust fund.  Over and above the $811 million package, ThyssenKrupp was made eligible for a 30-year state corporate income tax credit that could push the ultimate cost of the subsidies to more than $1 billion. The state offered, but ThyssenKrupp declined, access to $900 million of federal Gulf Opportunity Zone Bonds (enacted to help rebuild after Hurricanes Katrina and Rita). The plant, located in Calvert north of Mobile, began operations in October 2010.

In April 2011 the Mobile County Industrial Development Authority increased the company's property tax abatement, sending the total value of the subsidies above $1 billion.

In November 2013, the plant was sold to a joint venture of ArcelorMittal, Nippon Steel, and Sumitomo Metal Corp for $1.55 billion. The plant’s name was changed to AM/NS Calvert. It was reported that the subsidies would transfer to the new owner. (Key sources)

Mercedes-Benz (1993)

When Mercedes-Benz decided in 1993 to build an assembly plant in Alabama, it was not the first time that a foreign automaker had gotten subsidies to operate in the United States. But the tax breaks and other assistance assembled by state and local officials set a new record for a so-called “transplant.” The Wall Street Journal, which estimated that the total cost would exceed $300 million (while Alabama papers spoke of a $253 million deal), wrote that “the price is steep.” The Journal’s figure worked out to $200,000 for each of the expected 1,500 jobs at the plant, which was built in the small town of Vance near Tuscaloosa. After the United Auto Workers union announced an organizing drive at the plant in 1999, the private Economic Development Partnership of Alabama hired an anti-union consultant and created a “right to work” group to thwart the drive.

That effort was later called off and, in the wake of the merger of Mercedes parent Daimler-Benz and unionized Chrysler, management in Vance was said to adopt a neutral position toward the organizing drive. Nonetheless, the union suspended its campaign. The UAW made another run at the plant in 2006, as did the Machinists, but neither succeeded. In 2000 Mercedes announced a $600 million expansion in Vance, for which it received another $119 million in subsidies. Yet in 2008 Mercedes reduced production, shortened the paid workweek to four days and offered buyout packages to workers. The following year Mercedes got an $11 million property tax abatement for an expansion of its body shop that created no new jobs. In 2010 the company decided it needed more workers in the body shop but decided to use 500 temps.In July 2011 Mercedes announced an additional investment of $2 billion in the Vance plant. (Key sources)

Honda (1999)

In 1999 Alabama prevailed over several other states to land Honda’s first U.S. auto assembly plant outside Ohio. The Japanese company selected a site in Lincoln, a city in the central part of the state east of Birmingham, for the 1,200-worker facility after it was offered a $158 million subsidy package. That was significantly less than the $253 to $300 million deal the state had given to Mercedes-Benz six years earlier, even though the size of Honda’s projected investment, $450 million, was higher than that of the German company’s initial commitment (it later embarked on a $600 million expansion). The Honda package consisted of about $102 million in infrastructure and training outlays, and $56 million in tax breaks. The United Auto Workers expressed interest in organizing the workforce but never launched a formal drive.

In 2002 Honda received additional subsidies worth about $90 million in connection with a plan to double its output of minivans and engines in Lincoln. In 2003 a U.S. Labor Department investigation forced Honda to give $1.2 million in back pay to the workers in Lincoln for time spent changing into uniforms. In 2009 Honda slashed output in Lincoln amid an industry downturn; workers were forced to take unpaid leave and were offered buyouts. In 2011, however, Honda announced an $80 million-plus expansion and increase in capacity but only a modest increase in jobs. (Key sources)

Hyundai auto assembly plant (2002)

In 2002 South Korean automaker Hyundai Motor followed the lead of its Japanese and German counterparts and opened an assembly plant in the American Deep South, choosing Alabama’s capital, Montgomery. The company set up a competition among several states that Alabama won after Gov. Don Siegelman did everything from visiting company officials in Seoul during Thanksgiving to persuading legislators to approve $118 million in state subsidies. That turned out to be only a portion of a $252 million state and local package that landed the $1 billion plant and its projected 2,000 jobs. Frustrated at seeing its key industry expanding in the South, Michigan tried to block the project by arguing that Alabama was not rigorously enforcing air pollution regulations, but the U.S. Environmental Protection Agency rejected the claim. 

In 2003 local construction unions staged a protest at the project site, charging that too many out-of-state workers were being used. Four years after the plant opened in 2005, a federal jury returned a $5.8 million verdict against Hyundai and a mid-level manager for sexual harassment. In spring 2010 Hyundai was enjoying such strong demand for the Sonatas built at the Montgomery plant that it put its workforce on extended hours, prompting complaints about excessive overtime. Later that year the company shifted production of its Santa Fe SUV from Montgomery to a plant run by sister company Kia in Georgia. (Key sources)

Walmart in Alabama

  • At least 10 Wal-Mart locations have received subsidies worth about $49.8 million in Alabama.
  • At least 4 Wal-Mart locations in Alabama have challenged their property tax assessment, recouping about $480,000.
  • Wal-Mart was found to have more workers than any other employer in the state relying on publicly-funded health insurance. This shows how taxpayers end up subsidizing Wal-Mart’s policy of providing low wages and inadequate benefits.

For more information, see the Alabama page of Wal-Mart Subsidy Watch.