The Apoplectic States of America
At the risk of sounding like newscaster Howard Beale in the movie Network, when he instructs his viewers to go to their windows and yell out: “I’m mad as hell and I’m not going to take this anymore!” the state of economic development in America today is positively apoplectic.
I don’t say this flippantly, and I’m not saying this just because we here at Good Jobs First swim every day in reports of job subsidies gone awry. I think it’s objectively true that the ruinous economic war among the states is boiling over. Here’s my evidence:
The number of deals for which states and cities can compete remains very depressed, so those elite companies that can move lots of capital and jobs—or threaten to move—are taking it to the bank. That’s why the number of big-ticket “megadeals” has surged since 2008. The corporate rich are getting richer—on subsidies. That’s why Boeing can get 22 states to rapidly assemble bids for its third public auction in 10 years. That’s why “job blackmail” for eight and nine figures at a pop is rampant in states like Ohio and New Jersey and Illinois.
Deal supply is down and demand for deals is up (i.e., anxious politicians). Put those curves together and the price soars: you get megadeals averaging $456,000 per job. Does anyone seriously believe taxpayers can ever break even on such gold-plated giveaways?
Never before has a governor made interstate job piracy a partisan sport. But there goes Texas Gov. Rick Perry doing it six times since February and pledging to continue. And there sit the National Governors Association—and all the regional governors’ associations—mute and MIA.
Never before has there been a concerted effort by a group of business leaders in a multi-state metro area to forge a two-state cease-fire. But since April 2011, seventeen business leaders in the Kansas City metro area have tenaciously yelled publicly at and negotiated privately with Missouri Gov. Jay Nixon and Kansas Gov. Sam Brownback to fix the abuse of job subsidies that has already wasted more than a quarter-billion dollars on short-distance corporate relocations.
Jobs have become so politicized that some governors have chosen to create captive non-profit corporations —“public-private partnerships”—and privatize critical economic development functions, loading their boards with campaign contributors and creating structures that often evade basic safeguards such as open records laws, audits, and salary caps.
Then last week began a remarkable series of events in Illinois. The state’s House, thwarting the Senate, refused to approve subsidy packages to three companies including Archer Daniels Midland (ADM), the agribusiness giant with $90 billion in sales that wanted $30 million to keep its headquarters in the Prairie State. The stunning turndown spoke to enormous public anger over past job blackmail packages to Sears, CME, Motorola Mobility, Navistar International, and many others—given away while the state substantially raised its personal and corporate income tax rates, and also cut public employee pensions.
Then came the Howard Beale moment: Illinois House Speaker Michael Madigan, who has been Speaker for 28 years, and who holds enormous power that he exercises with great caution and restraint, put out a scorching statement:
We must resist the temptation to cave to corporate officials’ demands every time they impose a deadline for payment in exchange for remaining in Illinois, and end the case-by-case system of introducing and debating legislation whenever a corporation is looking for free money from Illinois taxpayers. This practice creates an unsettling and worrisome appearance of some new kind of corporate pay-to-play, which should be troubling to other business leaders and their shareholders, public officials and Illinois taxpayers. …Presently, four Illinois corporations are seeking… tax breaks or incentives. If their requests are approved by the Legislature, these corporations would, collectively, see their tax burdens decrease by approximately $67 million. The companies requesting these taxpayer-funded breaks currently pay little to no corporate income tax to the state, contributing little or nothing to help fund the very services from which they benefit significantly. Meanwhile, middle-class families continue struggling through a recession and job loss. So I find it very difficult to support tax giveaways for corporate CEOs and millionaire shareholders whose companies pay little in state taxes. I question our priorities when corporate handouts are demanded by companies that don’t pay their fair share while middle-class families and taxpayers face an increasing number of burdens. According to the 2011 census data, the per capita income for an Illinois resident is $29,376. Assuming a 5% state tax rate, more than 45,000 new individuals would need to begin paying income taxes to make up for the lost revenue… … without new revenue, these giveaways are only possible by making additional cuts to crucial programs that impact working men and women across Illinois.
What’s in your Speaker’s blog?
And now comes news this morning that ADM has decided to keep its corporate headquarters in Illinois, relocating it from Decatur to Chicago (although some tech center jobs remain in play). The state called ADM’s bluff! Howard Beale prevailed!
Buckle up for 2014; we’re heading into turbulence!