Site Meter
Home » Archives » Phantom Payouts

Phantom Payouts

From its sparkling new headquarters building in midtown Manhattan, The New York Times looked down upon the folks in economic development last week and decided it didn’t like what it saw.

Like everyone else in the economic development community, we found the Times’ front-page, three-part series on tax incentives fascinating reading. But we were disappointed that the end-product of what the Times said was a “10-month investigation” ignored some obvious facts about the subject in a misleading presentation.

The best thing we can say about this controversial opus is that, technically, the subhead of the lead article was correct: “Governments Give Up $80 Billion a Year, but Jobs Can Still Vanish.” A lot of what followed the headline is troubling.

Throughout each article of the series, the Times broadly implied that the lion’s share of economic development tax credits awarded each year by localities is withdrawn directly from state or local treasuries and transferred into the coffers of companies who are relocating, expanding or building new facilities. The Times’ report repeatedly described these incentives as “payouts.” Readers were given the impression that huge bundles of cash were being “spent” to finance incentives for large corporations promising job-rich projects.

The central theme of the series–that corporate welfare is being lavished on Fortune 500 firms by revenue-starved states facing severe budget cuts–was hammered home with a series of sob stories juxtaposed with information about specific projects and incentives:

–While Amazon was arguing with Texas about payment of a $269-million tax bill, we were told, low-wage workers in its Irving, TX distribution center were moving packages in 115-degree heat without air conditioning.

–While Samsung enjoys $112 million in property tax abatements for its Austin, TX semiconductor fabrication facility, the Times noted, school class sizes in the area are growing as the state cuts school funding.

–And, worst of all (according to the Times), auto goliath General Motors had the audacity to close numerous plants after receiving state incentives packages for the same facilities.

There’s a lot to respond to here. Let’s start with terminology. According to our handy dictionary, “give up” is not the same as “payout” or “spent.”

According to several experts we consulted regarding the Times’ series, the lion’s share of economic development tax incentives are awarded as tax abatements. These usually are allocated as credits against future property or sales tax payments, and they’re spread out over several years [the $112-million abatement Samsung was awarded covers eight years of property taxes]. So yes, the locations awarding these incentives are in fact “giving up” future tax revenue. What they’re not doing, in most cases, is “paying” for these incentives or allocating funds from their current budgets to cover them. Tax credits usually are not “money spent”–they’re revenues not collected.

Many states–let’s call them the smart states–have enacted performance requirements which tie tax credits directly to a specific threshold of job-creation. In other words, if a company gets a $50-million credit by promising to create 400 jobs in a new facility–but the plant ends up employing only 250–the tax credit cannot be applied. Many locations adhere to statutory incentives, with legally mandated conditions, and avoid discretionary incentives, which are negotiated for a particular deal.

We don’t dispute the legitimacy of an honest debate about the long-term economic impact of tax incentives, focused on whether future tax revenue being sacrificed is matched or exceeded by the growth inherent in new and expanding facilities. We’ve read all the horror stories about promised jobs failing to materialize and locations that can’t verify actual jobs created by projects they’ve landed. We recognize that states who put their imprimatur on loan guarantees for start-ups (or back corporate bond purchases with pension funds) are engaged in a potentially risky enterprise. And we applaud the Times for throwing its spotlight in this series on some unsavory, cozy relationships between government officials and middlemen negotiating tax incentives for large companies.

But most of the examples cited by the Times to support its meme that tax incentives are corporate welfare sucking up public funds in a time of budget austerity were, to put it diplomatically, a bit of a stretch.

The dispute between Amazon and Texas over a $269-million tax payment had nothing to do with working conditions or wages at the Irvine distribution center. It had everything to do with Amazon’s reluctance to set a precedent for paying state sales taxes on its burgeoning online business. Amazon may eventually lose this argument nationally (especially if Congress climbs off its fiscal cliff by imposing a federal Internet sales tax), but you can’t blame the e-Commerce giant for holding the line on a policy that has helped fuel the spectacular growth of the company.

Regarding Samsung, the Times suggested that because the company’s property tax abatement was approved by the local school district–for which the district was reimbursed by the state–somehow the semiconductor facility project should be blamed for a state initiative to offset property taxes in Texas with business taxes, which apparently has led to deep cuts in funding for school districts.

According to the Times’ logic, if Business Facilities’ parent company gets a variance from the Tinton Falls Zoning Board to expand our parking lot we are now responsible if New Jersey’s highway infrastructure collapses, resulting in massive congestion on Route 18.

While the Times was busy fingering Samsung as the culprit for larger class sizes in a Texas school district, its 10-month-long investigation strangely failed to elicit the fact that the South Korean semiconductor maker has invested a whopping $13-billion in its Austin chip fab complex. [To be fair, the Times did note that Samsung has donated $1 million to a scholarship program for the school district, and the company mentors local students].

The biggest cheap shot of all in the Times’ opus was reserved for General Motors. Much of the space in the first installment of the series focused on GM’s closing, during the past three years, of up to 50 facilities for which the auto giant had received a variety of tax incentives. The Times apparently was shocked, shocked to learn that, when GM accepted these incentives prior to 2007, the company failed to warn its location partners that a global financial meltdown soon would bring it to the brink of bankruptcy and liquidation.

So the federal bailout of General Motors, the restructuring of the company, the shedding of aging plants and GM’s subsequent investment of $7.3 billion in new and improved facilities–nothing less than the greatest industrial turnaround in history–actually was a devious plot hatched in Detroit to welsh on some tax credits! Who knew?

This from a newspaper that crawled down to Mexico to beg the world’s richest man for a $200-million loan to keep its payroll solvent in 2009–at the same time The New York Times Company was moving into its gleaming new skyscraper in midtown Manhattan. And how did the financially strapped Times Co. manage to finance its dazzling new tower?

Paragraph 47 of part one of the Gray Lady’s big economic development tax incentive scoop offers this cryptic clue: “Since 2000, The New York Times Company has received more than $24 million from the city and the state.”

Here’s the missing sentence: Since 2000, The New York Times Company has reduced its payroll by nearly one-third. Just another case of Government Gives Up Millions and Jobs Vanish, but apparently not news that’s fit to print.

 

email

About The Author

Number of Entries : 258

Leave a Comment

© 2014 Business Facilities Magazine | Group C Media | Privacy Policy | Terms Of Use