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Money makes the world go round
Money makes the world go 'round but it may not keep companies in town.
It was the story of the weekend. A searing three-part investigative report by Louise Story at The New York Times describing in detail the gigantic rip-off that corporations across America extract from state, county and municipal governments when they start shopping for a place to land, expand or just stick around. "Rip-off," is not a word that Story or her editors chose, but that's the reality behind her exposé of all those tax breaks, land deals, infrastructure upgrades and assorted other arrangements desperate governments offer to lure companies to their turf or keep them in town. The first two parts are here and here. Part 3 comes Tuesday.

The explicit or implicit pledge on the part of the companies that get these incentives is to create more local jobs and higher tax revenue for the local economy. Everybody benefits, see? That may indeed happen. But it's not unusual for a company to hang around for a while and then just leave. And when the company does leave, on the hook are the citizens who assessed themselves higher sales, property and special district taxes to cover bond payments used to cover these incentives. Those levies can last for decades.

As Story tells it, with an emphasis on General Motors in Part 1, over the years, companies have dragged states and localities into a "high-stakes bazaar" in which they compete with each other to offer the biggest corporate bonanza. Just one more example of how private enterprises enhance their profits by socializing their expenses and, all too frequently, leaving those desperate communities deeply indebted for years. The pressure amounts to blackmail.

How much are the incentives worth? The Times found $80 billion and evaluated some 150,000 awards to create a searchable database. However:

The cost of the awards is certainly far higher. A full accounting, The Times discovered, is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards. Nor do they know if the money was worth it because they rarely track how many jobs are created. Even where officials do track incentives, they acknowledge that it is impossible to know whether the jobs would have been created without the aid.
That's right. Taxpayers are buying themselves a pig in a poke. And even when an incentivized company does stick around, few governments bother to gauge the economic and job benefits of the money they're spending, say, on sewer and road extensions nor on the revenue they're foregoing via tax breaks. So, when the next company comes sniffing around for incentives, nobody is in a position to determine from experience where it's a sound deal or not.
“How can you even talk about rationalizing what you’re doing when you don’t even know what you’re doing?” said Timothy J. Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich.
Although all sorts and sizes of businesses seek incentives, and get them, as usual the big guys get the big bucks. Oftentimes, as the Times notes, municipalities find themselves sitting across the table from conglomerates like Shell or Caterpillar, outgunned by the corporate lawyers of these giants:
“They dictate their terms, and we’re not really in a position to question their deal terms,” Sarah Eckhardt, a commissioner in Travis County, Tex., said of companies she has dealt with recently, including Apple and Hewlett-Packard. “We don’t have the sophistication or the resources to negotiate with a company that has the wherewithal the size of a country. We are just no match in negotiating with that.”
This isn't a new phenomenon, states and cities as far back as the 1930s sought to lure industry to their locale in those financially straitened times. But incentives didn't really take off until the 1980s. Now they aren't something most places can avoid offering. Sometimes, they're given to businesses where they make no difference at all where a company locates, as with hotels that can hardly "go somewhere else." But they ask for the cash anyway, and the government often coughs it up.

The cities and states have to sign on the bottom line for those bond issues and other measures that pay for the incentives. But the companies? They just make vague promises. As Eckhardt told the Times, “These economic development deals with a company just serve to guarantee that the nation’s largest companies can receive tax breaks wherever they go.”

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Originally posted to Meteor Blades on Mon Dec 03, 2012 at 12:39 AM PST.

Also republished by Daily Kos.

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