A business bonanza paid by taxpayers

In America's new civil war, the quest for jobs produces unequal taxes, underfunded schools, rutted roads -- and no new jobs.

October 10, 1999|By Jay Hancock | Jay Hancock,Sun Staff

In 1995, the same year Avesta Sheffield made a half-billion dollars' profit, the steel company came to Maryland taxpayers, asking for a little bit more. xxIf Maryland would just ante up $1.1 million in special incentives, Avesta executives promised, the company's stainless-steel mill in Baltimore County would continue operations, make new investments and nearly double its work force to 350.

Maryland delivered. Gov. Parris N. Glendening took credit for the "rebirth" of the old factory, which once employed 1,500 and stamped out artillery shells during World War II.

It was not to be.

The mill stopped production last year, and last week Avesta put it up for sale. The jobs no longer exist, at least in Maryland, and Avesta still has a half-million of Maryland's dollars.

FOR THE RECORD - In a series published Oct. 10-13 about government incentives to recruit and retain businesses, The Sun erroneously included F&G Life of Baltimore in a list of firms that violated the terms of their agreements with state and local officials. A review of the record shows F&G did not break its promise.
The Sun regrets the errors.

And at the same time that it was shrinking its Maryland work force, Avesta negotiated another round of incentives in Indiana worth hundreds of thousands of dollars -- partly for machinery and jobs taken from Baltimore County.

So goes the economic civil war: Governments in two states are poorer. A private corporation is richer. And the United States as a whole is no better off.

In the past decade, in the name of creating jobs and being "business-friendly," states have given companies such as Avesta billions of dollars in taxpayer-funded economic development incentives.

So common have these inducements become that they amount to a separate, sweetheart tax code, far more generous than the rigid brackets and schedules governing other taxpayers. By demanding incentives with the threat of moving jobs elsewhere, companies have learned to do what you can't: Haggle over their contribution to the public purse.

The deals are struck in secret, often hidden even from elected officials and frequently tinged with deceit by corporate executives. Once restricted mainly to state governments, they're now costing cities and counties billions of dollars, too.

For all their cost, corporate incentives add little to America's economy, critics contend. Incentives shuffle jobs among states, often promoting layoffs. They sap government treasuries. They boost taxes for others -- including other businesses.

What they don't do is create many jobs that wouldn't have ended up somewhere in the United States anyway. And, as the Avesta deal shows, often they don't yield much even for the governments that slash taxes and "win" jobs.

Maryland's government alone provides more than $50 million annually to dozens of selected businesses. Handouts from the state and its localities keep growing.

Marriott International's $44 million package this year was the state's biggest incentive deal ever, except those for sports stadiums. Two weeks ago Maryland's Supreme Court upheld $75 million in city tax breaks for a Baltimore hotel, legalizing the kind of tax concession here that has ravaged municipal budgets in Tennessee, South Carolina and elsewhere.

In a yearlong examination into the use of public funds to attract and retain businesses, The Sun interviewed scores of incentives recipients, real estate brokers, site consultants, legislators and economic development professionals across the country. It reviewed contracts, e-mail records, letters, court transcripts, tax records and other documents relating to incentives in a half-dozen states.

Bluffing for dollars

Among the findings:

* Companies routinely mislead government officials about their location searches, feigning interest in some sites simply to extract lucrative deals from the state they would have chosen anyway. As reported by The Sun this year, Marriott International chose Maryland over Virginia but asked Virginia officials to keep the decision secret so a worried Maryland would deliver the biggest possible giveaways. "This goes on all the time," said Alton P. Hatcher Jr., former chairman and chief executive of Pittsburgh-based Robertson Seko Corp., who admitted in a North Carolina court case that the manufacturing company bluffed to get incentives. "I think everybody knows this."

* Elected officials who approve or reject incentives are, at best, semi-informed about the projects they're voting on. In at least half of 24 Maryland deals examined closely by The Sun, legislators approved special giveaways for supposedly "at risk" companies that had already decided to locate or remain in the state. At least seven projects were well under construction when legislators voted on them. Two were finished and occupied.

* Consultants frequently get a secret percentage of the taxpayer subsidy they negotiate for corporate clients. Fantus Consulting broke new ground in 1992 when it received a lucrative fee tied directly to the $140 million in subsidies it negotiated for BMW's South Carolina auto plant. Such "pay for performance," now common, is "disgusting," unethical and expensive for taxpayers, said Jeff Finkle, executive director of the National Council for Urban Economic Development.

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