`Jobs Scam' is grim tale of states' hunger for business

August 03, 2005|By JAY HANCOCK

THE MARYLAND Constitution seems rather clear on corporate welfare. "The credit of the State," it says, "shall not in any manner be given, or loaned to, or in aid of any individual association or corporation."

No mixing government and business, in other words. No public debt to aid private investors. No government borrowing or loan guarantees, at least in the very narrowest interpretation, for nongovernment corporations.

These days, of course, Maryland economic development officials use your tax dollars to run their own little merchant bank - a portfolio of loans and other business financing worth hundreds of millions of dollars. This week Baltimore officials took a big step toward underwriting a $305 million loan for a privately run convention center hotel.

How did we get from there to here? Greg LeRoy's Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation does the best job yet of exposing how business and state/local governments have checked into the No-Tell Motel together and how business has gained the advantage nearly every time.

Don't worry, the book doesn't detail how Maryland's Constitution and those of other states got turned inside out. That would take a legal genius, and nobody would read it anyway. Rather, Jobs Scam shows how economic desperation, specious arguments and ambitious politicians paved the way for mingling business and government in a way that state founders instinctively knew was dangerous.

Bias alert: I have known LeRoy, a business subsidies watchdog, for years and occasionally quoted him. Jobs Scam in part is a "greatest hits" reprise of corporate welfare outrages as covered by The Sun and other newspapers in recent years.

But the tale deserves retelling and rereading.

"I love stories that make me angry!" a prominent Maryland Republican once told me after The Sun ran some articles on economic development shenanigans. Jobs Scam will make you angry all over again, and then some.

Every business ploy to milk government gets lucidly exposed: enterprise zones, Sunny Day funds, "payment in lieu of taxes," revenue bonds, tax increment financing.

Some are direct grants. Some are subsidized loans. Some are explicit tax discounts. All are tax dodges. One way or another, on the debit side or the credit side, the obligations of individual companies to government get whittled or extinguished.

This happens, of course, after businesses promise to bring or threaten to remove jobs from a community. Jobs Scam recounts the rise of Fantus, a consulting outfit that pioneered the corporate "site selection" business and was once owned by PHH Corp., whose fleet management operation is in Baltimore County. In a revelation that must have had business executives pinching themselves, Fantus realized companies could negotiate their own taxes and use revenue bonds to piggyback on government's credit rating if they brandished jobs as reward or punishment.

Thus did the interstate jobs war get launched in the 1930s and hit its shrill apogee in the 1990s.

Defenders of economic development subsidies say that they do create jobs, that even at discounted rates they prompt tax revenue that wouldn't have otherwise existed. This is true at certain times in certain places.

But sometimes subsidies backfire, as shown in South Carolina, which lured tens of thousands of jobs through 1990s tax discounts and other blandishments but then had trouble paying for the resulting boom.

And for the nation as a whole interstate job competition does no good. It simply forces states to deprive themselves of revenue for jobs that would have landed somewhere anyway. LeRoy argues persuasively that tax rates aren't the main thing driving business locations anyway; tax discounts are just something to be extracted because companies have figured out they can do it.

Here's a Dell executive ranting at North Carolina Commerce Secretary Jim Fain last year after the state balked at Dell's demand for free land, a free building, no income taxes and $5 million for worker training in exchange for putting up a computer plant: "... Not wowed here - not sure the state's stepping up here," said the executive, according to Fain's notes as quoted by LeRoy. "If a state like N.C. can't get after this, I'm worried for our country - there's a certain amount of patriotism here."

North Carolina buckled and got the plant.

A site-selection company offering to extract public subsidies for business clients brags, "Corporate America typically leaves millions of dollars on the table when it expands, relocates or finds new sites. ... A check with your name on it could be waiting. ..."

LeRoy's well-grounded subsidies criticism comes from the political left, made immediately obvious by effusive blurbs from people such as AFL-CIO President John Sweeney and Joe Trippi, one-time campaign manager for Howard Dean.

When such attacks are combined with the libertarian case against corporate welfare - that it mocks equal treatment under the law, that it forces businesses to subsidize their rivals, that it turns government bureaucrats into economic planners - the case against economic development "incentives" is closed.

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