A juicy tale of good old corporate welfare

August 09, 2006|By JAY HANCOCK | JAY HANCOCK,SUN COLUMNIST

There have been bigger corporate welfare deals than the one that lured AAA Mid-Atlantic to Delaware. There have been worse deals, and deals negotiated with less disclosure.

But rarely are "economic-development incentives" chronicled with the attention that New Jersey Policy Perspective has devoted to the $7 million-plus that lured more than 600 AAA jobs to Delaware from Pennsylvania and Maryland.

The liberal policy group's new analysis is a revealing study of how companies play the interstate job-jealousy game, sap tax revenue and contribute nothing extra to the national economy.

AAA Mid-Atlantic had already decided to move to Delaware before it applied for economic development subsidies from the state's Council on Development Finance, the report shows. That raises questions about whether it really needed the money to switch locations and whether the council was just rubber-stamping what state employees had already decided.

While AAA told Delaware that that state was competing with New Jersey for the 600 jobs, it never applied to that state for incentives, casting more doubt on the alleged interstate "competition." (It did apply for and receive New Jersey incentives for adding jobs at a separate AAA division.)

But the most damning conclusion is also the most obvious.

"In return for moving workers across four states like checkers on a checkerboard, [AAA] received millions of government dollars," the report concludes. "No new jobs were created." The report is on the group's Web site at www.njpp.org.

It was September when the cream of Delaware politics gathered at the Wilmington riverfront to cut the ribbon on AAA Mid-Atlantic's new headquarters.

AAA got $7 million in government grants, plus lucrative tax discounts for moving 350 headquarters jobs from Philadelphia, another 250 call-center jobs from Maryland's Cecil County just across the state line to Newark, Del., and pledging to bring more than 200 additional jobs to Delaware later.

Delaware Gov. Ruth Ann Minner, who less than a year earlier pledged to work with New Jersey and Pennsylvania "to ensure economic vitality for all of us," crowed about the benefits that the swiped jobs would bring "to this dynamic, growing area of the state," according to PR propaganda.

But Delaware's gain is Maryland's and Pennsylvania's loss. The AAA shuffle exemplifies hundreds of similar situations in which states make deals to give taxpayer money to private corporations in return for promised jobs.

Whether dispensed as grants or tax relief, it amounts to messing with the tax system for the sake of a few privileged companies. The grants are essentially tax rebates.

The study "was a little bit unfair to us," said AAA Mid-Atlantic spokesman Lon Anderson. "Our call was to take advantage of money that's available to us, if it's available to us."

The money will help keep AAA memberships less expensive, he said, adding that it was the deciding factor in AAA's decision to move.

Just because AAA never filed paperwork for New Jersey incentives doesn't mean senior managers hadn't been talking to the state, Anderson said. And although the Delaware papers weren't filed until AAA had decided to move, "we had been talking with Delaware for a long time, and they had given us verbal assurances" that the application would be approved, he said.

All of which makes sense. This is the way these things usually work. When governors and legislators make development money available, they don't hold back on spending it. (Full disclosure: I'm a AAA member.)

The deeper issue is whether Congress or the courts should outlaw these deals as an improper use of public money for private purposes.

I agree with Anderson when he contrasts AAA's Delaware deal with Marriott International's 1999 shakedown of Maryland. At least Delaware got some new jobs. Maryland paid Marriott millions for jobs that were already here when it threatened to move them to Virginia.

But any narrowly aimed tax break or subsidy deal is offensive. It's unfair to employers paying a full tax load and competing with subsidized companies for employees and customers. And it does nothing for the nation's overall job growth.

Unfortunately, economic development deals aren't going anywhere anytime soon. The Supreme Court recently passed up a chance to declare them unconstitutional on the grounds that they interfere with interstate commerce.

But someday, some judge may decide that, in this country of deal makers and negotiators, negotiating your own taxes is going too far.

jay.hancock@baltsun.com

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