State, Local Corporate Subsidies: A New Coalition For Accountability

Neal Peirce

Amazement has been our typical response to the extent of corporate self-dealing, opaque bookkeeping and conflicts of interest brought to light by the Enron debacle and subsequent scandals of 2002.

But not for Greg LeRoy, founder-leader of a Washington-based policy group called Good Jobs First. LeRoy, a former union official and community organizer, is becoming America's No. 1 watchdog of how subsidy-hungry corporations are putting the squeeze on state and local governments--and all of us as taxpayers.

The record is enough to curl your hair. LeRoy's reports have highlighted a near tidal wave of tax abatements or outright payments that states and localities feel obliged to make to land footloose businesses--or sometimes just to convince the ones they have to stay put.

Just one recent example: the New York Stock Exchange demand of $400 million to stay in Manhattan, offering, in LeRoy's words, a "laughable threat to move to New Jersey, even though most of its major member firms have already been paid to stay in New York!"

All too often, LeRoy complains, companies simply fail to create the jobs or pay the wages or invest the dollars they promised in return for their tax breaks or subsidies.

States and localities, he charges, are grossly negligent in monitoring and evaluating the effectiveness of the massive incentives they offer. He highlights a finding by the U.S. Economic Development Administration that only two states (Maryland and New York) have created models to figure how well subsidies work. The other 48 collect no data on effectiveness, or rely on data from client companies--leaving the fox, as it were, in charge of the chicken coop.

Last month in Baltimore, LeRoy's Good Jobs First, formed in 1998, held its first-ever national conference, 300 people from 36 states involved in community based organizations, labor organizations, state tax and budget watchdog groups, environmental/smart growth organizations and academia.

Whether from the left or right, the attendees agreed that state and local economic development efforts should be fully accountable--"to fix the candy store mess," as LeRoy puts it.

The anger doesn't seem so much targeted at local governments, however. All too often they find themselves beaten down, abused by businesses playing one state or locality against another. And by independent consultants, or business relocation arms of big accounting firms, who may work one time for local governments, another time for corporations seeking subsidies from them.

Insider knowledge picked up that way is a serious conflict of interest, say critics. They also hit hard on deals in which consultants' pay is secretly tied to the size of taxpayer-financed government incentives they can negotiate for their corporate clients.

Anyway, says LeRoy, it's simply wrong to hand out corporate subsidies when the recipient businesses often turn out to be paying poverty-level wages, denying health care coverage to employees, polluting the environment, fueling sprawl by fleeing inner cities and older suburbs, or "merely moving jobs from one city to another."

The case for relocation subsidies is getting all the weaker, he notes, because today's big challenge isn't capturing footloose jobs. Instead, it's building peoples' skills. With the graying of America--and notwithstanding immigration--the country's work force growth is projected to decline to a bare replacement rate. Skilled labor will be scarce for a generation or more to come.

Conclusion? Education is of indisputable, paramount importance. That means, LeRoy argues, that monies flowing to property tax abatements or special tax districts or corporate income tax cuts are devouring public budgets far better spent on building Americans' skills for the 21st century.

What is looking up--at least a little--is the battle for accountability. Largely due to grass-roots campaigns by the types of people at the Good Jobs First conference, the number of states with "clawbacks"--requirements for return of subsidies if a firm tries to leave, or doesn't provide the new jobs it promises--has risen from nine to 17 in the past decade. In 1992 only eight states attached job quality standards to their subsidies; today 37 do.

Still, across the country, state and local economic development offices remain instinctively secretive, even with vast sums of public money at stake. New state accountability systems--like the ones from Maine, Minnesota and North Carolina, highlighted at the Good Jobs First conference--are still rare.

What is different is the start of a coherent, connected national constituency to exchange experiences, highlight accountability measures, and fight for reform. The Baltimore conference, first of its kind, may start that ball rolling (www.goodjobsfirst.org/gjf.htm).

Ironically, it's a cause likely to be bolstered by accounts of juggled books and abuse of shareholders by some of our most gigantic publicly traded corporations. In this climate, calls for broad-based reform, for honest and open accounting, for putting the public interest first, should be gaining new resonance coast to coast.

Neal Peirce's e-mail address is nrp@citistates.com.