Archive for the ‘Subsidies’ Category

Corporate Subsidies and Economic Inequality

Tuesday, December 16th, 2014

inequality_graphicThe intensification of economic inequality, one of the defining issues of our times, has many causes, ranging from the weakening of labor unions to the decimation of inheritance taxes. In Tax Breaks and Inequality, a report my colleagues and I at Good Jobs First have just published, we argue that another factor belongs on the list: subsidies given by state and local governments to large corporations in the name of economic development.

This conclusion is based on a mash-up of data from our Subsidy Tracker with two groups of corporations: firms linked to members of the Forbes 400 list of the wealthiest Americans and a list we created of large low-road employers.

The first part of the report is in effect a rebuttal to Forbes, which in this year’s edition of the 400 plays up those individuals who supposedly built fortunes entirely on their own (rather than through inheritance). We show that many of many of the super-rich – both those Forbes calls “bootstrappers” and those labeled “silver spooners” – received help of another kind: government assistance to the corporations through which they got filthy rich.

Development subsidies – in the form of business property tax abatements, corporate income tax credits, sales tax exemptions, training grants, infrastructure improvements and the like – are supposed to promote job creation and broad-based economic growth. Yet they are often awarded to profitable, growing companies that do not need tax breaks to finance a project, meaning that the subsidies serve mainly to increase profits. When these companies are owned in whole or substantial part by wealthy individuals or families, especially the billionaires in the 400, the subsidies are serving to enlarge those private fortunes — directly in privately held firms or through stock price appreciation and dividends in publicly traded ones.

We find that more than one-third of the 258 companies currently linked to members of the Forbes list are substantial recipients of subsidies. Ninety-nine of them have received awards totaling $1 million or more. The combined value of those awards is $19.4 billion, or an average of $196 million per company.

Five of the 99 firms have been awarded more than $1 billion in subsidies, including Intel ($5.9 billion), Nike ($2 billion), Cerner ($1.7 billion), Tesla Motors ($1.3 billion) and Berkshire Hathaway ($1.2 billion).

About one-third of the individuals on the Forbes 400 are linked to one or more of the 99 highly subsidized companies, including every one of the 11 wealthiest individuals and all but two of the top 25. These include Bill Gates, whose $81 billion fortune comes mainly from his holdings in Microsoft, which has been awarded $203 million in subsidies; Warren Buffett, whose $67 billion net worth derives from Berkshire Hathaway, which has been awarded $1.2 billion in subsidies; Larry Ellison, whose $50 billion net worth comes from Oracle, which has been awarded $18 million in subsidies; the Koch Brothers, each worth $42 billion from Koch Industries, whose subsidies total $154 million; and four members of the Walton Family, each worth more than $35 billion from Wal-Mart Stores, which has been awarded more than $161 million in subsidies.

The second part of the report looks at subsidies awarded to corporations notorious for stingy pay rates and other low-road employment practices. We identify 87 such companies that have each been awarded more than $1 million in state and local subsidies, for a total of $3.3 billion. Retailers dominate the list, with 60 firms awarded more than $2.6 billion in subsidies. Twelve firms in the hospitality sector (restaurants, hotels and foodservice companies) account for more than $245 million in subsidies. The low-wage companies with the most in subsidies are: Sears ($536 million), Amazon.com ($419 million), Cabela’s ($247 million), Convergys ($202 million), Starwood Hotels & Resorts ($166 million) and Wal-Mart Stores ($161 million).

Eight companies are both linked to members of the Forbes 400 and pay low wages. Listed in order of their subsidy totals, they are: Sears, Amazon.com, Wal-Mart, Best Buy, Bass Pro, Meijer, Menard, and Allegis Group. These are all retailers except for the staffing services company Allegis.

Subsidies are not the primary source of the Forbes 400’s wealth, but they contribute to it in a way that makes things more difficult for working families. When large corporations controlled by billionaires are given lavish taxpayer subsidies, the rest of society — especially working families — gets stuck with a larger share of the cost of essential public services. And when those subsidies go to low-road employers, they are promoting the substandard jobs that keep so many people at the bottom of the income spectrum.

By enriching those at the top and helping to impoverish those at the bottom, subsidies are part of the inequality problem rather than part of the solution.

Corporate America’s Government Bonanza

Thursday, November 20th, 2014

moneybagsontherunWe’re taught to believe that government is a system for protecting the country, ensuring justice and helping people pursue happiness. For large corporations, on the other hand, government amounts to a big investment opportunity.

One of the most detailed assessments of the return on that investment has just been produced by the Sunlight Foundation. Not surprisingly, it turns out that the interaction big business has with the public sector is very profitable. What’s amazing is Sunlight’s estimate of the magnitude of those gains.

In its report called Fixed Fortunes, Sunlight takes great pains in estimating both what 200 of the largest and most politically active firms spend on government – in the form of campaign contributions and lobbying expenditures – and what they receive in benefits. Sunlight puts those benefits in two categories: federal business and federal support.

The first includes federal contracts as well as foreign sales enabled by the Export-Import Bank and certain transactions involving commercial banks in the wake of the financial meltdown. Federal support includes grants, loans and loan guarantees as well as other forms of assistance to banks following the meltdown.

Sunlight finds that the 200 companies spent $5.8 billion on political influence during the period from 2007 to 2012 while receiving $1.3 trillion in federal business and $3.2 trillion in federal support. This shows, Sunlight says, that for every dollar spent on influencing federal policy, these corporations received $760 in benefits. And that’s just the average. Some of the big banks got vastly more. Goldman Sachs received about $229 billion in business and support combined, more than 6,000 times what it spent on influence. For Bank of America it was more than 10,000 times. These are rates of return even the most successful hedge funds couldn’t imagine.

In some ways, Sunlight’s benefit numbers are understated, since they do not include the payoff from lobbying for corporate income tax reductions. The report includes figures from Citizens for Tax Justice showing the low effective tax rates most large companies enjoy, but Sunlight does not attempt the probably impossible task of estimating the dollar value of the tax benefits individual companies have gained from their lobbying efforts. Sunlight points out other examples of unquantifiable benefits corporations receive from Uncle Sam, such as those deriving from the artificially low rates charged to petroleum companies for drilling on federal land.

Moreover, Sunlight acknowledges that its estimates apply only at the federal level, though in its summary list of the results for the 200 companies it includes links to the state and local subsidy totals my colleagues and I at Good Jobs First have assembled in our Subsidy Tracker database.

On the other hand, one could take issue with the way in which Sunlight calculates some of the categories of federal support. For loan and loan guarantee programs, for example, it apparently uses the face value of the funding, whereas the actual cost (except in cases of default) is much lower. It would have been helpful if Sunlight had listed the totals derived from each form of assistance; it is not always clear which numbers it used in the underlying spreadsheets it makes available.

Despite these quibbles, Sunlight has performed a great service in documenting the extent to which the federal government functions as a giant ATM for corporate America. We at Good Jobs First will soon be contributing to this effort by extending Subsidy Tracker to the federal level. We’ve been gathering data on many of the same programs examined by Sunlight, plus others, and we will be including entries for all companies, both large and small.

Let’s hope that as more light is shined on the ways government benefits corporations, we can shame elected officials into remembering who it is they are supposed to be serving.

Corporate Benefit Cutters Still Shifting Costs to Taxpayers

Thursday, October 9th, 2014

walmart_jwj_subsidiesWal-Mart’s recent announcement that it will snatch health coverage away from 30,000 part-timers is not just the latest in a long series of Scrooge-like actions by the giant retailer. It is also a sharp reminder of both the necessity of the Affordable Care Act and the deficiencies of that law.

If we think back to the time before Obamacare became a political lightning rod, we may recall that it was precisely the behavior of corporations such as Wal-Mart that created the need for healthcare reform.

In addition to paying low wages, Wal-Mart had long been criticized for providing inadequate benefits to its employees. In 2003 the Wall Street Journal published an article describing the various ways in which the company kept its spending on health benefits as low as possible. This was explored in more detail in an AFL-CIO study that came out about the same time.

This evidence, combined with reports that the company was encouraging its workers to apply for Medicaid and other government social safety net programs, prompted critics to argue that Wal-Mart was in effect shifting some of its labor costs onto taxpayers. In 2004, the Democratic staff of the House Committee on Education and the Workforce published a report estimating that the average Wal-Mart employee used federal safety net programs costing $2,103 per year.

Over the following few years, state governments were encouraged to reveal which employers accounted for the most enrollees (including dependents) in Medicaid, the State Children’s Health Insurance Program and other forms of taxpayer-funded health coverage. For those states that did disclose those lists, Wal-Mart was almost always at or near the top. My colleagues and I at Good Jobs First still maintain a compilation of these disclosures, though most of the data is now woefully out of date.

Healthcare reform should have put an end to all this, ideally by creating a system of Medicare for all funded with higher taxes on business. Of course, what we got was something else. Ironically, one of the most positive aspects of the Affordable Care Act – the expansion of Medicaid eligibility in some states – may be increasing the amount of hidden taxpayer costs generated by employers such as Wal-Mart. Yet that’s less important that the extension of those benefits to families desperately in need.

The ACA’s impact on the large portion of the workforce not enrolled in public programs is even more complicated. Although the law depends heavily on private insurance, it does not, strictly speaking, require employers to provide group coverage. Instead, what is often called the law’s employer mandate is a half-baked arrangement that will simply require larger companies (50 or more FTEs) that fail to provide adequate group coverage to pay a penalty.

That penalty is likely to be less than the cost of providing coverage and it will kick in only if at least one full-time employee of a company ends up getting federally subsidized coverage through the state or federal exchanges created by the ACA. It thus appears that companies such as Wal-Mart, Target and Home Depot that dump part-timers from their plans will be able to avoid the penalties, which in any event are not yet in effect as a result of several postponements by the Obama Administration.

While the ACA is helping more people get coverage, it does nothing to thwart low-road employers from continuing to shift what should be their health coverage costs onto taxpayers. It also appears to do nothing to help us discover which corporations are guilty of this practice, since there are no explicit provisions for making public the coverage reports that large employers will be required to file with the IRS.

Not only does the ACA fail to impose a meaningful employer mandate; it also misses an opportunity to shame those freeloading employers which expect taxpayers to pick up the tab for their failure to provide decent coverage to all their workers.

The Second Coming of Henry Ford?

Thursday, August 7th, 2014

River-Rouge-PlantElon Musk apparently wants us to think of him as the second coming of Henry Ford. The CEO of electric carmaker Tesla Motors is planning to build a $5 billion, 6,500-worker battery “gigafactory” that is being likened to Ford’s legendary River Rouge complex in Dearborn, Michigan. Musk has a group of western states desperately competing for the project.

It remains to be seen whether the Tesla plant will rise to the level of Ford’s integrated industrial wonder (photo), which in the 1920s was the largest manufacturing site in the world. Yet the two facilities will have something in common: being built in part with taxpayer money. As Robert Lacey tells it in his 1986 book Ford: The Men and the Machine, Ford arranged for the federal government to pay $3.5 million for the deepening of the Rouge River and the draining of marshes at the plant site as part of the contract Ford had been granted to produce Eagle boats for the U.S. Navy.

Tesla has also received help from Uncle Sam — in the form of a $465 million loan it repaid last year — but now the company has its hand out to those states vying to be chosen for the gigafactory. It’s been understood for months that the winner of the competition would have to put serious money on the table, but now Musk has indicated exactly how much in the way of subsidies will be required: 10 percent of the cost of the plant, or about $500 million.

The company and its apologists insist that the demand is not excessive, noting that Volkswagen got a bit more for its assembly plant in Tennessee despite the fact that it is employing a lot fewer workers than Tesla promises. That’s true. Volkswagen got $554 million from state and local agencies, and that is far from the largest subsidy package ever awarded in the United States. In the Good Jobs First Megadeals compilation, it ranks 24th.

Yet such a comparison is problematic, because it is far from clear that the $500 million figure will be the total subsidy burden the winner of the Tesla auction would take on. In all likelihood, the $500 million would be only the up-front cost, while state and local governments would also probably have to offer long-term tax benefits that would end up being much more expensive.

This happens all the time. In the case of Volkswagen, public officials were initially mum about the estimated total size of the package, and it was only through reporting by the Chattanooga Times Free Press that the real costs came to light. By the way, VW is now getting $274 million more for a plant expansion.

Another egregious case of low-balling subsidy estimates happened in Mississippi, where officials initially put the cost of the package given to Nissan in 2000 at $295 million. Yet, as my colleague Kasia Tarczynska and I showed, when all was said and done, state and local agencies in the Magnolia State gave the carmaker subsidies worth more than $1.3 billion.

The odds that Tesla will seek to maximize its subsidy payoff are increased by the fact that it just announced a partnership with Panasonic. The Japanese company managed to extract a subsidy worth more than $100 million from New Jersey to move its North American headquarters a short distance.

Along with underestimated costs, there is a chance that projections about the Tesla project are overstating potential benefits. Particularly suspicious is the claim of 6,500 jobs. Given current manufacturing practices, a workforce of that size is highly unlikely. I can’t help but suspect that the number may include temporary construction jobs or supplier jobs. It’s worth noting that the heavily subsidized advanced battery projects in Michigan mostly created jobs only in the hundreds, the best case being the 1,000 positions created at A123 Systems before it went bankrupt.

And even if Tesla beats those figures, there’s the question of how good the jobs will be. The Japanese and German auto assembly transplants have had to set their wages close to those of the Detroit automakers (though benefits are substantially lower). Will Tesla feel any pressure to create decently paying jobs, or will it take advantage of a struggling area such as Reno, Nevada (one of the possible sites) or the low-wage, anti-union climate of Texas (another contender) to keep compensation levels low?

Fortunately, it is not entirely up to the company. The upside to the insistence on a big subsidy package by Tesla is that states attach some job quality standards to their awards. From this perspective, the best outcome would be for Tesla to choose Nevada, which ranked first in the rankings my colleagues and I at Good Jobs First did on state practices in this area.

Even if Elon Musk does not agree with Henry Ford’s famous wage boosting policy, he won’t be able to exploit his workers as thoroughly as he is doing to taxpayers.

Subsidizing Corporate Offenders

Thursday, May 29th, 2014

moneybagsontherunIt’s been clear for a long time now that, despite recurring calls to get tough on corporate crime, companies can essentially buy their way out of legal entanglements. In most cases this has come about through the U.S. Justice Department’s willingness to offer companies deferred prosecution agreements. The recent Credit Suisse guilty plea, which is not doing much to impair the bank’s operations, shows that big companies can even go about their business with a criminal conviction.

That’s not the worst of it. It turns out that many of these corporate offenders have received tax breaks and other forms of financial assistance from state and local governments around the country. This does not come as a complete surprise, but it is now possible to quantify the extent to which this unfortunate practice is taking place.

This estimate comes from mashing up two datasets. The first is the Subsidy Tracker I and my colleagues at Good Jobs First have compiled. In recent months we have enhanced the database by matching many of the individual entries to their corporate parents. For 1,294 large companies we now have summary pages that provide a full picture of the subsidies they and their subsidiaries have received.

The other data source is a list of the companies that have entered into deferred-prosecution and non-prosecution agreements with the Justice Department to settle a variety of criminal charges. (Although I refer to these firms as corporate miscreants or offenders, it must be pointed out that they were never formally convicted.)

The list appeared in the May 26, 2014 issue (print version only) of Russell Mokhiber’s excellent Corporate Crime Reporter. Mokhiber obtained it from University of Virginia Law Professor Brandon Garrett, author of a forthcoming book on corporate crime prosecution, and used it for an article showing that the bulk of those agreements are negotiated by a small number of law firms.

I took the liberty of using the list for another purpose: determining how many of the companies also appear in Subsidy Tracker. The results are striking: more than half of the miscreants (146 of 269, or 54 percent) have received state and local subsidies. These include cases in which the awards went to the firm’s parent or a “sibling” firm.

Even more remarkable are the dollar amounts involved. The total value of the awards comes to more than $25 billion. A large portion of that total ($13 billion) comes from a single company — Boeing, which is not only the largest recipient of subsidies among corporate miscreants but is also the largest recipient among all firms. Boeing made the Justice Department list by virtue of a 2006 non-prosecution agreement under which it paid $615 million to settle criminal and civil charges that it improperly used competitors’ information to procure contracts for launch services worth billions of dollars from the U.S. Air Force and NASA.

To be fair, I should point out that not all the subsidies came after that case was announced. In the period since 2006, Boeing has received “only” about $9.8 billion.

The other biggest subsidy recipients on the list are as follows:

  • Fiat (parent of Chrysler): $2.1 billion
  • Royal Dutch Shell (parent of Shell Nigeria): $2.0 billion
  • Toyota: $1.1 billion
  • Google: $751 million
  • JPMorgan Chase: $653 million
  • Daimler: $545 million
  • Sears: $536 million

Altogether, there are 26 parents on the DOJ list that have received $100 million or more in subsidies. As with Boeing’s $13 billion figure, the amounts for many of the companies include subsidies received before as well as after their settlement.

These results suggest two conclusions. The first is that state and local governments might want to pay more attention to the legal record of the companies to which they award large subsidy packages. A company that ran afoul of federal law might not be punctilious about living up to its job-creation commitments.

More broadly, the ability of companies caught up in criminal cases to go on getting subsidies suggests that there is insufficient stigma attached to involvement in such cases. If companies know that they can not only avoid serious punishment but still qualify for rewards such as tax breaks and cash grants, they are more likely to give in to temptations such as fraud, bribery, tax evasion, price-fixing and the like. Without real deterrents, the corporate crime wave will continue.

Private Equity and Public Assistance

Thursday, March 6th, 2014

schwarzmanEverything seems to be coming up roses for the barons of private equity. A front-page article in the Wall Street Journal headlined BLOWOUT HAUL FOR BUYOUT TYCOONS proclaims: “Private equity’s top moguls took home more than $2.6 billion last year as booming markets allowed their firms to cash out of investments and notch blockbuster gains.”

Leon Black, the founder and chief executive of Apollo Global Management, led the pack with $546 million in compensation. Stephen Schwarzman of Blackstone received $465 million and William Conway of the Carlyle Group $346 million. These three men are also well-placed on the new Forbes list of the world’s billionaires. Schwarzman comes in at No.122 with a net worth of $10 billion; Black at No. 240 and a net worth of $5.8 billion; and Conway No. 520 with $3.1 billion in net worth.

Vibrant stock markets are not the only reason for these massive paydays and accumulated fortunes. It’s well known that these firms and their principals also make out like bandits because of the favorable federal tax treatment of the revenue they extract from their portfolio companies. Now it is possible to demonstrate the extent to which the buyout kings are also being subsidized by state and local governments.

My colleagues and I at Good Jobs First recently unveiled a major enhancement of our Subsidy Tracker database. The main refinement in version 2.0 is the addition of parent-subsidiary linkages for more than 25,000 individuals entries accounting for 75 percent of the dollar value of the entire Tracker universe. These entries have been linked to nearly 1,000 parent companies, including many of the world’s largest corporations.

Included among the parent companies are the big private equity firms. In our matching process, we made sure to check which of the portfolio companies of those buyout firms were among the subsidy recipients included in Tracker. We found a lot.

Of the 50 largest buyout firms on the Private Equity International ranking of the largest players in that field,  30 were found to have subsidized portfolio companies. (Many of the other 20 either don’t reveal their portfolios or don’t do business in the United States.) Those companies had received a total of 1,332 subsidies worth $1.8 billion (dollar values are not available for some awards).

Here are the buyout firms whose portfolio companies have received the most in cumulative subsidies:

  • Silver Lake Partners is No. 35 on our list of top parent companies, with total associated subsidies of $482 million. This is mainly a reflection of the fact that Silver Lake took over the computer company Dell, which has received giant subsidies in places such as North Carolina and Tennessee.  (We attribute past subsidies to a company’s current parent, since awards often stretch over many years and usually transfer with a change of ownership.)
  • Onex is No. 45 on the list with subsidies of $388 million, the largest amounts coming from the large packages Spirit AeroSystems received in North Carolina and Kansas.
  • Blackstone is No. 91, with 141 subsidy awards totaling $203 million awarded to several dozen of its portfolio companies.
  • Apollo Global Management comes in at No. 111, with 107 subsidies amounting to $158 million. Among its most heavily subsidized portfolio companies are Berry Plastics and Verso Paper.

Other major buyout firms are also on the list, including TPG Capital ($68.6 million), KKR ($54.9 million), Bain Capital ($51.6 million) and the Carlyle Group ($36.6 million).

By themselves, state and local subsidies are usually not the predominant factor in the profitability of a portfolio company, but they certainly can contribute to a fatter bottom line. In a recent article about Subsidy Tracker, the investor website Motley Fool wrote:

Companies which are clearly adept at seeking out incentives are much more likely to be able to keep more of their hard-earned income as these subsidies often take the form of a multi-year tax break. Lower effective taxes within a state can allow for more research and development as well as hiring, which can lead to even faster growth for these companies. In other words, seeking out companies with large subsidies is another way of giving yourself an edge over the uninformed investor. Keep in mind that a large subsidy alone is no guarantee of a companies’ success, but it often translates into lower taxes and higher profits.

And when that company is in the portfolio of a buyout firm, those higher profits means that the operation can more easily be taken public and further enrich the likes of Black, Schwarzman and Conway.

Standing Up to the Boeing Bully

Thursday, November 14th, 2013
Boeing_IAM

photo from Seattle Times

Large corporations are generally not bashful about throwing their weight around, but Boeing is in a class by itself. While other companies may at various times make demands on their workers or on the communities in which they operate, the aerospace giant is willing to exert both forms of pressure at the same time and in a big way. In recent days it has been doing exactly that in Washington State, though not everything has gone according to its plan.

Boeing let it be known that it would build its new 777X airliner and its carbon fiber wing in the Puget Sound area, its traditional manufacturing home, only if it got major concessions from the taxpayers of the state and from its unionized workers.

The first consisted of a 16-year extension of a lucrative aerospace industry corporate tax break estimated to be worth $8.7 billion to Boeing (mostly) and its suppliers. This is the largest state subsidy package in U.S. history. Gov. Jay Inslee hurriedly called a special session of the state legislature to ratify the deal. Although some legislators grumbled, they voted overwhelmingly to give Boeing what it wanted.

This was a replay of what happened a decade ago, when Boeing got Inslee’s predecessor Gary Locke to push through the original aerospace industry giveaway at a price tag of $3.2 billion.  Those lawmakers apparently thought that Boeing, having gotten what it wanted, would stay put.

Yet Boeing’s concerns did not end at tax avoidance. The company has long sought to neutralize the power of its unionized employees, who in the Puget Sound area have been a lot less willing than the state legislature to give in to all of Boeing’s demands.

In 2009 the company took the brazenly anti-union step of announcing that it would locate a new assembly line for its Dreamliner in South Carolina, where it would in all likelihood be able to use non-union labor.  In addition to a more pliant workforce, Boeing took advantage of a state and local subsidy package estimated to be worth more than $900 million. This year it was awarded another $120 million for an expansion of the facility.

Getting massive subsidies has been so easy for Boeing that in Kansas it  walked away from a $200 million deal and sold off its Wichita operations. Citizens for Tax Justice just pointed out that over the past decade Boeing has paid aggregate state corporate income taxes of less than zero (it got net rebates of $96 million).

Boeing apparently assumed that the threat of more runaway production would enable it to steamroll its Puget Sound unionized employees, the largest portion of whom are members of the Machinists union (IAM). Along with the tax deal, the company made its siting decision on the 777X contingent on the willingness of IAM members to give up some of the most important gains they have made through decades of difficult collective bargaining.

Those proposed concessions included a freezing of the contract’s traditional defined-benefit pension plan and its replacement with a defined-contribution, 401(k)-type plan as well as substantial increases in deductibles, co-pays and other employee health insurance costs. In an attempt to make those givebacks more palatable, Boeing offered a one-time $10,000 signing bonus.

Boeing seriously misjudged the mood of the rank and file. Rather than succumbing to the company’s pressure tactics, IAM members just voted overwhelmingly to reject the contract concessions. Press reports suggested that union members were most angered by the way in which the company tried to impose its will.

The next step is unclear. Boeing says that it will now hold a competition for the 777X work, and there are no doubt numerous states and localities that will make extravagant subsidy offers. Yet it turns out that shifting production to a new workforce is not as easy as the company implies. Boeing’s operations in South Carolina have reportedly not met output projections.

Boeing may very well come back to IAM members with less draconian contract terms that workers may decide to accept. But for now the vote stands as a strong rebuke to corporate imperiousness.

 

New in Corporate Rap Sheets: critical profiles of two more giants of mismanaged care—WellPoint and Humana.

GE Dumps Workers as It Dredges the Hudson

Thursday, October 17th, 2013

DUMP_YRD_SIGNFor 30 years, General Electric resisted calls to remove the toxic substances it had dumped into New York’s Hudson River over several decades. Now that the process is well under way, the company is striking back at the state by shutting its cleaned-up plant along the river and moving some 200 jobs to Florida. The workers slated to be laid off feel that they are now being dumped.

The site of the dispute is Fort Edward (about 200 miles north of New York City), where from the late 1940s to the mid-1970s GE produced electric capacitors using insulating material containing polychlorinated biphenyls (PCBs). Vast quantities of PCB-contaminated waste ended up in the river’s waters and riverbed.

By the 1970s PCBs were recognized to be a human carcinogen and their manufacture was banned in the United States.  In 1975 the New York State Department of Environmental Conservation ordered GE to cease its PCB dumping and negotiated a path-breaking settlement under which the company would help pay the cost of cleaning up the pollution that had closed the river to commercial fishing and become a national symbol of corporate irresponsibility.

As the projected cost of the clean-up escalated, GE resisted dredging the river’s sediment, which was estimated to contain more than 130 metric tons of PCBs, and instead proposed dubious alternatives such as using bacteria to try to break down the toxic wastes. The company continued this obstruction for years, even after the EPA ordered it in 2001 to pay an estimated $460 million to remove 2.65 million cubic yards of sediment. The legal battle finally ended in 2005, but it took until 2009 for GE to actually begin the dredging. The process is now in its fifth year.

The workers at the Fort Edward plant may not be around to celebrate the completion of the clean-up. A few weeks ago, GE announced that it planned to close the plant and move the operation to Clearwater, Florida. The Fort Edward workers have been represented by the United Electrical (UE) union for the past 70 years, while the Clearwater plant—as you might expect—is non-union.

The Fort Edward move is just the latest of a long series of actions by GE that have weakened the economy of upstate New York. The city of Schenectady, where Thomas Edison moved his electrical equipment operation in 1886, has alone lost tens of thousands of jobs through waves of GE downsizing.

GE also seems to feel no sense of obligation in connection with the economic development subsidies it has received from state and local government agencies in New York. The biggest giveaways have come downstate. In 1987, a year after it was acquired by GE, NBC pressured New York City to give it $98 million in tax breaks under the threat of moving its operations to New Jersey.  In 1999 investment house Kidder Peabody, then owned by GE, got its own $31 million package to stay in the city.

There have also been subsidies upstate. For example, in 2009 GE got a $5 million grant and a $2 million tax abatement for its operations in Schenectady. The company’s research center in Niskayuna, New York has received millions of dollars in local tax breaks.

When GE has not received enough subsidies for its satisfaction, the company sometimes tries to reduce its local tax bills by challenging the assessed value of its property. In 2002, for example, it sued to get the value of its turbine plant in Rotterdam, New York reduced from $159 million to $41 million. A compromise ruling gave GE some of what it wanted and forced the town to reimburse the company about $6 million. Not satisfied, the company later brought a new challenge and got the town to negotiate a payment-in-lieu-of-taxes deal.

And, of course, GE is notorious for its dodging in other states and at the federal level, where it also gets subsidized through agencies such as the Export-Import Bank and got TARP-related assistance for its GE Capital unit.

Members of UE Local 332 are vowing to fight the plant shutdown, but they are up against a company that has shown it is  willing to go to great lengths to get its way on environmental, labor and tax issues.

The ACA Employer Penalty Gap

Thursday, August 15th, 2013

walmart_jwj_subsidiesAlong with the scandalous number of the uninsured, one of the biggest healthcare outrages in the United States is the ability of large companies employing low-wage workers to avoid providing reasonable group coverage, letting those employees enroll instead in public programs such as Medicaid.

Those programs were meant for poor people not in the labor force or those working for marginal employers.  In the absence of any legal obligation to provide workplace coverage, giant prosperous corporations such as Wal-Mart exploit the public programs and thus shift costs onto taxpayers.

A recently updated report by the Democratic staff of the U.S. House Committee on Education and the Workforce estimates that the workforce of a typical Wal-Mart Supercenter costs taxpayers some $250,000 a year in Medicaid costs (as part of at least $904,000 a year in overall safety net costs per store).

One might think that this is going to change under the Affordable Care Act that is gradually taking effect. While the law contains a requirement for individuals to have coverage, there is no real employer mandate to provide that coverage to workers. Instead, the ACA imposes penalties on certain employers for failing to provide affordable and inadequate coverage. Yet there are no fines levied when a boss pushes a worker onto the Medicaid rolls.

In fact, the ACA’s provisions encouraging states to adopt expanded Medicaid coverage, while a good thing for the uninsured, will make it easier for low-wage employers both to avoid providing group coverage and to escape penalties for doing so. This largely overlooked fact is worth keeping in mind when businesses complain about the supposedly onerous employer penalties in the ACA—penalties whose implementation the Obama Administration announced in July will be delayed for a year. (Also being delayed, we just learned, are provisions limiting the out-of-pocket costs insurance companies can impose.)

The ACA’s employer penalties have an exceedingly narrow scope. They will apply only when an employee of a firm with 50 or more full-time workers (the law’s definition of a “large” employer) seeks non-group coverage from an insurance company through one of the new state Exchanges that are being constructed and the employee qualifies for a premium or cost-sharing subsidy based on his or her household income.

Those individual subsidies are available only for workers whose household income is between 100 and 400 percent of the federal poverty line (FPL) for their family size and whose employer either fails to provide any group coverage or provides coverage that is unaffordable or inadequate. Coverage for people in that income range is deemed unaffordable if the premium (for self-only coverage) exceeds 9.5 percent of household income or the plan covers less than 60 percent of medical costs.

This means that employers of people earning less than the FPL or more than 400 percent of the FPL face absolutely no risk of penalties for failing to provide decent coverage, while the workers in those income ranges are denied subsidies from the Exchanges. Those earning less than the FPL may or may not be eligible for Medicaid, depending on the state. Those earning more than 400 percent of the FPL are not eligible for Medicaid in any state.

Penalties may also not apply when “large” employers fail to provide affordable coverage to those in the 100-400 percent of FPL range. That’s because some of those workers will for the first time qualify for Medicaid if they live in a state that accepts the optional federal incentives in the ACA for expanding Medicaid eligibility.

Do those conservative state legislators refusing to go along with Medicaid expansion realize that they are increasing the likelihood that employers will have to pay ACA penalties?

Some concern has been expressed about the potential coverage gap for those low-income families which are not eligible either for an Exchange subsidy or Medicaid, but much less attention has been paid to what amounts to an employer penalty gap.

A primary aim of the ACA is to reduce the ranks of the uninsured, but the rejection of a single-payer system means that workplace-based coverage needs to be strengthened. That should have meant a rigorous employer mandate. Instead, the ACA went with a pay-or-play system whose penalties turn out to be full of holes. Companies such as Wal-Mart may thus find it easy to continue shifting their healthcare costs onto the public.

At the state level, one of ways activists have sought to fight such cost-shifting has been to push for the disclosure of data showing which companies account for the largest number of enrollees in Medicaid and other public plans. Such shaming lists have been published for about half the states, with Wal-Mart or McDonald’s typically appearing at the top.

The ACA will require “large” employers to file reports indicating whether they provide group coverage (the effective date of this has also been pushed back). There is no indication in the ACA itself whether these reports can be made public, but given that they will be submitted to the IRS, it is likely that they will be treated as confidential. Not only does the ACA fail to impose a real employer mandate; it also appears to miss an opportunity to shame those freeloading employers which expect taxpayers to pick up the tab for their failure to provide decent coverage.

Subsidy Megadeals for Megacorporations

Thursday, June 20th, 2013

moneybagsThe Miami Herald recently published a story with the headline “Amazon Doesn’t Need Tax Incentives, But Localities Offer Millions in Tax Breaks.” Throwing large sums of money at large corporations in a desperate attempt to create jobs is an affliction not limited to public officials in Florida. It is a wasteful and self-defeating public policy that can be found throughout the United States.

An indication of just how pervasive the practice has become can be found in a new report my colleagues and I at Good Jobs First have just issued. The title is Megadeals, and it is a look back at the largest state and local subsidy packages of the past three decades.

In the course of five months of painstaking research, we identified 240 of those packages with a total value of at least $75 million each; the aggregate cost is more than $64 billion. Many of them reach into nine and even ten figures. There are eleven deals costing $1 billion or more in public money.

Most astounding are the costs per job. The average for our 240 megadeals is $456,000 and there are 18 for which the cost per job is $1 million or more.

Megadeals have been awarded to many of the largest and best known companies based in the United States as well as foreign ones doing business here, including: General Motors, Ford, Nissan, Toyota and just about every other large automaker; oil giants such as Exxon Mobil and Royal Dutch Shell; aerospace leaders Boeing and Airbus; banks such as Citigroup and Goldman Sachs; media companies such as Walt Disney and its subsidiary ESPN; retailers such as Sears and Cabela’s; old-line industrials such as General Electric and Dow Chemical; and tech stars such as Amazon.com, Apple, Intel and Samsung.

Sixteen of the Fortune 50 are represented. Not included is the company atop of the Fortune list: Wal-Mart. That’s not because Wal-Mart doesn’t receive subsidies—Good Jobs First has separately documented more than $1.2 billion in such taxpayer assistance in our Wal-Mart Subsidy Watch website—but its deals have been worth less than $75 million each and thus don’t qualify for our list.

The most expensive single listing is a 30-year discounted-electricity deal worth an estimated $5.6 billion given to aluminum producer Alcoa by the New York Power Authority. Taking all of a company’s megadeals into account, Alcoa is at the top with its single $5.6 billion deal, followed by Boeing (four deals worth a total of $4.4 billion), Intel (six deals worth $3.6 billion), General Motors (11 deals worth $2.7 billion), Ford Motor (9 deals worth $2.1 billion), Nike (1 deal worth $2 billion) and Nissan (four deals worth $1.8 billion).

The overall costs of megadeals have risen over the past three decades (in current dollars). The megadeals from the 1980s averaged $157 million. The average rose to $175 million in the 1990s and $325 million in the 2000s. It then declined to $260 million in the 2010s. The average for the list as a whole is $269 million.

Some of the deals involve little if any new-job creation; indeed, one in ten of the deals involves the mere relocation of an existing facility, usually within the same state and often a short distance. Some of these retention deals were granted in so-called job blackmail episodes in which a company threatened to move jobs out of state unless it got new tax breaks or other subsidies.

The megadeals list is a new enhancement of Good Jobs First’s Subsidy Tracker database, the first compilation of company-specific data on economic development deals from around the country.

Until now, the content of Subsidy Tracker has consisted exclusively of official disclosure data provided by state and local governments. The information has been obtained from government websites and from direct requests to agencies.  Given the limitations of the disclosure practices among state and local governments—and often from program to program within jurisdictions—the exclusive reliance on official data meant that Subsidy Tracker was missing information on many large deals that had been reported in the media. Either those deals were missing entirely if there was no official disclosure for the programs involved, or else Tracker had incomplete data if some but not all of the programs used in the package were disclosed.

To rectify this problem, we went back and collected information on large deals using a variety of sources, including press releases, newspaper articles and reports on specific projects as well as the official data we already had. The results went into the creation of the megadeals list and have been incorporated into Subsidy Tracker.

Note: The page containing the Megadeals report also has a link to a spreadsheet with full details on all 240 of the deals.