Disclosure

A Tale of Two States and Subsidy Transparency

Florida and Mississippi may come close to sharing a border, but they are worlds apart in their current approach to the disclosure of economic development subsidies.

Florida has just launched an Economic Development Incentives Portal that makes it easy to discover which companies have benefited from programs such as the Quick Action Closing Fund, the Qualified Target Industry Tax Refund and the High Impact Performance Incentive.

Online subsidy disclosure is not completely new to Florida. An agency called the Governor’s Office of Tourism, Trade and Economic Development used to post a PDF list of recipients for various programs. After Rick Scott took office as governor in 2011, that agency was put under the auspices of the new Department of Economic Opportunity, and the old disclosure site disappeared. DEO promised to restore transparency and has now made good on that promise.

The new portal, produced by DEO in partnership with Enterprise Florida, covers a dozen programs with a total of about 1,250 entries, including “every non-confidential incentive project with an executed contract since 1996 that received or is on schedule to receive payments from the state of Florida.” DEO promises to add listings for confidential projects as their exemptions from disclosure requirements expire.

Searches can be targeted according to business name, county or date range. The results show company name, industry, subsidy value, county, approval date and project status. They also include both committed and actual numbers for jobs and investment, though in many cases the performance figures are listed as not available. The portal also includes projects that are inactive or have been terminated.

Florida’s portal is an important advance for subsidy transparency. The site would be even more useful if it included street addresses for the subsidized facilities (to facilitate mapping) and allowed downloading of search results in spreadsheet form. At my request, DEO sent such a spreadsheet for the entire database, which I used both to prepare this piece and to upload the information to Subsidy Tracker.

Mississippi, on the other hand, is resisting online disclosure. The state legislature recently killed a bill that would have required the Mississippi Development Authority to publish an annual report on the tax credits, loans and grants it provides to companies in the name of economic development.

It turns out that the agency produced such a report for internal purposes but did not make it public. A group called the Bigger Pie Forum learned about the document—the 2012 Mississippi Incentives Report—and filed a successful freedom of information act request. Bigger Pie was only able to get a hard copy, but it scanned the report and has posted it online here. The info in that report has also been added to Subsidy Tracker.

Despite the reluctance of state legislators, online subsidy disclosure has come to Mississippi. Perhaps the Magnolia State will realize the futility of resisting official transparency and join the Sunshine State, among about 45 others, in making subsidy information directly available to the public via the web.

Note: The latest addition to CORPORATE RAP SHEETS is a dossier on the Royal Bank of Scotland, including its nine-figure settlements of charges relating to violations of U.S. economic sanctions and manipulation of the LIBOR interest rate index. Speaking of subsidies, the rap sheet mentions that a U.S. subsidiary of RBS extracted a $100 million subsidy from the state of Connecticut to move its offices from New York to Stamford. Read the rap sheet here.

Summing Subsidies

My colleagues and I at Good Jobs First were excited at the publication of the New York Times series on the “United States of Subsidies,” since it brings a great deal of attention to a problem—corporate abuse of economic development assistance—that we have been working on for more than a decade.

We were also pleased to see the online database that the Times posted to go along with the articles. We had provided a copy of the master spreadsheet for our Subsidy Tracker database to Louise Story, the author of the series, and she made extensive use of it. Although the Times obtained some information from other sources, it appears that about 98 percent of their company-specific listings come from Subsidy Tracker. (SEE UPDATE BELOW.)

Now that we have had a few days to examine the Times database, we see that there are some flaws in the way the paper used our data.

First, a few words on Subsidy Tracker. In recent years, a growing number of states began to put company-specific information on at least some of their economic development awards—grants, tax credits, tax abatements, etc.—online. This was often in response to the subsidy accountability movement that we and our allies have built.

The problem was that these disclosures usually happened via hard-to-find reports and web pages that were often difficult to search even when you did locate them. Good Jobs First decided to collect all these disclosures and combine them into one national search tool. We introduced Subsidy Tracker in December 2010 with 43,000 listings from 124 subsidy programs in 27 states.

Over the following two years, we have expanded that to the current total of 247,000 listings from 409 programs in all 50 states and the District of Columbia. That expansion was not due entirely to wider official online transparency. Using open records requests, we also obtained unpublished data on scores of additional programs (the total is currently 89). By posting this information to Subsidy Tracker, we became, in effect, the original online disclosure source for these programs.

In recent months we’ve begun applying this approach to city and county subsidy programs, which are far behind their state counterparts in terms of online disclosure.

Despite all this effort, we recognized that we still could not claim to have captured anywhere near all the subsidy awards that have been made across the country. Not only did we still lack many programs, we also have irregular numbers of years of data among programs. That’s why we have not yet built into Subsidy Tracker a feature that enables instant aggregation of all the awards going to a particular company.

Along with the remaining gaps in the data, there is much that needs to be done with regard to the listings we do have to allow accurate aggregation. This includes the standardization of the variations in company names in our source materials, linking of parent and subsidiary companies, and accounting for mergers and acquisitions. There’s also the problem that some states report subsidy amounts for single years and others for multiple ones. These challenges are all part of our future work plan.

After getting our raw data, the Times did not consult with us on exactly how it would be used. We thus had no opportunity to warn the paper against the perils of aggregation. Specifically, we were not aware of the paper’s plans to create what it calls its $100 Million Club.

It is with this listing that the pitfalls in the Times approach become most apparent. The companies that receive the largest subsidies often get them in the form of packages negotiated with state and local officials. These packages usually consist of awards from various programs and may also involve project-specific awards outside established programs. Some of these pieces of packages are not included in state disclosure channels. It is part of our plan to research packages through other means and add them to Subsidy Tracker as a separate category. We’ve already begun the process in the Key Deals section of the state pages of the Accountable USA section of the Good Jobs First website.

The Times supplemented the roughly 154,000 entries it took from Subsidy Tracker with about 2,000 listings the paper obtained on its own or from an expensive subscription service produced by a company called Investment Consulting Associates. This enabled the inclusion of entries that were gleaned from press releases but had not yet been reported in the official program lists we rely on for Subsidy Tracker.

Yet the $100 Million Club still ends up with numerous instances in which the totals understate the true amount the big subsidy grabbers have received.

For example, the Times lists a total of $338 million for Boeing, including $218 from South Carolina. Yet it has been estimated that the package Boeing got by locating a new Dreamliner assembly line in the Charleston area could be worth some $900 million.

Apple is said to have received a total of $119 million, yet the Times fails to include more than $60 million in subsidies the company got for a data center in North Carolina.

The Times $100 Million Club also misses some major recipients entirely, including Volkswagen, which got more than $500 million in connection with an assembly plant in Tennessee, and ThyssenKrupp, which got more than $1 billion in subsidies for a steel mill in Alabama.

And these only include deals dating back to 2007, which is the period the Times used in compiling its $100 Million Club. The larger Times database seriously understates the size of major deals that took place earlier. For example, it lists only $19.3 million for GlobalFoundries in New York State, even though the company took over a $1.2 billion deal originally offered to Advanced Micro Devices (which isn’t listed at all).

We applaud the Times for the great reporting that went into its United States of Subsidies articles, but the paper fell short when it came to the compilations featured in its database. Good Jobs First will continue to build our Subsidy Tracker tool and in the future will create what we hope will be a more accurate and complete version of a $100 Million Club.

UPDATE

After this blog was posted, Louise Story contacted us with some concerns. She confirmed that 98 percent of the entries (a total of 152,729) in the Times database came from Subsidy Tracker, but she says the number of entries that came from other sources was actually 3,844 rather than the 2,000 we estimated. She added that in dollar terms, a subject we did not address in the blog, Tracker entries account for 67.3 percent of the total in the Times database. However, we cannot verify that number because the Times has not given us its underlying spreadsheet.

Story also believes that the blog should have mentioned the fact that she contacted me several weeks ago to say that the articles and database would be published soon and in effect told me about her aggregation plans. She did indeed contact me but gave the impression that her work was completed, meaning that an effort to suggest any changes in methodology would have been moot at that point.

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New in CORPORATE RAP SHEETS: A dossier on Swiss drug giant Novartis and its history of selling unsafe drugs, price-gouging, toxic dumping and gender discrimination.

Extraction and Disclosure

The U.S. Securities and Exchange Commission often behaves like a watchdog with no teeth, but it has just stood up to intense pressure from big business and finally approved two rules that will shine a light on dealings between some of the world’s largest corporations and the poor countries from which they extract vast amounts of natural resources.

One of the final rules will require companies engaged in resource extraction to report on all payments to foreign governments, such as taxes, royalties, fees and presumably bribes. The other will require companies to disclose their use of certain resources originating in the Democratic Republic of Congo, where warring groups that have committed frequent human rights violations finance themselves through the sale of what are known as conflict minerals, which can end up being used in the production of goods ranging from jewelry to iPhones.

These rules derive from some of the lesser known provisions of the 2010 Dodd-Frank financial reform legislation, which the corporate world has been seeking to undermine in the rulemaking process after losing in Congress. Business lobbyists have fought the same kind of rear-guard action against the disclosure requirements that they have mounted in opposition to the central portions of Dodd-Frank.

Comments submitted to the SEC by companies and trade associations were filled with the usual kneejerk criticisms of regulation and far-fetched claims about potential harm. The American Petroleum Institute warned that public disclosure of “unnecessarily detailed information” on foreign payments would place companies at a competitive disadvantage and “jeopardize the safety and security of our member companies’ operations and employees.”

Exxon Mobil seconded API’s positions but also threw in the preposterous argument that the disclosure rule could be harmful by “inundating and confusing investors with large volumes of data.” Chevron argued that the information should be submitted to the SEC on a confidential basis, and the agency would then make public only aggregate amounts by country. It also urged the SEC to limit reporting to payments of a “material” amount, which would have meant that only huge ones would be revealed.

It takes a lot of chutzpah on the part of Chevron and Exxon Mobil to resist greater transparency, given that predecessor companies of theirs were at the center of the scandals that first brought the issue of questionable foreign payments to national attention in the 1970s.

Congressional investigations of the Nixon Administration’s Watergate crimes also brought to light widespread corruption by major corporations in the form of illegal campaign contributions and payoffs to foreign government officials. Under pressure from the SEC, these companies investigated themselves and disclosed what they found.

Exxon (prior to its merger with Mobil) admitted to making more than $50 million in foreign payments that were illegal, secret or both. Gulf Oil (which later merged into what is now Chevron) admitted to more than $4 million in such payments, including $100,000 used to purchase a helicopter for one of the leaders of a military coup in Bolivia. Smaller oil companies also spread around the cash. Ashland Oil, for example, paid $150,000 to the president of Gabon to retain extraction rights.

Foreign payoffs were not unique to the oil industry. Aerospace giant Lockheed disclosed more than $200 million in questionable payments, while its competitor Northrop admitted to $30 million. The revelations extended to numerous other sectors as well.

These revelations seriously tarnished the image of big business and paved the way to the enactment of the Foreign Corrupt Practices Act. They were also a big part of the impetus for the modern corporate accountability movement, which has put expanded disclosure at the center of its reform agenda.

It is thus no surprise that corporate accountability and human rights groups—many of which participate in the Publish What You Pay coalition—promoted the inclusion of the disclosure provisions in Dodd-Frank and welcomed the SEC’s vote to move ahead with the rules. Yet there is frustration that on several points the agency caved in to industry pressure. Global Witness, for instance, said it was “extremely disappointed” that the final rule concerning conflict minerals gives larger companies two years and smaller ones four years to determine the origin of the minerals they use.

The SEC also acceded to the demands of giant retailers such as Wal-Mart and Target that they be exempt from conflict minerals reporting requirements relating to products sold as store brands but produced by outside contractors not operating under the retailer’s direct control.

Efforts by large companies to weaken the disclosure rules are yet another sign of how they resist serious regulation in favor of less onerous industry initiatives. Many of those arguing against the proposed SEC rules said they were unnecessary given the existence of the Extractive Industries Transparency Initiative. The EITI is laudable, but it is voluntary and less than fully rigorous.

Business never gives up on its effort to make us think that, despite the prevalence of corporate crime, it can police itself. It has never done so effectively and never will.

Through A Corporate Glass, Darkly

Conventional wisdom has it that we live in an age of hyper-transparency. That’s true if you look at what people are willing to reveal about themselves to Facebook, but it’s another story for large corporations and the 1%.

The Republican filibuster of the DISCLOSE Act and Mitt Romney’s reluctance to release more of his income tax returns are strong reminders of how those at the top of the economic pyramid seek to hide the ways they accumulate their wealth and influence public policy.

The current preoccupation with disclosure issues makes this a good time to step back and review the state of corporate transparency. Do we know enough about the workings of the huge private institutions that dominate so much of modern life?

Of course, the answer is no. Yet the quantity and quality of disclosure vary greatly depending on the structure of a given company and the aspect of its operations one chooses to examine. Depending on which piece of the business elephant we touch, corporations may seen somewhat translucent or completely opaque.

It’s also worth remembering that there are two main forms of disclosure: information that companies, especially those whose stock is publicly traded, are compelled to reveal and the data that government agencies collect about firms and release to the public. What corporations release on their own initiative is, given its selective nature, self-serving spin rather than disclosure.

Most of what U.S. companies are required to disclose is contained in the financial filings required by the Securities and Exchange Commission. It’s great that the SEC makes these documents readily available via its EDGAR online system, but the information required from companies is meant to serve the needs of investors rather than those of us concerned with corporate accountability. There is thus an abundance of data on financial results and a meager amount on a company’s social impacts. Here’s a rundown and critique of disclosure practices regarding the latter.

LEGAL PROCEEDINGS. Each company filing a 10-K annual report has to include a section summarizing significant litigation and other legal proceedings in which it is involved. For some companies, these sections can go on for pages, which says a lot about the corporate tendency to run afoul of the law. Even so, these sections are often incomplete, since companies are given discretion in deciding which cases are “material,” meaning that fines and other penalties could have a significant impact on earnings. To get a fuller picture of corporate legal entanglements, you need to search the dockets on the PACER subscription service, which for large companies will be voluminous, or use the free summaries on the Justia website.

EXECUTIVE COMPENSATION. The annual proxy statements filed by publicly traded companies provide exhaustive details on the salaries, bonuses and other compensation received by top executives (and directors). Designated in the EDGAR system as Form DEF14A, these documents seem to try to drown the reader in details to downplay the impact of lavish pay packages. Note that what is called the Summary Compensation Table does not include essential information such as the amount (shown elsewhere) that an executive realized from the exercise of stock options.

EMPLOYMENT ISSUES. Companies are required to disclose their total number of employees but do not have to provide a geographical breakdown. Some do so voluntarily, but many others can hide the tendency to create many more jobs in foreign cheap-labor havens than at home. Because the penalties are usually small, companies tend not to disclose violations of federal rules regarding overtime pay, the minimum wage and other Fair Labor Standards Act issues. Fortunately, the Department of Labor has included wage and hour compliance information in its new enforcement website.

OCCUPATIONAL SAFETY AND HEALTH. Companies also rarely mention violations of occupational safety and health, for which penalties are also meager. The U.S. Occupational Safety and Health Administration, to its credit, makes available a database of all workplace inspection results going back to the creation of the agency; the DOL enforcement website provides access to this as well. Unfortunately, there are no summaries of the compliance records of large companies across their various establishments.

LABOR RELATIONS. Companies are required to report on labor relations issues only if there is a likelihood of a work stoppage that could affect corporate profits. With the decline of unions in the U.S. private sector, many companies do not bother to mention labor relations at all. Disputes that result in a formal ruling by the National Labor Relations Board will show up on that agency’s website.

ENVIRONMENTAL COMPLIANCE. Companies frequently discuss environmental regulation in the 10-K filings and will mention major enforcement actions. Yet these accounts are usually incomplete. The Environmental Protection Agency fills in the gaps with its Enforcement and Compliance History Online (ECHO) database.

TAXES. Buried in the notes to the company’s financial statements is a section with details on how much it paid (or in many cases did not pay) in the way of taxes. This information is presented with a high degree of obfuscation, so it is fortunate that Citizens for Tax Justice publishes reports that summarize the extent to which large U.S. companies engage in flagrant tax avoidance.

SUBSIDIES. Corporate filings usually say little or nothing about the subsidies received from government, and it is often impossible to learn from other sources what those amounts may be when it comes to subsidies that take the form of federal tax breaks. There is much more company-specific data available on subsidies from state governments. In my capacity as research director of Good Jobs First, I have collected that data and assembled it in the Subsidy Tracker database.

GOVERNMENT CONTRACTS. Companies will report on government contracts only if they make up a substantial portion of their total revenue. Thanks to the work of OMB Watch in creating the FedSpending database, which the federal government adapted for its USASpending tool, it is possible to learn a great deal about how much business a given firm is doing with Uncle Sam. Data on contracts with state governments can often, though not always, be found via state procurement websites.

LOBBYING AND POLITICAL SPENDING. Corporations are not eager to disclose their efforts to shape public policy, and the SEC does not require them to do so. The Center for Political Accountability, on the other hand, was created to put pressure on companies to be more open about their political spending. The group has succeeded in getting about 100 corporations to adopt political disclosure. The inadequate information that gets disclosed at the behest of the Federal Election Commission can be found on websites such as Open Secrets, while state-level electoral data is summarized on the Follow the Money site. Both also provide access to the available data on lobbying.

Inadequate political disclosure by corporations is not limited to the United States. A recent study by Transparency International on 105 of the world’s large companies found that only 26 engaged in satisfactory reporting of political contributions. That was just one component of an analysis that looks at a variety of transparency measures that relate broadly to anti-corruption initiatives. Some of the worst results concern the simple matter of whether firms provide full country-by-country data on their operations and financial results.

The latter shows how disclosure issues of concern to investors and financial analysts can intersect with those relating to corporate accountability. When a company is allowed to use excessive forms of aggregation in its reporting, it may be hiding either poor management or corporate misconduct or both.

Note: The information sources discussed above as well as many others are discussed in my guide to online corporate research.

Con JOBS

Bipartisanship in Washington is back from the dead, at least for the moment, but its reappearance illustrates what happens when the two major parties find common ground: Corporate skullduggery gets a boost under the guise of helping workers.

That’s the story of the bill with the deliberately misleading acronym — the JOBS Act — which emerged from the cauldrons of the financial deregulation crowd and has now been embraced not only by Republicans but also by the Obama Administration and many Congressional Democrats. An effort by Senate Democrats to mitigate the riskiest features of the bill has failed, and now the legislation seems headed for final passage.

More formally known as the Jumpstart Our Business Startups Act, the bill is based on the dubious premise that newer companies are having difficulty raising capital and that weakening Securities and Exchange Commission rules—including those contained in the Sarbanes-Oxley law enacted in the wake of the Enron and other accounting scandals of the early 2000s—would allow more start-ups to go public, expand their business and create jobs. The outbreaks of financial fraud in recent years have apparently done nothing to shake the belief that less regulated markets can work miracles.

For many, that notion may be more of a fig leaf than an article of faith. One clear sign that the JOBS Act is trying to pull a fast one is that the “emerging growth companies” targeted for regulatory relief are defined in the bill as those with up to $1 billion in annual revenue. This is just the latest example of an effort purportedly designed to help small business that really serves much larger corporate entities. (What proponents on the JOBS Act don’t mention is that the SEC already has exemptions from some of its rules for companies that can somewhat more legitimately be called small—those with less than $75 million in sales.)

Critics ranging from the AARP to state securities regulators have focused on provisions of the JOBS bill that would allow start-up companies to solicit investors on the web, warning that this will pave the way for more scams.

I want to zero in on another issue, which is central to the mission of the Dirt Diggers Digest: disclosure. In the name of streamlining the rules for the so-called emerging growth companies, the JOBS Act would erode some of the key transparency provisions of the securities laws.

This is fitting, given that the original sponsor of the bill, Rep. Stephen Fincher of Tennessee (photo), has been embroiled in scandals involving gaps in his personal financial disclosure and last year was named one of the “most corrupt” members of Congress by the watchdog group CREW.

The first problem with the JOBS bill is that it would allow firms planning initial stock offerings to issue informal marketing documents and distribute potentially biased analyst reports well before they have to issue formal prospectuses with thorough and candid descriptions of their financial and operating condition. In other words, the bill would postpone real disclosure until after the company has used a bogus form of disclosure to generate a quite possibly misleading image of itself.

When the company does have to file with the SEC, it would have to provide only two years of audited financial statements rather than three and would be exempt from reporting requirements such as the disclosure of data on the ratio of CEO compensation to worker compensation mandated by the Dodd-Frank Act. It would also be exempt from having to give shareholders an opportunity to vote on executive pay practices.

What’s worse, the JOBS bill also seems to opening the door to a broader erosion of disclosure provisions for all publicly traded companies. The bill would order the SEC to conduct a review of the Commission’s Regulation S-K to determine how it might be streamlined for “emerging growth” companies.

Yet it also calls for the SEC to “comprehensively analyze the current registration requirements” of the regulation, which could mean a weakening of the rules for all companies, no matter what their size. Regulation S-K is the broad set of rules determining what public companies have to include in their public filings on issues ranging from financial results to executive compensation and legal proceedings.

It is bad enough that the JOBS bill exploits the country’s desperate need for relief from unemployment to push changes that might mainly benefit stock scam artists. The idea that it could also allow unscrupulous corporations to conceal their misdeeds is truly infuriating. We just finished celebrating Sunshine Week; now Congress is hard at work promoting darkness.

Subsidies and Sunshine

This being Sunshine Week, there’s a lot of discussion going on about open government. One of the things government should be open about is the dubious practice of giving subsidies to companies in the name of economic development.

Each year, state and local governments in the United States award tens of billions of dollars in tax breaks, cash grants and other financial assistance to business, with the lion’s share going to large corporations ranging from Google and Facebook to Wal-Mart and Boeing. Much of the money goes to companies that don’t need it and often provide little return to taxpayers in terms of creating quality jobs.

The good news is that it is easier than ever to discover which companies are getting the giveaways. A decade ago, only a handful of states disclosed the names of subsidy recipients. That number is now up to 43 states and the District of Columbia. Data from those 44 jurisdictions—along with previously unpublished data from five other states—can be found on Subsidy Tracker, the database created by my colleagues and me at Good Jobs First. The only states with no data currently available are Mississippi and Nevada, but we’re seeking unpublished info from them as well.

A glance at the inventory of data sources that have been fed into Subsidy Tracker makes it clear that there is a great deal of variation in the depth of available information from state to state. We have entries for two dozen programs in Washington and Wisconsin, yet only one each for Alabama, California, Idaho, Massachusetts and Tennessee.

There are also significant differences in the types of subsidies for which recipient information is available. A major dividing line is between those states that have disclosure relating to corporate tax credits (or other business tax breaks) and those that keep that information secret even while revealing data on other categories such as grants. According to our latest tally, 31 states plus DC provide online disclosure of corporate tax break recipients. The ones with the most extensive tax subsidy reporting include Missouri, North Carolina and Rhode Island.

Among the states that are aggressive promoters of corporate tax breaks but which decline to reveal which companies are benefiting from that largesse are Alabama, Georgia, Kansas, Mississippi, New Mexico and Tennessee. A few states—including Maryland and South Carolina—disclose the names of companies but not the value of the credits they are receiving.

Subsidy disclosure is an issue addressed in Following the Money 2012, a new report by USPIRG, the third in its series of report-card studies on state spending transparency. USPIRG provides a thorough assessment of the Google-government portals that have proliferated in recent years. The report does a good job when it comes to general state spending, but we at Good Jobs First have a friendly disagreement about its treatment of subsidies. (I am graciously cited in the acknowledgements for having reviewed drafts of the report, but the disagreements I expressed to USPIRG are not mentioned).

Despite the fact that company-specific reporting on subsidies is missing from the core content of nearly all state transparency portals, USPIRG gives many of those portals high grades for subsidy transparency. Quite a few of the sites have links to other webpages with the subsidy data, and we have no objection if USPIRG wants to awards points for that practice.

The problem is that USPIRG’s scoring category on subsidies also covers grants, some of which are economic development subsidies but many of which are not. The distinction is not made clear, and in numerous cases it appears that the data treated by USPIRG as subsidy disclosure is actually information relating to other kinds of grants to non-governmental entities. For example, the Massachusetts transparency portal (which is given 8 of 10 points in the subsidy category) lists grants to non-profit organizations for providing social services, but it does not cover the state’s job creation programs. The latter include tax credits that will soon be disclosed, thanks to the efforts of groups such as PIRG’s Massachusetts affiliate.

It is understandable that USPIRG, in its effort to promote the march of government openness, would want to take a flexible position about what constitutes transparency. But the fact of the matter is that most online subsidy disclosure is still fragmented, occurring through far-flung webpages and obscure PDF reports. That’s precisely why we at Good Jobs First created Subsidy Tracker, which brings all those disparate sources (plus unpublished data) together in one national search engine.

Centralized state transparency portals are certainly a welcome development, and we salute USPIRG for promoting them, but they are not yet an effective means of educating the public on big giveaways of tax dollars.

A Not-So-Slow Boat to China

While U.S. political figures are wringing their hands about lackluster job creation, transnational corporations are desperately trying to hide their dirty secret: they are expanding their payrolls — just not in the United States.

The Washington Post recently published a front-page story about the fact that fewer and fewer companies are providing a geographic breakdown of their workforce in their annual financial statements, making it more difficult to track their hiring patterns.

They can get away with this because the Securities and Exchange Commission does not require this key bit of information in the mountain of data that publicly traded companies must include in filings such as their 10-K annual reports. Many companies that had chosen to report the breakdown voluntarily in the past are now deciding that the numbers are too sensitive to publish.

As the Post points out, quite a few of the non-reporters are companies that have been lobbying heavily for a special tax break on profits that they have been holding abroad for tax dodging purposes. A corporate front group called WinAmerica is arguing that a repatriation tax holiday would lead to an employment boon in the United States, even though a similar move in 2005 had no such effect.

What the Post article did not mention is that, while companies don’t have to disclose how many of their workers are based overseas, they do have to report how much of their non-financial “long-lived” assets are located abroad. This requirement stems from segment reporting rules established by the Financial Accounting Standards Board. The information is usually buried in the notes to the company’s financial statement.

Assets are a reasonable proxy for headcount in assessing the extent to which large U.S. corporations are placing more of their bets on foreign countries such as China and India rather than the US of A.

For a quick case study of asset exporting, I took a look at the financial statements of the publicly traded companies included on the list of supporters on the WinAmerica website. I examined the domestic/foreign split for assets in 2010 and compared it to that of a decade earlier.

Take the five big tech companies on the list: Apple, Cisco, Google, Microsoft and Oracle. From 2005 to 2010 their combined foreign assets grew by 329 percent, a rate more than one-fifth faster than the increase in their domestic assets. The most remarkable increase in foreign assets occurred at Google—a more than tenfold jump to $2.3 billion. Apple’s overseas properties increased fourfold to $710 million.

At some companies the portion of total long-lived assets held abroad is soaring. At Oracle, for instance, the figure last year reached 39 percent, up from 21 percent five years earlier.

High foreign assets levels are not limited to this group of tech giants. Pfizer has 43 percent of its assets outside the United States, Hewlett-Packard 45 percent and IBM has just over half. Even more remarkable is the case of General Electric: its foreign assets total $48.6 billion — nearly three times the $17.6 billion held at home.

GE is one of the dwindling numbers of large companies that provide a geographic breakdown of their workforce. Last year 54 percent of the company’s headcount was foreign-based — up from 42 percent a decade ago. During the ten-year period, GE added 62,000 employees abroad and only 2,000 at home.

Both in terms of their investment practices and their hiring patterns, companies such as GE have to a great extent given up on the United States even as they continue to cook up new schemes for tax breaks that will supposedly spur domestic hiring.

The trend has been long in the making. As early as the 1980s, GE made it clear it viewed itself as a global company not tethered to the U.S. In fact, the CEO at the time, Jack Welch, liked to say that, ideally, factories would be built on barges that could easily be moved from one country to another in quest of the lowest wages and weakest regulation. These days companies like GE don’t even consider docking their barges in the United States.

Nuclear Deception

After hearing the term “meltdown” used so often as a metaphor for the financial crisis, it is shocking to confront the prospect of a literal meltdown at some of Japan’s nuclear reactors in the wake of the devastating earthquake and tsunami. There is something the two situations have in common: corporate misconduct.

The company that operates the heavily damaged reactors, Tokyo Electric Power (TEPCO), is one of the most unethical large corporations that I have ever examined. It has an astounding history of deceptions and cover-ups made all the more egregious by the grave risks inherent in the business of generating nuclear power in a country prone to earthquakes.

TEPCO’s transgressions first came to light in 2002, after Japan’s nuclear regulatory agency belatedly began to investigate whistleblower allegations that the company had regularly falsified repair reports and inspection data concerning its nukes. The agency found evidence that the company had engaged in the deception for some 15 years, in some cases concealing the existence of cracks in the steel plates surrounding reactor cores as well as other defects.

The uproar over the revelations forced TEPCO’s president and chairman to resign. This was not just a matter of higher-ups taking responsibility for the misdeeds of underlings. There were reports that the top executives were aware of what was going on. The scope of the subterfuge also continued to grow, prompting some observers to liken the situation to the big U.S. corporate scandals involving companies such as Enron and WorldCom. TEPCO, which was forced to shut down its reactors for extended periods, later admitted that the data falsifications went back as far as the late 1970s.

In 2007 the company admitted that it had concealed incidents involving the emergency shutdowns of its Fukushima reactors—those involved in the current crisis—back in the mid-1980s. A few months after the admission, TEPCO had to apologize for delays and errors in announcing the extent of the damage at its nuclear plant in Kashiwazaki following an earthquake in the northwestern part of the country. When the whole story became known, local officials ordered TEPCO to shut down the plant.

The incident also prompted criticism of TEPCO for building the plant on top of an active seismic fault. It was unclear whether the company had been unaware of the fault or had ignored its presence; in either case, TEPCO looked highly irresponsible. It was later reported that the company had understated the intensity of the earthquake. The Kashiwazaki plant remained offline for more than two years.

TEPCO’s dishonesty is not limited to its nuclear operations. In 2007 it was one of ten utility companies cited by the Japanese government for falsifying data on the large quantities amounts of river water they used for power generation. TEPCO was found to have submitted bogus information on one of its hydroelectric plants for 13 years.

The mendacity of TEPCO is not just a matter of concern for the Japanese. In May 2010 the company announced it would purchase a 10 percent interest in the South Texas nuclear project, one of a slew of proposed new nukes that hope to receive a share of the billions of dollars in federal assistance promised by the Obama Administration to encourage a nuclear renaissance in the United States, where a new nuclear plant hasn’t opened in decades.

Japan’s disaster is already casting a very dark cloud over the prospects for that renaissance. Debate over new U.S. nukes should not be limited to the technical safety issues. The example of TEPCO raises the question of whether a corporation can be trusted with a technology that has the potential to do such massive harm.

IKEA Knocks Down Labor Rights

When my colleagues and I at Good Jobs First introduced the Subsidy Tracker database recently, our hope was that the information would be helpful to a wide range of campaigns for economic and social justice. I can now offer one particular use.

By plugging the name Swedwood into the search engine, one finds that the company received a $1 million cash grant under the Virginia Investment Partnership program in connection with its vow to invest $281 million and create 740 jobs. Actually, this grant was just part of a series of subsidies worth a total of $12 million that Swedwood received from the state (the data in Subsidy Tracker are not yet comprehensive).

Swedwood is significant because the company, a unit of the retail giant IKEA, is at the center of a controversy over its labor practices at a furniture plant in Danville, Virginia for which it received the $1 million subsidy. Employees of the facility, fed up with dangerous working conditions and discriminatory employment practices, have been trying to organize with the help of the Machinists union, which produced a report concluding that the Danville operation may be the most hazardous furniture plant in the country. Swedwood and its parent have responded to the organizing drive by harassing union organizers and firing union supporters.

The Machinists and the Building and Wood Workers International labor federation have launched a campaign to pressure IKEA and Swedwood to respect the rights of the Danville workers. Among other things, the campaign is asking supporters to send a holiday card to IKEA Chief Executive Mikael Ohlsson with instructions on how to build a fair collective bargaining relationship with the workers (allen wrench not included).

The unions might also want to make an issue of the fact that a company that was generously subsidized with taxpayer funds is now flouting labor laws.

The financial assistance IKEA got in Virginia is not the only time it has played the subsidy game. In places such as Tempe, Arizona and Frisco and Round Rock in Texas, the retailer has received millions of dollars in sales tax rebates and infrastructure assistance to help finance new stores. It is expected to receive up to $18 million in subsidies for the store it is building in Centennial, Colorado.

In fact, tax avoidance is at the center of IKEA’s entire corporate structure, a complex arrangement that puts nominal control in the hands of a Dutch private foundation but allows founder Ingvar Kamprad and his family to dominate the company and grow wealthier from it (according to Forbes, Kamprad is the 11^th richest person in the world, with a net worth of $23 billion).

IKEA is a prime example of how companies that have reputations for being socially responsible somehow get away with exploiting the system of economic development subsidies and with being hostile to unions in the United States – while cooperating with them in countries (such as IKEA’s native Sweden) where they are well established and protected. In the past, IKEA has relied on paternalism – including better than average employee benefits – to discourage unionization at its U.S. operations. The events in Danville suggest a troubling turn toward heavy-handed union busting.

Perhaps this will begin to change the view of corporate social responsibility arbiters such as Ethisphere magazine, which lists IKEA as “one of the world’s most ethical companies.” While the idea of corporate ethics is an oxymoron, companies should not be singled out for praise of any kind if they deny the rights of their workers to organize.

Note: The Dirt Diggers Digest index of information sources featured or utilized in the blog has finally been brought up to date.

Introducing Subsidy Tracker

Over the past decade, the National Institute on Money in State Politics has built its Follow the Money database into an impressive resource for showing the influence of large corporations on state electoral campaigns. I have long wanted to create a comparable tool to track the flow of money in roughly the opposite direction: economic development subsidy awards from states to big business.

I am happy to announce that my colleagues and I at Good Jobs First have just introduced such a resource. Subsidy Tracker is the first national search engine for determining where a company has gotten economic development subsidies around the country. The database stitches together information from scores of different disclosure sources, many of them obscure reports and webpages. The subsidy programs covered include corporate income tax credits, property tax abatements, enterprise zone tax breaks, cash grants, reimbursement of worker training costs, and others.

In its initial form, the database contains information on more than 43,000 subsidy awards from 124 subsidy programs in 27 states; the number will soon jump to more than 64,000 in 34 states and will continue growing.

Here are some ways Subsidy Tracker can be used:

To find companies that have received subsidies in many places. Currently, for instance, Wal-Mart shows up 69 times, trailed by Target at 45.
To find companies that have gotten some very large individual subsidies. General Electric received a tax credit worth up to $115 million in Ohio in 2009.
To find bad actors that have received subsidies. Super-polluter and climate denier Exxon shows up 23 times in Louisiana alone. The anti-union T-Mobile shows up eight times so far. Wall Street villain Goldman Sachs has received more than $124 million in tax credits and grants in Utah and New Jersey.
To find good actors that have received subsidies. Flambeau River Papers, included on the American Rights at Work 2010 list of employers that “practice labor-management cooperation while creating pioneering solutions to the environmental challenges of the 21st century” shows up in Subsidy Tracker as having received a grant of $249,000 from Wisconsin in 2008.
To find companies that have received subsidies in states where they have made substantial campaign contributions. Agribusiness giant Archer Daniels Midland, which according to Follow the Money made more than $546,000 in campaign contributions in Illinois since 2003 (including those of its executives and employees), has received more than $87 million in enterprise zone tax credits in the state during the same period.
To find companies that profess extreme laissez-faire views and then take subsidies. Koch Industries, whose owners bankroll the Tea Party movement, received two tax credits worth a total of more than $10 million from Oklahoma in the past year.

I’m sure researchers, journalists and others will think of many more ways to use the database. Each entry in Subsidy Tracker contains a link back to the original online source (except a limited number of cases in which the data we obtained is not posted on the web). Search results can be downloaded to a spreadsheet. For more on the data and how the site works, see the User Guide.

Good Jobs First introduced Subsidy Tracker along with two other resources: a report called Show Us the Subsidies, which evaluates the subsidy disclosure practices of the 50 states and the District of Columbia; and Accountable USA, a set of pages that review each state’s subsidy policies, describe large and controversial subsidy deals and provide other provocative information.

We hope all these tools help shine a light on the many excessive and ineffective subsidies that are going to large companies at a time when states and localities can ill afford the loss of what is estimated at $60 billion a year in public revenue.

Subsidy Tracker is a work in progress. In this first phase, we have focused on data sources that we discovered in preparing Show Us the Subsidies and Accountable USA. In the months ahead, we plan to go deeper by using freedom of information requests to obtain data not currently disclosed in any form.

I hope that Dirt Diggers Digest readers will find Subsidy Tracker to be a useful tool in your research. I look forward to your comments and suggestions.

Resources

Subsidy Tracker main page

Subsidy Tracker User Guide

Inventory of data sources currently in Subsidy Tracker

Table of online disclosure links for major subsidy programs (not all data yet in Subsidy Tracker)

Accountable USA main page

Index of companies whose subsidy deals are profiled in Accountable USA

Show Us the Subsidies report and state appendices

Good Jobs First case studies of companies and industries that are major subsidy recipients