Government contracting

Corporations are the Real Moochers

The firestorm over Mitt Romney’s closed-door comments depicting nearly half the U.S. population as parasites is coming mainly from those defending seniors, the poor and the disabled. But what’s really wrong with the Ayn Rand worldview Romney was parroting is that it ignores those who are the biggest moochers of all: giant corporations.

If, as Romney suggested, moocherism begins with the failure to pay federal income taxes, then that label can easily be applied to many of the country’s major companies. A November 2011 report by Citizens for Tax Justice and the Institute on Taxation and Economic Policy found that more than one-quarter of large companies paid zero taxes in at least one of the three years examined.

Quite a few of those companies arranged their affairs so that they had negative tax rates, meaning that the IRS sends them checks. And many of those that paid taxes did so at what CTJ and ITEP called “ultra low” rates of 10 percent or less.

Corporate tax avoidance is just the beginning of the story. The dependence on government that has Romney so upset is at the heart of the business plan for much of Corporate America. What libertarian types tend to overlook is that much of the public spending they disdain comes in the form of purchases from businesses. It’s estimated that more than $500 billion a year in federal outlays occurs via private-sector contracts.

Some companies rely so heavily on that spending that they are as government-dependent as any Medicaid or food stamp recipient. Aerospace giant Lockheed Martin, for example, derives more than 80 percent of its revenue from the federal government, especially the Pentagon; for its competitor Raytheon the figure is about 75 percent.

A large portion of what is called entitlement spending, especially in healthcare, ends up in the pockets of corporations, including drug makers, medical device manufacturers and for-profit hospital chains. The largest of the latter, HCA, gets more than 40 percent of its revenue from Medicare and Medicaid.

Corporations can get federal grants as well as contracts. The Commerce and Agriculture Departments have a slew of programs that assist businesses in marketing their products or that underwrite some of their costs. And, of course, a large portion of the billions paid each year in farm subsidies goes to agribusiness giants rather than family farmers.

Despite the recent Republican demagoguery on Solyndra, targeted federal spending to develop new energy technologies is nothing new. The Recovery Act’s billions for solar and wind companies was completely in line with federal programs that have subsidized everything from coal gasification to nuclear power plants. Before the Fukushima Daiichi disaster in Japan, the U.S. government was promoting a loan guarantee program to encourage the construction of a new generation of nukes by major utility companies.

Giant corporations also depend on the federal government to help them sell their goods abroad. The Export-Import Bank of the United States spends more than $30 billion each year providing various forms of insurance, loan guarantees and direct loans for the likes of Boeing, General Electric and Caterpillar. The federal government’s Overseas Private Investment Corporation helps U.S. companies do more business offshore by providing political risk insurance and other types of financial assistance.

Another form of corporate dependency on government is the ability of natural resources companies to operate on public lands and pay either no royalties or artificially low ones . Mining corporations, for example, take advantage of an 1872 law that allows them to extract gold, silver and other hardrock minerals from public lands royalty-free.

Assistance from the federal government can be a matter of life and death for some companies, as in clear in the cases of General Motors and Chrysler as well as the banks that were brought back from the brink by the TARP bailout and then thrived on the influx of billions in essentially free money from the Federal Reserve.

Hearing all the ways in which the federal government makes life easier and more profitable for big business, a newly arrived Martian might expect giant corporations to be grateful boosters of the public sphere. Instead, as we know all too well, most large companies are disdainful of government and are constantly whining about regulation and taxes they can’t avoid paying.

To make things worse, many government-dependent companies are less than honest when it comes to their dealings with the public sector. The Project On Government Oversight’s Federal Contractor Misconduct Database identifies hundreds of examples of contract fraud and other offenses. Healthcare providers such as HCA, not satisfied with the vast amount of honest business they get from Medicare and Medicaid, have defrauded taxpayers out of billions more.

If Romney wants to find the real moochers—and often crooked ones at that—he can find them in the corporate world that is his natural habitat.

Making Honeywell Feel the Heat

How would you describe the situation of a corporation involved in union-busting, mishandling of radioactive waste, production of nuclear weapons and the effort to lower corporate tax rates while cutting Social Security and Medicare? If you are Barron’s, you’d say the firm is “in its sweetest spot in more than a decade.”

That’s the way the investment weekly describes Honeywell International in a recent article that gushes over the company’s financial results and predicts that its stock is “poised for liftoff.” Honeywell, a $33 billion transnational, is viewed differently in Metropolis, Illinois, where some 230 members of the United Steelworkers union have been locked out of their jobs for more than nine months.

Apologists for the attacks on public employees often try to disavow anti-union motivations by saying they have no problem with collective bargaining in the private sector. Honeywell is a glaring reminder that challenges to worker rights can be found among employers of all types these days.

The dispute in Metropolis—which calls itself the hometown of the fictional character Superman—brings together a variety of current hot-button issues, including unions, nuclear power, environmental protection, healthcare coverage and pensions. Honeywell’s plant is the sole facility in the country that converts uranium ore into the uranium hexafluoride gas used in the production of both nuclear power and nuclear weapons. This is a risky process that involves highly toxic materials.

These dangers were highlighted in December 2003, when an accidental release of toxic gas forced the evacuation of nearby residents and the shutdown of the plant for four months. The U.S. Nuclear Regulatory Commission (NRC) issued two violations relating to the way the company handled the incident.

Given such hazards, the members of Steelworkers Local 7-669 have long focused on safety issues, both for themselves and for the surrounding community. The union has been particularly concerned about the high rate of cancer among the workforce and thus has sought to negotiate good health coverage for active workers and retirees. During contract renegotiations last year, Honeywell sought to eliminate retiree health benefits, reduce pensions for new hires, cap severance pay and contract out maintenance. When the union balked but declined to strike, the company abruptly locked out the workers in June. And in a move made all the more reckless by the dangerous nature of the work, the company brought in poorly trained replacements to keep the plant operating.

In September, a loud explosion was heard at the plant but there were no reports of toxic releases. A Steelworkers report notes that the company was cited by the NRC for improperly coaching replacement working during on-site job evaluations by federal inspectors. Honeywell’s safety image was further tarnished just a few weeks ago, when the U.S. Justice Department and the EPA announced that the company had paid a criminal fine of $11.8 million to resolve a charge of illegally storing hazardous and radioactive materials in Metropolis.

The $11 million is the latest addition to the more than $650 million in fines and damages Honeywell has paid since 1995 in connection with 32 instances of misconduct collected by the Project On Government Oversight in its Federal Contractor Misconduct Database (the company ranks 17^th in amount paid out).

Honeywell’s record of corporate irresponsibility goes back even farther. From the late 1960s through the late 1980s, the old Honeywell (prior to its 1999 takeover by AlliedSignal, which adopted the name) was targeted by antiwar activists because of its production of cluster bombs and land mines that were widely used in Vietnam and later because it was unwilling to take responsibility for clearing munitions that remained after the war was over.

Despite this checkered history, Honeywell has remained a large federal contractor. It is involved, for example, in both the clean-up of the Cold War-era Savannah River nuclear weapons complex in South Carolina and the construction of a new nuclear arms production facility in Kansas City.

And if all the above is not enough controversy, Honeywell CEO David Cote was named by President Obama (before the lockout) to the National Commission on Fiscal Responsibility and Reform, which issued a report in December that, among other things, proposed cuts in corporate tax rates. Cote issued a personal statement complaining that the report did not take a harder line on Medicare and Medicaid, and he recently called for cuts in Social Security. He also just told Bloomberg Television that he would love to see corporate income taxes entirely eliminated.

For many people, the Honeywell name is still associated with thermostats. But today, it is a poster child for much that is wrong with corporate America—mistreatment of workers, environmental recklessness, military profiteering, and unwillingness to pay a fair share of taxes. It should be made to feel more of the heat itself.

Stealth Disclosure

The Congressional practice of quietly attaching an unrelated provision to a larger piece of legislation at the last minute has all too often been used to benefit powerful corporate interests. In two recent cases, however, the stealth amendment process has resulted in changes that will make it easier to monitor questionable business practices by energy companies and federal contractors.

Extractive industries are complaining about language (Section 1504) slipped into the new financial reform bill that will require them to report on royalties and other payments to governments. The aim is to make it harder for those corporations to conceal bribes and other illegal transfers used to obtain petroleum or mining concessions and that often prop up corrupt regimes such as the one in Equatorial Guinea. The provision, based on a bill that had been introduced by Senators Benjamin Cardin of Maryland and Richard Lugar of Indiana, applies to publicly traded oil, gas and mining companies whose shares trade in the United States.

The law is a victory for groups such as Publish What You Pay, which has long campaigned to increase the transparency of energy corporation dealings with governments around the world. The campaign has already succeeded in getting some firms to disclose the information voluntarily, but it will be much better to have it mandated and overseen by the Securities and Exchange Commission, which will write rules covering the inclusion of the information in financial statements.

That’s why trade associations such as the American Petroleum Institute and companies such as Exxon Mobil are grousing about the law. An API spokesperson told the Wall Street Journal that Russian and Chinese oil companies not subject to the requirement “could use the data to outfox U.S. companies in deals.”

Dubious complaints are also being heard from Beltway Bandit mouthpieces in response to a swift move by Sen. Bernie Sanders of Vermont to insert a provision in the recently passed supplemental appropriations bill giving the public access to a database about contractor performance – which in many cases means contractor misconduct.

The database is the Federal Awardee Performance and Integrity Information System (FAPIIS), which was mandated as a result of 2008 legislation enacted thanks to the efforts of groups such as the Project On Government Oversight (POGO), which has its own Federal Contractor Misconduct Database covering the 100 companies doing the most business with Uncle Sam. FAPIIS is supposed to make it easier for federal agencies to review the track record of a much wider range of companies bidding on new contracts worth $500,000 or more. In addition to contract performance information collected from various federal sources, FASPIIS includes data submitted by companies with more than $10 million in contracts or grants on any criminal, civil or administrative proceedings brought against them during the previous three years.

FAPIIS was an important step forward, but it was able to get through Congress only after its sponsors agreed to restrict access to the database. POGO tested the provision by filing a FOIA request with the Pentagon for its FAPIIS information but was shot down.

A short time later, however, it came to light that the Sanders amendment survived in the supplemental spending bill President Obama signed on July 29. The provision will give the public access to FAPIIS information about contractor track records, but unfortunately it excludes past contract performance reviews by federal agencies.

Already, the Professional Services Council, the leading trade association of federal contractors, is warning that making parts of FAPIIS public “could create a politically motivated blacklist of vendors.” The PSC seems to believe that the public should not have the ability to pressure the federal government to stop doing business with crooked companies.

Speaking of blacklists, the FAPIIS change comes on the heels of an announcement by the Obama Administration that it is creating a master Do Not Pay database covering individuals and businesses that should not be receiving payments from federal agencies. At a time of growing hysteria about the federal deficit, it is good to see that attention is being paid to ways of cutting costs that are truly wasteful.

ARRA as a Corporate Rescue Plan

A war of words is raging over the impact of the Obama Administration’s $787 billion stimulus program, which is now one-year old. Conservative members of Congress are mounting a relentless assault on what they see as an abject failure, even as many of them unabashedly promote and at least implicitly take credit for individual American Recovery and Reinvestment Act (ARRA) projects in their home districts.

Meanwhile, the office of Vice President Joe Biden has issued a report insisting that ARRA has created or saved 2 million jobs and has brought many states back from the brink of fiscal disaster. The stimulus effort, Biden insists, “is going well.”

The debate boils down to an age-old disagreement between those opposed to allegedly wasteful social spending and those who believe government has to reinforce the social safety net during a time of economic distress.

Both sides are ignoring the fact that ARRA, to a significant degree, is a rescue plan not just for unemployed workers and struggling state governments, but also for parts of corporate America. This goes far beyond the roughly $50 billion in business tax breaks that Republicans last year insisted be part of the plan.

The Recovery Act represents a big step in the direction of what was once called industrial policy. Billions of ARRA dollars are being used by the federal government to encourage the development of new industries in areas such as renewable energy and health information technology that are seen as the foundation of future economic growth. Billions more are being spent on traditional procurement contracts to boost private-sector activity.

Here are some examples of larger injections of ARRA funds going directly to the corporate sector:

ADVANCED ENERGY MANUFACTURING TAX CREDITS

Hemlock Semiconductor, a joint venture of Dow Corning (itself a joint venture of Dow Chemical and Corning Inc.) and two Japanese companies: $141 million for the production in Michigan of polycrystalline silicon used in solar panels.

Wacker Polysilicon North America LLC, a subsidiary of the German chemical company Wacker Chemie: $128 million for a plant in Tennessee that will produce polysilicon for solar cells.

United Technologies Corporation, the big military contractor: $110 million for new equipment at its Pratt & Whitney plants to help produce more energy-efficient jet engines.

Alstom, the big French power and transportation equipment firm: $63 million for a Tennessee facility that will produce the world’s largest steam turbines for nuclear power plants.

GRANTS FOR DEVELOPMENT OF ADVANCED BATTERIES FOR ELECTRIC VEHICLES

Johnson Controls: $299 million for work on nickel-cobalt-metal battery cells

A123 Systems Inc.: $249 million for work on nano-iron phosphate cathode powder and electrode coatings.

General Motors: $105 million for production of high-volume battery packs for the GM Volt.

“CLEAN” COAL POWER INITIATIVE

American Electric Power Company: $334 million for the development of a chilled ammonia process to capture CO2 at a power plant in West Virginia.

Southern Company Services: $295 million for the retrofitting of a CO2 capture installation at a coal-fired power plant in Alabama.

BROADBAND EXPANSION

ION HoldCo LLC, a partnership led by Sovernet Communications: a $39 million grant to expand fiber-optic broadband in rural areas of upstate New York.

Biddeford Internet Corp. (dba GWI): a $25 million grant to extend a fiber-optic network to rural and disadvantaged parts of Maine.

ENERGY LOAN GUARANTEES

Solyndra Inc.: a $535 million loan guarantee to support the construction of a commercial-scale manufacturing facility for cylindrical solar photovoltaic panels.

PROCUREMENT CONTRACTS

Lockheed Martin: $165 million to work on the crew vehicle for NASA’s Project Orion.

Clark Construction Group: $152 million to design and build a new headquarters for the U.S. Coast Guard in Washington, DC.

General Motors: $104 million to supply light trucks, station wagons and alternative fuel vehicles to the General Services Administration.

GlaxoSmithKline: $62 million from the Department of Health and Human Services to do research on the H1N1 flu vaccine.

To this list can be added the thousands of contracts that states have awarded to private companies to carry out ARRA-funded activities such as highway repair, school construction and environmental remediation.

It is surprising that there has been so little debate on the relative merits of all these projects and programs – as well as on the wisdom of providing direct subsidies to profit-making entities. Are these grants, contracts, tax credits and loan guarantees a smart investment in the future or nothing more than business boondoggles?

With a significant portion of the Recovery Act going to aid corporations, we also have a right to ask why they are not creating more jobs with the taxpayer funds they have received. It would also be helpful to know – though the limitations of ARRA data collection make this difficult – how good are the jobs that have been created (in terms of wages and benefits) and whether those jobs are being equitably distributed among different portions of the population.

If we are ever going to reach any meaningful conclusions about the whole stimulus endeavor, we’ve got to go beyond tired debates about Big Government versus the Free Market. Like the bailout of the banks and the auto companies, ARRA is changing the relationship between the public and private sectors. Now we need to know whether the new arrangement is working and who is reaping the benefits.

Stimulus Lobbying Pays Off for Major Contractors

K street Last spring, when the ink was barely dry on the $787 billion American Recovery and Reinvestment Act (ARRA), there was already concern about an emerging frenzy of lobbying on behalf of corporations seeking a slice of the stimulus pie.

The Obama Administration enacted rules designed to make ARRA lobbying more transparent. That didn’t work out very well, but the Recovery Accountability and Transparency Board recently completed the release of the first round of quarterly disclosure reports by ARRA recipients. In part, these reports serve as a score card showing which companies won the great stimulus lobbying competition.

Beginning with a list of the largest direct federal contracts, I ran the names of the prime contractors through the invaluable lobbying database maintained by the Center for Responsive Politics. Many of the largest contracts went to joint ventures set up by major engineering companies to do clean-up work at nuclear facilities owned by the Department of Energy. In those cases I searched the names of the individual parent companies (and some universities) involved.

There are a total of 52 companies and institutions involved with the 50 largest ARRA contracts. Of these, 34 show up as clients in the Center’s lobbying database. These include large corporations such as Bechtel, Lockheed Martin, Northrop Grumman, General Motors and Ford—as well as smaller players. Also on the list are educational institutions such as the University of California, Stanford University and the University of Chicago.

So far in 2009, the 34 have spent a total of $65 million on lobbying the federal government. Of course, not all that lobbying can be attributed to the quest for stimulus contracts, but it shows in general terms that the ARRA winners include some of the biggest influence-peddlers in Washington.

Moreover, there is every reason to think that a significant portion of their lobbying efforts were focused on stimulus contracts. I searched the database of lobbyist disclosure reports provided by the Senate Office of Public Records. Of those 34 contractors, 24 show up as clients in 2009 lobbying reports in which the word “recovery” or “stimulus” is mentioned in the description of the specific issues on which the lobbyists reported working.

It’s not possible to determine how much of their spending went specifically to ARRA issues. But whatever portion of the $65 million was involved, it was money well spent for the contractors. The 24 that definitely had lobbyists working on ARRA matters ended up with stimulus contracts worth some $7.4 billion. That’s an impressive return on political investment.

Now we can only hope that these and other stimulus contractors crank up their hiring so taxpayers also get something significant out of this bonanza. According to the recent ARRA recipient reports, some of the projects being carried out by those two dozen firms have already created (or retained) a substantial number of jobs. Yet others, in a pattern seen in the overall ARRA contractor data, report few or no jobs despite having already received substantial sums for the projects.