Economic development efforts often seem like a zero-sum game; Indiana offers training funds or infrastructure improvements or property tax abatements to businesses relocating from, say, Illinois, and Illinois does the same for businesses coming from Indiana.
Even within the state, municipalities try to lure employers to City A from City B by offering tempting “goodies.”
There are lots of problems with this state of affairs. It tends to be unfair to small businesses that have been longtime corporate citizens, and all too often, the relocation would have occurred without the (legal) bribe represented by these incentives. Worst of all, however, is the reluctance of the state to require or enforce appropriate “clawback” provisions.
When state or city government offers incentives to businesses, it is in return for that business undertaking to create a certain number of jobs. The idea is that the government will recoup its up-front investment in the form of additional taxes paid by a growing workforce. The agreement, or contract, obligating the unit of government to provide the incentive should include provisions protecting the government in case of default; in other words, if the business fails to create the promised jobs, or moves its operations elsewhere, it should be required to repay the amounts advanced.
Fair enough. You do what you say you will do, or you pay us back. The Pence administration, however, pursues a narrow version of the clawback.
An IndyStar analysis found that the Indiana Economic Development Corporation — which Pence leads — has approved $24 million in incentives to 10 companies that sent work to foreign countries. Of those incentives, nearly $8.7 million has been paid out so far.
During that same period, those companies terminated or announced layoffs of more than 3,800 Hoosier workers while shifting production to other countries, where labor tends to be far less expensive.
The state has clawed back or put a hold on some or all of the incentives in four of those cases, returning $746,000 in taxpayer subsidies. But in the other six cases, the companies faced no consequences.
The primary reason: The job creation and retention requirements in the state’s incentive agreements are usually narrowly tailored to a single facility, leaving workers at other sites owned by the same company vulnerable to offshoring.
During the last legislative session, House Democrats authored language that would have required corporations that move facilities out of Indiana to re-pay any property tax incentives they had received, and also would have prevented those companies from receiving other state tax breaks. The proposal–which was an amendment to another bill–ultimately went nowhere.
Meanwhile, as the Star reported, the state’s much-touted job growth figures pale in comparison to the jobs lost to offshoring.
Those records show that the same 10 companies or their related subsidiaries have laid off or plan to layoff more than 3,820 workers in Indiana because work has been shifted to other countries since 2013.
Those losses are more than three times larger than the number of jobs that would have been created under the state’s incentive agreements, even if they had all come to fruition.
Here’s the thing: companies have the right to move their operations. But that shouldn’t mean they have the right to move and keep the tax dollars that Hoosiers forked over in the expectation that they would honor their commitments, stay in the state, and create jobs.
A deal is a deal–and the state should play hardball, not wiffle-ball.
I know they do this “in the interest of time” but I have to say “the proposal–which was an amendment to another bill” drives me a little nuts.
Ive been writing about this for twelve years in Fort Wayne. It had become an entitlement and abatements are still a regular feature of our city council’s agendi. What had started decades ago as a method of bolstering employment in deteriorating urban centers was modified by our county council so that the whole country, from the toniest neighborhoods to our rundown slums, all qualified as “blighted areas” for purposes of abatements. In the past a business that moved from one side of a medical “campus” to another received a new abatement, a company that moved from New Haven to Fort Wayne qualified, and some of the best-healed companies in the area got a helpful hand from the citizenry to perform one corporate project or another. A former local official got into the business of steering clients through the system so their chances of getting a few hundred thousand off their tax bills would greatly improve. He would represent them at council table with a smile and the right combination of pedigree and terminology. Council members loved approving the abatements for their own benefit in proclaiming they had created jobs, that they were always for economic development, and were bringing jobs to their districts, as if their actions translated into the any new jobs at all. For years companies who won abatements would not have to fulfill their half of the bargain, namely, the creation of jobs. All manner of excuses were accepted. Simply completing the annual report was too much for some companies and others answered that they had just forgotten about their part of the deal. Compliance has been tightened ever so slightly to the point now where a company that drops the ball faces a few minutes of public humiliation where a lowly corporate official has to come to council to explain why company X failed to comply, but there seldom an abatement termination issued, and no “claw-back” whatsoever. Usually, at the moment of humiliation council members are most conciliatory so as not to raise much dust with companies that threaten to move to Anderson or Keokuk or Belarus. None. Labor leaders locally were the first to bring the issue to the community. They studied the files and created a report in which they showed the sloppy nature of the government side of the equation, and the indifference of the companies to their half of the obligations. Council responded a few years later by decertifying labor unions in Fort Wayne city government. Now, there are two newly elected members of council who consistently vote against all abatements. They are joined by another member who votes against the most egregious instances of corporate failure, but they are always the minority. I could go on.
This happened to the company I used to work for in northern Indiana! They got a tax abatement and then after some years moved their operations to Michigan, Illinois and Brazil. I saw the writing on the wall and was lucky I got out before my position was eliminated.
Let’s not forget the carefully crafted deal with United Airlines to bring a maintenance facility to the Indianapolis airport. The deal required payback, if United failed to accomplish what was required. So what happened? United filed for bankruptcy protection under Chapter 13 and the court eliminated the payback requirement for them.
The ” State’s Rights” advocates will freak out, but what is needed is a nation-wide set of rules concerning theses types of shenanigans. On moves from state to state any giveaways, tax rebates, etc. should be placed in escrow with interest accruing to the state/city and not paid in cash. If the recipient reneges the escrow is forfeit.
In cases where a company gets breaks to move to one state, and then ships jobs from another state overseas a tax in the amount of X number of years of the difference of wages lost and “gains” made by moving the work should be charged., payable in cash before the move. This money can be used to help the workers affected.
In cases where a company does not produce the number of jobs promised a impartial panel should decide whether this was due to unforeseen circumstances or company misinformation or manipulation. In the former, relief should be granted the company provided they maintain an effort to produce the jobs. In the latter forfeiture of the escrow, etc.
On a national scale, where jobs lost, say by the coal industry, cannot be expected to be renewed, then effort should be made to place the workers unemployed as a result into openings in the industry that displaced them. To continue with the example, coal workers should have first crack at renewal energy openings. Training would be involved, and so might relocation, but at least an effort would be made to compensate with jobs, not welfare, those most affected.
The point of all this is simple. Cities/states should not be tempting companies to move for financial/tax reasons, but simply that they have invested money in making the city/state a better place to work and live. One can never buy lasting loyalty from a company–they may only be “rented: for a time until someone offers them a cheaper lease.
Money has no conscience, no loyalty, and certainly no patriotism. Don’t be fooled.
I apologize in advance for typos/grammar errors. Writing in a rush because I have a meeting.
Dispite what politicians say they are for big business not small. Big business that makes big donations. Big business that puts small businesses out and steals their unemployed workers.
One of our current problems that needs fixing is that there are many big international business but only an outmatched international government that is not strong enough to adequately regulate them as the businesses regularly choose to demonstrate.
Is it possible that Indiana is following the lead of favorable tax incentives granted to global corporations? Salon published an eye-opening article today where we learn our current administration and our Congress continue to give tax breaks to the international corporations. As fast as we close one loophole, another one opens.
“The prevalence of tax-avoidance schemes among American corporations is hard to overstate. Fortune 500 companies have amassed more than $2 trillion overseas, denying the U.S. Internal Revenue Service a staggering $695 billion in taxes.”
http://www.salon.com/2016/09/06/welcome-to-tax-haven-usa-apple-ireland-and-the-american-corporate-tax-giveaway/
Pence and other politicians use the taxpayers’ money to gain personal political clout that can be used to further their careers. They are only concerned about being able to “claim” success and boast about it to the voters. They know full well that their claimed success is going to be very short term and will ultimately harm the taxpayers, yet they keep getting away with it.
I doubt that these were serious deals in the 1st place. Businesses & their captive politicians are very creative when it comes to camouflaging corruption. It’s ridiculous that corruption is still only defined as a suitcase of cash, when so many other creative ways have been devised.
Conservatives are correct that tax reform is needed especially for tax exemptions and avoidance.
Property and other taxes on the poor and middle class go up when corporations are exempted from having to pay them. It is not cities and states that subsidize these bottom-feeding corporations that come to town; it is the tax-paying citizens of Indiana, the great majority of whom will not work or benefit from the activities of companies that show up to claim their welfare checks. What a sweet deal that is for the politicians and their new corporate friends!
When a business receives a tax abatement, the tax burden is shifted to other businesses and to homeowners.
Moving from one side of town to another – as revealed by the Fort Wayne writer above – or from one community to another may incur additional infrastructure expenses as well with new sewer, water, and utility lines; and new streets, curbs, street lights, and sidewalks. An acquaintenance who is a former mayor of a small city said the city created a new industrial park and offered tax abatements to lure new businesses. It worked in the short term, but when the abatements ran out, so did the ‘new’ businesses. Given the infrastructure expenses to create the new park, the city and its taxpayers were in a deeper financial hole than if the park had not been created at all. Clawbacks should take the costs of infrastructure improvements and land acquisition into account too.