Eminent Complaints

Greg LeRoy

July 08, 2005

Greg LeRoy directs Good Jobs First, a watchdog group, and is the author of The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation (Berrett-Koehler, July 2005).

Last week’s Supreme Court ruling on the use of eminent domain for economic development raises thorny issues of personal property rights and how best to define “public good.”

However, the ruling begs a much broader and pervasive issue: Are localities and states getting a good return for their massive investments in "economic development”? Or are they overspending, and undermining real public goods—like education and infrastructure—that really do promote good economic development?

When governments use eminent domain to assemble land for a redevelopment project, they frequently ladle on many other subsidies, such as property tax abatements, sales tax exemptions on materials and equipment, income tax credits for capital investment or hiring, low-interest loans, infrastructure aid, training grants and so forth—the average state allows jobs to be subsidized 30 different ways.

The total value of such packages routinely exceeds $100,000 per job created. On top of this, state and local spending is estimated at $50 billion a year.

Yet a mountain of evidence—from investigative journalists, state auditors, tax watchdogs and academics—demonstrates that subsidized companies fail to deliver on projected economic benefits. Many have failed to create or retain as many jobs as they promised. Others pay poverty wages or fail to provide health care. Some have not created any new jobs, or actually laid people off. Some are abandoning our cities, sprawling onto natural spaces. Some are even outsourcing jobs offshore. The other promised benefit—higher tax revenue—often proves false or exaggerated as well.

The process by which such deals are granted is far less democratic than grants of eminent domain, which at least usually involve a vote by elected officials. Economic development subsidies are usually granted by boards made up of appointed people, and passed at “hearings” that no average citizen attends.

Once the deals are granted, do development agencies carefully track outcomes to make sure companies deliver the jobs? Sadly, as investigators have found, they often keep such poor records, it is impossible to tell if the benefits justify the costs.

At the root of the problem is a corporate-controlled definition of “competition” that obscures cause and effect. We must create no-tax zones for factories, say the governors, to be competitive with other states—even though the whole country is bleeding manufacturing jobs and the obvious issue is globalization. We have to create a new tax increment financing district and steal shoppers from neighboring suburbs, say the mayors, to compete for tax base—even though the metro area has dead malls cropping up.

These corrupted definitions are the deliberate creations of a 50-year campaign by corporations to divide and conquer the states—as well as the suburbs. This corporate gospel of competition preaches that public officials at all levels must not be allowed to cooperate in the taxpayers’ interest. They’ll use litigation all the way to the Supreme Court, lobby federal and state legislators, invest in public relations, commission studies—whatever it takes, but public officials must not be allowed to cooperate. They must be kept in the dark and allowed into the room only when it’s time to talk about subsidies.

Besides creating corporate windfalls, the system of scams is causing all manner of collateral damage. It was used to blunt calls for trade reform long before NAFTA. It bankrolls interstate job piracy. It corrodes state budgets. It subsidizes private, for-profit prisons. It subsidizes hundreds of Wal-Mart facilities and other retail stores, despite the fact that America is swimming in overbuilt retail space. It subsidizes poverty-wage companies that saddle us with hidden taxpayer costs such as Medicaid and Children’s Health Insurance Program bills. And it’s contributing to a massive shift in who carries the tax burden—away from big companies and on to working families and small businesses.

This system has spawned several ancillary niches, including secretive site location consultants who specialize in playing states and cities against each other; “business climate” experts with highly politicized spins on tax and jobs data; economists for rent who peddle rosy projections about jobs and tax revenue; subsidy-tracking consultants who specialize in helping companies avoid leaving money on the table; and even an embryonic industry to help businesses buy and sell economic development tax credits.

It has also prompted the formation of corporate tax advocacy networks. They seek to overturn a 2004 decision by the U.S. Sixth Circuit Court of Appeals, Cuno v. DaimlerChrysler, which invalidated an Ohio tax credit. The case is now being appealed to the Supreme Court by both plaintiffs and defendants; it is also the subject of proposed federal legislation. If Cuno is overturned, the state-eat-state and suburb-vs.-suburb status quo will likely cause far greater harm than local use of eminent domain. That’s the case to watch.