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How Corporate Giveaways to Applebee’s, Sears, and Other Companies Suck the Lifeblood from Your Community

They promise jobs, but leave dilapidated schools and crumbling roads in their wake.
 
 
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You would barely know it from reading the mainstream press, but corporate subsidies given by state and local governments are big business — and getting bigger every day. Since the onset of the Great Recession, these giveaways have gotten completely out of control as locations desperate for investment throw more and more money at any project that promises to “create jobs.” That’s a false promise. What they mainly do is drain government coffers in a game of job creation musical chairs.

A growing trend

These subsidies come at a huge cost: about $70 billion per year,* enough to hire 1.4 million state and local government workers at $50,000 per year, or almost three times the total laid off since the beginning of the recession. On top of that, corporate giveaways screw up the economy in 3 ways:

  • They’re inefficient, directing investments into the wrong locations or the wrong industries, and thereby slow the country’s economic growth.
  • They boost inequality, since these subsidies flow from the average taxpayer to the rich.
  • They often support projects that poison the environment.

One sign that subsidies are out of control is that so many of the biggest incentive packages of the century have come in recent years. As Good Jobs First recently reported in its “Megadeals” report, “The number of such deals [above $75 million in subsidies] and their costs are rising: since 2008, the average frequency of megadeals per year has doubled (compared to the previous decade) and their aggregate annual cost has roughly doubled as well, averaging around $5 billion.” Clearly the trend is growing.

The same conclusion jumps out at you even more when you compare our top 25 subsidies (calculated from “Megadeals”) with the top 25 in the European Union. While European governments compete for investment just like U.S. states do, EU rules limit what they can do. This prevents races to the bottom in the form of investment bidding wars. Thus, EU governments provide much smaller subsidies than U.S. state and local governments do, even for the same company.

Accountability and transparency

The EU’s rules say that if one country, say, France, wants to give a subsidy, it has to notify the European Commission – providing great transparency – and receive Commission verification that it’s following the rules. The U.S., on the other hand, has a mixed record on subsidy transparency —some states are very good, while others have minimal reporting (local subsidies are virtually unreported on). In the EU, there are also limits on the size of the subsidies. Rich regions like London or Paris cannot give any location subsidy; the poorest areas of the EU, which are located mainly in the former Communist countries, can give at most 50 percent of the cost of the investment, a figure that is frequently topped in the U.S. Other limits make it next to impossible for really large projects (think automobile assembly plants or silicon wafer fabrication facilities) to receive even 20 percent of the investment.

Let’s take a company called Global Foundries as an example. In 2006, it announced that it would build a chip plant in Malta, New York, a small town near Albany, where it received at least $1.1 billion in subsidies (present value), or 35 percent of the cost of the investment. Global Foundries also has built three facilities in Dresden, in the former East Germany, the first of which was subject to looser pre-2002 rules. It received the largest subsidy in the European Union since 2000, €545 million (about $736 million at €1=$1.35), or 22.67 percent of the investment. But look at what has happened under the new rules: The two newer plants, in 2007 and 2011, both received less than 12 percent in subsidies. The newest one only received about $285 million in subsidies, still big enough to be the sixth largest package in the EU since 2000.