CORPORATE FOCUS: Toledo Tempts DaimerChrysler

In the last 20 years, the corporate shakedown game has been elevated to an art form. Corporations have orchestrated race-to-the-bottom bidding wars among states and cities hoping to attract a new factory, or even maintain an existing facility. States and localities shower companies with tax breaks, subsidies, regulatory exemptions, discounted utility rates and other favors -- all at the expense of average taxpayers.One innovative response to the shakedown game is to demand that companies make specific and legally binding commitments -- a certain number of jobs, a certain wage level for its workers -- in exchange for the subsidies they receive. The Washington, D.C.-based Good Jobs First, headed by Greg LeRoy, and the network of grassroots groups with which it works has pioneered this approach.Now a pair of attorneys are set to challenge the very validity of business location tax incentives.On behalf of a number of residential and small business plaintiffs, Toledo attorney Terry Lodge and his co-counsel, Northeastern University Law Professor Peter Enrich, plan to challenge a massive subsidy from Toledo and the state of Ohio to DaimlerChrysler to keep a Jeep plant in the city.Faced with the threat of the existing Jeep plant closing, Toledo put together a $281 million local, state and federal subsidy package to support company plant expansion plans. The package includes a property tax exemption for 10 years, transfer of free land, including site preparation, transfer of environmental liability from DaimlerChrysler to the city and assorted other corporate welfare handouts.In exchange, DaimlerChrysler has committed to expand its Jeep facilities -- but will actually reduce the number of Jeep jobs from the current 5,600 to 4,900 (DaimlerChrysler's public claim) or 4,200 (the level the company specifies it will try to preserve in an unenforceable provision in its agreement with Toledo) or something much lower (a likely result based on United Auto Worker estimates and recent layoffs at the plant).The Toledo deal has also attracted national attention because it requires the displacement of a community near the plant. With the threat of a taking by eminent domain in the background, the City bought out 89 households, and will transfer the community's land to DaimlerChrysler. In its public explanations, Jeep identifies the community's parcel as a potential truck waiting area, but in its map, the area is to be used for landscaping -- a truck waiting area is designated for another parcel of land.The lawsuit challenging the subsidies will be based on two theories. First, small, local businesses assert that the subsidy package denies them equal protection under the law, on the grounds, Lodge says, that "they get no benefit from the corporate largesse, and have no prospect of qualifying [for such subsidies] absent a threat to leave the state" -- not a realistic threat for local businesses. The residents and small businesses contend that they are being asked to subsidize DaimlerChrysler unfairly.The second claim in the lawsuit is on behalf of Michigan residents, where DaimlerChrysler threatened to move its plant if Toledo did not provide them with subsidies.Such subsidies, they argued in an initially filed version of the suit (voluntarily withdrawn but soon to be refiled), are unconstitutional. "The statute and Agreement discriminate in favor of in-state business activity and against out-of-state investment, in violation of the restrictions imposed on discriminatory state and local taxation by the Commerce Clause," the suit contends.The U.S. Constitution gives Congress the power to regulate commerce between states, and the Supreme Court has interpreted the Commerce Clause to mean that states cannot impose special taxes or maintain protectionist barriers on goods shipped from other states.Neither the City of Toledo nor DaimlerChrysler responded to requests for comment about the suit.The challenge to the Toledo subsidy seemingly would require a court to rule against the prevailing, tangled Commerce Clause jurisprudence which seems to permit subsidies.But Enrich argues that, as a tax matter, the Supreme Court has not had occasion to rule on business-location tax incentives. Since the Supreme Court has held unconstitutional tax measures that penalize out-of-state firms, it should logically strike down in-state subsidies, he argues in a 1996 Harvard Law Review article."The Court has repeatedly invalidated state tax provisions if they provide an in-state business or activity with protections or benefits that are not similarly available to its out-of-state competition," he writes.The stakes are high in this innovative case. The Toledo-DaimlerChrysler agreement is a typical, if extreme, business subsidy package, with a locality desperate to attract or retain jobs bidding against all other suitors and itself. If such subsidies are held unconstitutional, corporations' ability to use job blackmail against states and localities will be significantly undermined.Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime Reporter. Robert Weissman is editor of the Washington, D.C.-based Multinational Monitor.

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