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Updated Sunday, December 2, 2012 at 08:40 AM

Corporations get tax deals; states, cities pay the price

By LOUISE STORY
The New York Times

In the end, the money that cities and towns across America gave General Motors did not matter.

When the automaker released a list of factories it was closing during bankruptcy three years ago, communities that had considered themselves GM's business partners were among the targets.

For years, mayors and governors anxious about jobs had agreed to GM's demands for cash rewards, free buildings, worker training and lucrative tax breaks.

As late as 2007, the company was telling local officials these sorts of incentives would "further GM's strong relationship" with them and be a "win/win situation," according to town-council notes from one Michigan community.

Yet at least 50 properties on the 2009 liquidation list were in towns and states that had awarded incentives adding up to billions in taxpayer dollars, according to data compiled by The New York Times.

Some officials, desperate to keep GM, offered more. Ohio was proposing a $56 million deal to save its Moraine plant, and Wisconsin, fighting for its Janesville factory, offered $153 million.

But GM walked away and, thanks to a federal bailout, is once again profitable. The towns have not been so fortunate, having spent scarce funds in exchange for thousands of jobs that no longer exist.

One township, Ypsilanti Township, in Michigan, is suing over the automaker's departure. "You can't just make these promises and throw them around like they're spare change in the drawer," said Doug Winters, the township's attorney.

Yet across the country, companies have been doing just that. And the giveaways are adding up to a gigantic bill for taxpayers.

Tally: More than $80B

An investigation examined and tallied thousands of local incentives granted nationwide and found that states, counties and cities are giving up more than $80 billion each year to companies. The beneficiaries come from virtually every part of the corporate world, encompassing oil and coal conglomerates, technology and entertainment companies, banks and big-box retail chains.

The cost of the awards is far higher. A full accounting is not possible because the incentives are granted by thousands of government agencies and officials, and many do not know the value of all their awards.

"How can you even talk about rationalizing what you're doing when you don't even know what you're doing?" said Timothy Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich.

The New York Times analyzed more than 150,000 awards and created a database of incentive spending, searchable on the newspaper's website. The survey was supplemented by interviews with more than 100 officials in government and business organizations and executives and consultants.

A portrait arises of mayors and governors desperate to create jobs, outmatched by multinational corporations and short on tools to fact-check what companies tell them. Many officials said they feared companies would move jobs overseas if they did not get subsidies in the United States.

Over the years, corporations have increasingly exploited that fear.

Despite their scale, state and local incentives have barely been part of the national debate on the economic crisis. The federal budget negotiations have not addressed whether the incentives are worth the cost, even though 20 percent of state and local budgets come from federal spending. Federal lawmakers are battling over possible increases in personal taxes, while both parties have said lower federal taxes on corporations are needed for the country to compete globally.

Texas tops at incentives

The analysis shows that Texas awards more incentives, more than $19 billion a year, than any other state. Alaska, West Virginia and Nebraska give up the most per resident.

For many communities, the payouts add up to a substantial chunk of overall spending, the analysis found. Oklahoma and West Virginia give up amounts equal to about one-third of their budgets, and Maine allocates nearly a fifth.

The most incentive money is spent on manufacturing, about $25.5 billion a year, followed by agriculture. The oil, gas and mining industries come in third, and the film business fourth. Technology is not far behind, as companies such as Twitter and Facebook increasingly seek tax breaks and many localities bet on the industry's long-term viability.

Those hopes were once more focused on automakers, which for decades pushed cities and states to set up incentive programs, blazing a trail that companies of all sorts followed. Even today, GM is the top beneficiary, public records indicate. It received at least $1.7 billion in local incentives in the past five years, followed closely by Ford and Chrysler.

A GM spokesman said almost every major employer applied for incentives because they help keep companies competitive and retain or create jobs. "There are many reasons why so many Ford, Chrysler and GM plants closed over the last few decades," said the spokesman, James Cain. "But these factors don't mean that the companies and communities didn't benefit while the plants were open, which was often for generations."

Cain cited research showing that the company received less money per job than foreign automakers operating in the United States.

For government officials such as Bobby Hitt of South Carolina, the incentives are a good investment that will raise tax revenues in the long run. "I don't see it as giving up anything," said Hitt, who worked at BMW in the 1990s and helped it win $130 million from South Carolina.

Today, Hitt is the state's secretary of commerce. South Carolina recently took on a $218 million debt to assist Boeing's expansion there and offered the company tax breaks for 10 years.

Hitt, like most political officials, has a short-term mandate. It will take years to see whether the state's bet on Boeing bears fruit.

In Michigan, Gov. Rick Snyder, a Republican in his first term, has been working to eliminate most business tax credits but is bound by past awards. The state gave GM $779 million in credits in 2009, just a month after the company received a $50 billion federal bailout and decided to close seven plants in Michigan.

GM can use the credits to offset its state tax bill for up to 20 years.

"You don't know who will take a credit or when," said Doug Smith, a senior official at the state's economic-development agency. "We may give a credit to GM, and they might not take it for three years or 10 years or more."

One executive, Donald Hall Jr. of Hallmark, thinks business subsidies are hurting his hometown, Kansas City, Mo., by diverting money from public education."It's really not creating new jobs," Hall said. "It's motivated by politicians who want to claim they have brought new jobs into their state."

Varied incentives

For local governments, incentives have become the cost of doing business with almost every business.

When Oliver Stone made the 2010 sequel to "Wall Street," in his mind there was only one place to shoot it: New York City. Nonetheless, the film, a scathing look at bankers' greed, received $10 million in tax credits, according to 20th Century Fox.

In an interview, Stone criticized subsidies for industries such as banking and agriculture but defended them for Hollywood.

"It's good," Stone said of the film subsidies. "Or like basically the way business is done. I don't understand what the moral qualm is."

The practical consequences can be easily seen. The Manhattan Institute for Policy Research, a conservative group, found that the amount New York spends on film credits every year equals the cost of hiring 5,000 public-school teachers.

Incentives come in many forms: cash grants and loans; sales-tax breaks; income-tax credits and exemptions; free services; and property-tax abatements. The income-tax breaks add up to $18 billion and sales-tax relief about $52 billion of the overall $80 billion in incentives.

California is one of the few states that have been cutting back on incentives. But that doesn't mean its cities are following suit. When Twitter threatened to leave San Francisco last year, officials scrambled.

Twitter was not short on money; it soon received a $300 million investment from a Saudi prince and $800 million from a private consortium. The two received Twitter equity.

The city exempted Twitter from what could total $22 million in payroll taxes, and the company agreed to stay put. The city estimates Twitter's workforce could grow to 2,600 employees, although the company made no such promise.

San Francisco, meanwhile, has been cutting its budget. Public parks have lost about $12 million in recent years.

The tab for auto incentives has grown to $13.9 billion since 1985, according to the Center for Automotive Research, a nonprofit group in Ann Arbor, Mich. GM, the top recipient, was awarded $3.3 billion. Since 1979, automakers also closed more than 267 U.S. plants, about half of which still sit empty, according to the center.

The auto industry and some local officials have long argued that auto companies create so many jobs and draw in so many supporting suppliers that all taxpayers benefit. Even if companies close years later, the trade-off is worth it, they said.

Ypsilanti's battle

For much of the past 20 years, Doug Winters has been agitating for GM to be held accountable.

Winters, the attorney for Ypsilanti Township and several other places around Ann Arbor, has lived in Ypsilanti all his life. His grandmother labored at the local plant, Willow Run, during World War II, when it made bombers. People in town point out that Rosie the Riveter worked there. After the war, GM moved in.

Over the years, Ypsilanti granted GM more than $200 million in incentives for two factories at Willow Run, Winters said. "They were doing it with a very thinly disguised threat that if you don't give us these tax abatements, then we'll have to go somewhere else."

Ypsilanti first sued GM in the 1990s to prevent the company from closing the factory at Willow Run that made the Chevrolet Caprice.

The town had granted the company tax incentives after the factory manager argued that GM's ability to compete with other carmakers was at stake, documents in the lawsuit show. The tax break and "favorable market demand," said the plant manager, Harvey Williams, would allow the automaker to "maintain continuous employment."

Nevertheless, GM shut the factory. A lower court found in favor of Ypsilanti, but the ruling was reversed. The judge said a company's job assurances "cannot be evidence of a promise."

In 2010, when the company closed the remaining factory at Willow Run, Winters sued again. This time, Ypsilanti said the automaker should have been forced to close overseas factories instead, especially since U.S. taxpayers had bailed out GM. In addition, Ypsilanti sought to recover money from GM, saying the company had agreed to reimburse the town for some incentives if it left.

Ypsilanti's claims have not been addressed. They were complicated by GM's bankruptcy, which allowed it to emerge as a new company and leave some liabilities and contractual obligations behind.

When asked whether the new GM has civic responsibilities to its former factory towns, Cain, the company spokesman, said: "Our obligation to the communities where we do business is to run a successful business."

He also said that since the bailout, "GM has invested more than $7.3 billion in its U.S. facilities, and we've created or retained almost 19,000 jobs in communities all over the country."

In Ypsilanti, an entity set up to sell off GM property is marketing the plant as valuable. At the same time, it has been arguing for lower property taxes on the grounds that the plant is not worth much.

Ypsilanti's supervisor, Brenda Stumbo, said the township would be stung hard by further revenue cuts. There are seven to 10 home foreclosures a week, giving the township the highest foreclosure rate in the county, Stumbo said.

"Can all of it be traced back to General Motors?" she said, listing auto suppliers that closed after GM did. "No, but a great deal of it can."

Washington state incentives

ACCORDING to The New York Times database, Washington state spends at least $2.35 billion a year on incentive programs, based on the most recent data available. That amounts to about $349 per person and 15 cents per dollar of the state's budget.

Top incentives by type

• $1.46 billion in sales-tax refund, exemptions or other sales-tax discounts.

• $883 million in corporate income-tax credit, rebate or reduction.

• $7.65 million in property-tax abatement.

Top incentives by industry

• $649 million in manufacturing.

• $632 million in agriculture.

• $197 million in aircraft.

Seattle Times staff

Access The New York Times database at seati.ms/TufG97


FRED R CONRAD / NYT
An abandoned GM plant at Willow Run in Ypsilanti Township, Mich. More than $200 million in incentives granted by the township failed to keep two factories open.




FRED R CONRAD / NYT
Ypsilanti Township attorney Doug Winters said GM extracted incentives with "a very thinly disguised threat that if you don't give us these ... we'll have to go somewhere else."




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