Michigan Leads Nation in Massive Corporate Tax Breaks (The Untold Story of Detroit's Decline)

  July 31, 2013

Michigan Leads Nation in Massive Corporate Tax Breaks (The Untold Story of Detroit's Decline)

A new study of state subsidies for corporations over a 30-year period reveals cost of $456,000 per job
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Michigan Leads Nation in Massive Corporate Tax Breaks (The Untold Story of 
Detroit's Decline)JAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network. I'm Jaisal Noor in Baltimore.

Good Jobs First has published a study examining the country's largest state corporate tax breaks over the past 30 years. Over 300 deals were examined, totaling $64 billion. In the report, titled Megadeals: The Largest Economic Developments Subsidy Packages Ever Awarded by State and Local Governments in the United States, the authors find that Michigan leads the country with 29 mega corporate tax breaks, costing the state more than $7 billion and accounting for 12 percent of the megadeals nationwide.

Now joining us is Thomas Cafcas. He's a research analyst at the national policy resource center Good Jobs First, which released the study.

Thank you so much for joining us, Thomas.


NOOR: So, Thomas, provide us a quick summary of the report and what you found, and define for us what a megadeal is.

CAFCAS: Sure. So what we did is we tried to find, going back to the beginning of time, so generally about the 1970s, the largest economic deals ever awarded to companies from state and local governments. And so, as a cutoff, we cut it off at about $75 million, and we excluded stadium and sports arena deals because it would have overwhelmed our list. So these are major deals to companies like the big three (Ford, General Motors, Chrysler--they show up a lot in Michigan), chemical companies, paper companies. It really runs the gamut on which companies are getting these major economic development deals from state governments.

And, you know, over time these deals really do add up to a lot of money. In Michigan alone it was $7.1 billion over time. You know, and it's from 29 deals. And there's really no sign that this is going to let up. You know, there's recent news in Detroit that the Red Wings are possibly going to get a $262 million deal for a stadium, which, again, was not included in the study. But, you know, these subsidies keep going. And the more that state and local governments award these big subsidy packages to companies, the further they will erode their tax base and, you know, cause harm to important public services.

NOOR: Can you give us a summary of how these tax breaks are justified, the benefits they supposedly come with, and what reality you found has come about?

CAFCAS: Sure. So these are generally justified in the name of job creation or job retention. In Michigan specifically, they are justified on retention deals, that, you know, other states will award a bigger subsidy package and attract the employer away from the state of Michigan, causing massive job loss if the state doesn't pony up and pay this company to stay in the state.

We found in circumstances where they actually put out job figures on how many jobs were created, the cost per job was quite surprising. In our study we found it was 456,000--hundred thousand dollars per job, which is an extremely high cost per job. So, often these deals are, you know, very expensive to create very few jobs. And they're often paying companies to do something they would have done anyways, right?

So a company doesn't need--you know, taxes account for less than 1 percent of the total cost structure for the average company. Taxes aren't really moving the needle. Access to resources, access to a labor pool, access to all these other things that are really driving business decisions, customers, are what drive corporate location decisions. These big subsidy deals are pretty much free giveaways for companies.

NOOR: And, obviously, some of the biggest news around the country related to this is in Michigan with Detroit going bankrupt. And its bankruptcy proceedings are being closely followed by several other cities, including Baltimore, which are facing similar financial crises in the future. How are these two linked?

CAFCAS: Sure. So, you know, I was in Baltimore yesterday, actually, and there is a group of concerned citizens that are looking at a major tax increment financing (TIF) subsidy deal worth reportedly over $200 million for a developer to relocate from downtown Baltimore to Harbor Point, which is on the waterfront. And, you know, there's a big concern that this is going to have a huge drain on the revenues of the city and that the tax dollars are going to get drained so much that there's not going to be enough to pay for the public services that everybody needs, especially in Baltimore--schools, roads, fire protection, police protection. So these things are linked. And, you know, it seems like in cities across the country these big tax breaks are slowly eroding away the tax base and making it harder to pay for the important public services that we need.

NOOR: And so there is the promise of job creation. But are these companies obligated to create jobs where they're getting these tax breaks?

CAFCAS: So in some places, yes. But, you know, it's often a fig leaf, right? So, you know, they'll say they create jobs and that they wouldn't have done it but for getting a subsidy package. But whereas a public process is open to the public, there's open meetings, there's freedom of information, corporate processes are not open to the public--we don't really know what the companies are thinking. We don't know what their real reason for locating where they do is. And it's an impossible guessing game. So, you know, sometimes cities and states say, okay, company, you have to sign and say that without this subsidy package you wouldn't have come here and created jobs. But we just don't know if they're being honest. And, frankly, it's not relevant, right, because what is relevant is thinking about the impact on local budgets and state budgets and thinking about, you know, is there going to be enough revenue to pay for the services that we need to really have a healthy, sustainable economy.

NOOR: You talked about some of the opposition in Baltimore. But why isn't there more outcry over this? 'Cause, as you said, it's been happening for decades, and the results have been proven. There's not much disputing what the outcomes have been.

CAFCAS: Right. Well, the biggest problem in economic development deals is that for so many years these deals have happened behind closed doors. And, in fact, in the Harbor Point TIF deal, it actually came out in The Baltimore Sun that they had violated the Open Meetings Act.

And, you know, we work in all 50 states. We file Freedom of Information Act requests. We are frequently denied access to public information about how much state and local governments are giving away to companies. And this is public information. But in recent years there have been major transparency victories, and states are beginning to put this information up on the web. And that--you know, this is really a watershed moment. For the first time, citizens are able to look at how much their cities or states are spending on these big economic development deals and to figure out, you know, how many jobs are being created, what are the wages of those jobs, do those jobs pay good benefits or do they have good benefits, are there other important things that are happening as well, and really start measuring what the outcomes are, because frequently when we look into these deals and we actually dig up what the outcomes are, we're frequently disappointed.

NOOR: Thomas Cafcas, thank you so much for joining us.

CAFCAS: Thank you for having me.

NOOR: Thank you for joining us on The Real News Network.


DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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