Wed December 5, 2012
A Thin Line: Economic Development Or Corporate Welfare?
Originally published on Fri December 7, 2012 7:59 am
In her new series for The New York Times called "The United States of Subsidies," investigative reporter Louise Story examines how states, counties and cities are giving up more than $80 billion each year in tax breaks and other financial incentives to lure companies or persuade them to stay put.
The states and localities want jobs and economic growth; the companies want free land, free buildings, property tax abatement, "anything you can think of that would be financially beneficial," Story tells Fresh Air's Terry Gross.
The companies, she says, know they can get what they want, which is why they ask, and officials are so afraid to risk losing a current or prospective local employer that they readily comply.
"The beneficiaries come from virtually every corner of the corporate world," she writes in the series. However, the rewards from the incentives are difficult to calculate, Story writes, because job growth as related to incentive packages is rarely tracked.
And yet, Story tells Gross, "I don't think you'll find a company out there that has not received financial incentives from local government."
As Dale Craymer, president of the Texas Taxpayers and Research Association, says to Story, the question is: "When does economic development end and corporate welfare begin?"
On the bidding war for businesses in Kansas City
"Kansas City, it's right on the border of Kansas and Missouri, and what's been happening is that Kansas will offer to companies who are in Missouri to come over and they'll give them tax credits. [Kansas has] a very big ... tax credit called the PEAK Program, and Missouri will match it. ... I interviewed both governors, Gov. [Sam] Brownback from Kansas and Gov. [Jay] Nixon, and I actually asked them why they did this. There are local business leaders in Kansas City who have called on those two governors to agree to a truce, to agree to not give incentives to companies who are just moving across the border, and I asked both Gov. Brownback and Gov. Nixon, 'If the other one would agree, would you agree to stop this?' And neither would."
On the impact of incentives on Texas schools and public services
"Texas schools have had their budgets dramatically cut in the last couple years. They lost $5.4 billion in the last legislative cycle. By the time they lost that money, Texas was already spending the 11th least amount per student in the country. So, they're already at the bottom of the heap on what they spend per student and they cut it further. ....
"It's a little difficult to talk about exact causality, because ... the general fund of a state is like a big bowl of the water. ... You pour a little out on one side, well, which part of the glass, or which part of the bowl, did it come from? It's a little hard to say, but certainly this amount of cash out the door in Texas, and forgone tax revenues but through different incentives they have and tax breaks, is money they don't have at a time they have been cutting the school budgets."
On the beginning of incentives in the film industry
"Canada started recruiting some moviemakers away from New York and L.A., and Louisiana took a look at that and said, 'Oh, wow, Hollywood will go for money?' And Louisiana created a very lucrative program offering a 20 percent rebate on what movie companies spend there, and movies started going to Louisiana. And when other states saw that they said, 'Oh, wow, we should offer that too.' ... And so then what happened was New York and L.A. — where it used to be clear that people would want to shoot movies — they had to create their own programs to convince moviemakers not to move."
On what happened to the places that had agreed to the financial incentives after GM went bankrupt
"A lot of other places, like Moraine, Ohio, and Janesville, Wis., were not as lucky and, in 2009, as part of the bankruptcy, the company left a bunch of properties behind in what became a legacy GM, an old GM, and ... the company actually is a new company and it doesn't have the obligations to those old properties, and those properties are being sold now very slowly. There were local officials in states and cities tied to about 50 of those properties that had given incentives and they were dismayed when they saw [this and thought], 'We gave you this money to help with jobs and now you're leaving.' "
TERRY GROSS, HOST:
This is FRESH AIR. I'm Terry Gross. Where does economic development end and corporate welfare begin? That's one of the fundamental questions raised by the three-part New York Times series "United States of Subsidies," written by my guest Louise Story, a reporter with the Times Investigations Unit.
It's about the financial incentives many corporations are demanding from cities, suburbs and states in exchange for the jobs those corporations provide. Before agreeing to stay in a region or to locate there, all kinds of companies, including manufacturing, high-tech, oil, gas and entertainment, ask for incentives such as tax cuts, free land and free buildings at a time when local governments are already struggling financially.
Story's investigation reveals that states, counties and cities are giving up more than $80 billion each year to companies, and the giveaways are adding up to gigantic bills for taxpayers.
Louise Story, welcome back to FRESH AIR. So it sounds like cities, suburbs and states basically have to bid against each other to get big corporations to move there or even to stay there. What kinds of incentives are corporations asking for to locate to your state, city, or to stay in your city?
LOUISE STORY: Well, they're asking for all sorts of things. Cities and states will offer them free land, free buildings. Sometimes they'll build the building for them. They'll offer property tax abatements, sales tax breaks. Sometimes localities will even kick back some of the sales tax they collect to companies who come there.
They offer them reductions in their corporate income tax. It's just about anything you can think of that would be financially beneficial, it's being tried somewhere.
GROSS: Why? Why offer them that?
STORY: Well, they're doing it because local officials want companies there who hire people. And this is particularly so in this long, difficult recession that we've been going through. And companies know that they can get these. You know, they can get cash grants, and they can get these tax credits. And so they ask, and local officials do not want to risk the company leaving if it's already there or the company not coming if they don't meet their demands.
GROSS: So it's created this situation where cities are bidding for corporate headquarters against other cities. Cities are competing with local suburbs. States are competing against other states. Give us an example of the kind of bidding war that you researched.
STORY: Well, this is happening all over the place. And, in fact, it was a little surprising to me because when I began this project last February, I talked to a lot of local officials, and I said: Why are you giving out so many incentives? And one of the main reasons that officials told me was because they were afraid of companies going overseas and taking jobs abroad.
But then I got a lot of data about examples of recent deals that have gone to companies. And some of that data identified where the companies were considering, and I found that in many of those cases, they were only considering locations within the United States. And this matched with interviews I had with a lot of local officials who, when I pressed them for examples, would say well, yeah, in that case they were looking at us and the state next door.
And so it became clear to me, that this is one thing that's happening, that this has very much to do with competing within the United States, not just with foreign countries.
GROSS: You give an example of Kansas and Missouri and the bidding war between them for AMC and for Applebee's.
STORY: Yes, that is a big place with a border war. It's certainly not the only one. So, you know, Kansas City is right on the border of Kansas and Missouri, and what's been happening is that Kansas will offer to companies who are in Missouri to come over, and they'll give them tax credits. They have a very big tax program - tax credit program there called the PEAK Program.
And Missouri will match it. And I interviewed both governors, Governor Brownback from Kansas and Governor Nixon, and I actually asked them why they did this. There are local business leaders in Kansas City who have called on those two governors to agree to a truce, to agree to not give incentives to companies who are just moving across the border.
And I asked both Governor Brownback and Governor Nixon if the other one would agree, would you agree to stop this, and neither would.
GROSS: So doesn't this kind of bidding war just drive up the price that you have to pay to the corporation to keep them where you want them or to get them to relocate where you are? So, I mean, aren't Kansas and Missouri in this sense, like, making it harder for each other because they're driving up the price of what it takes to get corporate business?
STORY: Well, it depends on your perspective, Terry, because you can say on the one hand they're driving up the price of what it takes to get a company, but you could say on the other hand they're driving down the taxes that the companies have to pay.
So if you think that companies should pay lower taxes, then you might think that's fine, and in fact when I interviewed Governor Brownback from Kansas, that's what he said. He said - because I asked him is this a problem, you're losing out on tax money, and Kansas has been cutting public education funds, it's down quite a bit over the last couple years, even though they've restored part of it.
And I said is this a concern, you're losing out on tax revenues, and if you were not bidding against Missouri, you might not be losing out. And he said he thought companies should pay lower taxes and that, actually, this bidding war has meant that companies all over Kansas City on both sides of the state are paying lower taxes, and he thinks they should.
And in a sense these incentives are a bit of a hidden way that companies get tax breaks because - and get lower taxes - because for government, for a state government to lower the corporate income tax rate, they have to, you know, pass legislation. And so in places where maybe there isn't the push or the support within the state legislature to actually lower the rate across the board for everyone, what these, what tax credits do is they allow a governor or the secretary of commerce in the state to pick some companies for which the business taxes will be lower because they can use those credits they get to lower them.
GROSS: If you're just joining us, my guest is New York Times reporter Louise Story, and we're talking about her three-part investigative series "The United States of Subsidies," about states, counties and cities are giving up more than $80 billion each year in tax breaks and other financial incentives in order to convince large corporations to remain in that location or to relocate there. The idea is to either keep jobs or create new jobs in your city.
And one of the questions is: What are the consequences of these incentives, for taxpayers and for schools and police and fire departments and other public services? So you write that Texas awards more financial incentives to corporations - over $19 billion a year - than any other state. So what are some of the businesses that Texas has attracted through these incentives?
STORY: So Texas does award a lot, and in fact, it's not only the absolute size it's the biggest, $19 billion, but they also do a lot per person, because you might think oh, well, Texas is big, of course there's a lot. They don't do the most per person, but they're in the top 10 states for the amount per resident.
Texas has attracted some companies to move there, and that's been big for Texas, but another thing that they've really done, and a big one that's moved there, for instance, one of their largest ones, would be Samsung. Samsung, you know, is a semiconductor company. They're in Austin.
But a big thing for Texas has also been they've gone - Governor Perry from Texas - he goes to California, and to New York, and Illinois and various places and talks to companies about their expansion plans. And they have a strategy where they'll often say, OK, well, you're thinking of maybe hiring 100 people to your existing facility here in California. Well, why not set up a new office in Texas for those 100 people?
Because companies do move around, and companies do move for incentives, to a degree, but, you know, not every company, do the executives want to just move their headquarters to get some tax credits, right. They live in those places, they don't want to move. And so they may be happy to get incentives in another state for some of their other workers, because, you know, it's become more and more easy in the workplace for people to work remotely or be plugged in, and you don't - we're moving away from the old world where everyone was in one big corporate building.
So some companies in Texas that have gotten incentives to expand there, rather than to expand say in California, would be Apple. Apple had a very recent big deal in Texas this spring where they got something between $30 and $40 million to expand there. You've had Facebook set up an office there. Several tech companies have done that.
GROSS: What impact has the financial incentives Texas offers companies had on Texas schools and public services?
STORY: So Texas schools have had their budgets dramatically cut in the last couple years. They lost $5.4 billion in the most recent legislative cycle. By the time they lost that, Texas was already spending the 11th least amount per student in the country. So they were already at the bottom of the heap of what they spend per student, and they cut it further.
There's also, you know, a very high poverty rate in Texas. It's a little bit difficult to talk about exact causality because, you know, the general fund of a state is like a big bowl of water, you know, and you pour a little out on one side, well, which part of the glass or which part of the bowl did it come from? It's a little hard to say.
But certainly this amount of cash out the door in Texas and forgone tax revenues through different exemptions they have and tax breaks is money they don't have at a time that they have been cutting the school budgets.
GROSS: Another example from Texas, Amazon has promised to open new distribution facilities there and hire 2,500 workers in exchange for about $250 million in tax revenues, revenues that they wouldn't have to pay. So you do the math and say this amounts to about $100,000 per job in lost tax revenues, and most of the workers who would be paid, you know, with this new facility would get about 20 to $30,000 a year.
So if you're losing $100,000 in tax revenues per job, and each worker's only getting 20 to $30,000, you're paying a fortune for every job.
STORY: The prices for these jobs, according to local officials, have been going up. You know, my data looks at one, a one-year slice. I don't have something from five or 10 years to compare - ago to compare it to because people didn't collect this data before. But officials I've spoken with said it's gotten more and more expensive.
For instance, Senator Lamar Alexander, you know, he's a senator from Tennessee, he was the governor in Tennessee back in the 1980s when Tennessee won the competition to get Saturn built there. You know, General Motors was building Saturn there.
And they won, but I interviewed him, and he said, you know, to win companies like that today, it's gotten much, much more expensive.
GROSS: If you're just joining us, my guest is Louise Story. She's a reporter with the Investigative Unit of the New York Times, and she has a new three-part investigative series in the Times called "United States of Subsidies" about how states, counties and cities are giving up more than $80 billion each year in tax breaks and other financial incentives to corporations in order to convince the corporations to stay where they are or to move to the particular city or state or county that's negotiating with them. Let's take a short break here, Louise, and then we'll talk some more. This is FRESH AIR.
(SOUNDBITE OF MUSIC)
GROSS: If you're just joining us, my guest is Louise Story. She's a reporter with the Investigations Unit of the New York Times, and she just completed a three-part series called "United States of Subsidies," and it's about how states, counties and cities, in order to convince corporations to move to their location or to stay in their location, in order to get or keep jobs there, that these cities, states and counties are giving up more than $80 billion each year in tax breaks and other financial incentives to those corporations.
There's a whole new industry, really, that's been started around helping corporations get these tax breaks from the cities, states and suburbs that they're located in, and you write about an example of one of these companies, and these are basically consulting companies that basically act as agents or brokers negotiating the tax-break deal for the company, negotiating with the state or the city or suburb.
You write about one of these companies, Ryan, LLC, that's headquartered in Texas. It's helped corporations get a lot of tax breaks in Texas for locating there or for remaining there. Tell us a little bit about how this company works.
STORY: So Ryan is run by a person named Brent Ryan(ph), and it's formally an accounting firm, but over a decade ago they converted to be really more focused on tax breaks, tax refunds, incentives from local governments. And what they do is they work with a company, they go in, look at the company's locations. They'll find if there's places the company already has locations that perhaps they could perhaps go qualify for incentives on, and also when companies are considering moving around, they'll help them go talk to local governments and ask: What can you give me?
They're, you know, in over a couple dozen states. It's a very lucrative business for them because every award they get for a company, they typically get to keep about 30 percent of it for themselves. And one of the things that was an interesting theme I heard across the entire country was economic development officials, the local officials, would tell me they to some degree relied on the private consultants to tell them what the companies wanted and to tell them which companies were looking around.
But these consultants are not neutral. They're not going to say oh, you know, all the company wants is X, Y, Z, and they'll come for that bare minimum. They're going to say they want 10 times that because their financial incentive is to get as much as possible.
You know, the way that Ryan actually came onto my radar was I had already been to Texas this spring and met with the head of economic development for Governor Perry's office, and then they were in New York, Governor Perry's staff was, with a bunch of local officials from Texas. They were in New York to learn what New York companies wanted.
And when they were in New York here at a hotel, they met with a consultant from Ryan who's based in New York. So I went to that meeting, and they mentioned him to me, and I said oh, who's this Ryan. So here they are, they're getting advice from this Ryan manager in New York, and then back, you know, in Texas, the Ryan people will be promoting the companies and pushing for a good deal from them.
So these consultants really play a big role on both sides, and they get a big chunk.
GROSS: A big chunk, you say maybe 30 percent. So that means if I'm a city, and you're a corporation, and I'm offering you tax breaks on school taxes and on payroll taxes so that you can bring jobs to me, my city, that a lot of the money, a lot of the breaks I'm giving you are actually going to the consultants who negotiated the deal.
STORY: That's right, and actually, you know, it's a very lucrative business. It's not just firms like Ryan. It's also a lot of places that you have probably heard, like Deloitte, the consulting firm, and Ernst and Young, the accounting firm, and big real estate firms, CBRE, have entire units dedicated to haggling with these localities.
But it's big money for the consultants, and in fact it's been so lucrative for Brent Ryan through his firm that he is one of the biggest political donors, not only in Texas, but he's also a big political donor in other states. And so he haggles for these companies, and he helps them get these lucrative deals. He gets a slice, but then he's also very influential in politics through his donations.
GROSS: So can you talk a little bit more about the connections between the people who negotiate the tax breaks for corporations and the politicians and the legislature?
STORY: Well, you know, at a firm like Ryan you can see many connections between their business and the political sphere. For instance, Ryan has some state legislature members on staff. In a variety of states, they have hired state legislators because, you know, some members of the legislature, in fact, in a lot of places, they work part time. It's not a fulltime job.
So I wrote about one in Texas, his name is John Otto. He's been the vice chair of some key committees in the Texas state legislature, including the House Ways and Means Committee, and, you know, they deal with a lot of tax issues. But he's also an accountant, and so when he's not making laws for Texas, he works for Ryan.
GROSS: So I found this next thing very - kind of surprising, that Ryan LLC, this company that acts as the agent, basically, to represent the corporations in their negotiations for tax breaks with cities and states, that Ryan LLC sued a microprocessor company called Advanced Micro Devices for not pursuing a way to save more than $30 million in their own corporation's taxes.
The chip maker didn't think - you say the chip maker didn't think it was worth pursuing this tax break for itself. So why did Ryan LLC sue them?
STORY: Well because, you know, Ryan works on commission. So when AMD, that semiconductor company, decided they did not want to pursue the tax break, that would mean that Ryan would not get a cut of the money. And so, you know, Brent Ryan is the first to say he's very aggressive. He'll tell you that if you ask him.
And so he was aggressively pushing the company to pursue it, as the court record shows, and they did not want to. But this raises broader questions about these consultants. It's not just one isolated case. It raises questions about when companies already know, for instance, they don't want to move, do they have consultants coming to them and say, well, you've got to shop around anyways because then you'll get more money from your local government.
These consultants are such intermediaries for the information between the companies and the local officials, no one even really knows what's true. So if a local official is being told by the consultant, oh, they're going to move if you don't give the money, you've got to remember these consultants are incentivized because of the cut they get to push for the most money.
So this is a problem in this whole system.
GROSS: Louise Story will be back in the second half of the show. Her three-part New York Times Investigative series "United States of Subsidies" concluded yesterday. I'm Terry Gross, and this is FRESH AIR.
(SOUNDBITE OF MUSIC)
GROSS: This is FRESH AIR. I'm Terry Gross, back with Louise Story, The New York Times reporter who wrote the three-part investigative series, "United States of Subsidies." It's about how corporations are demanding tax breaks and other financial incentives from local governments before agreeing to stay in the region or move there. And because keeping and creating jobs is so important, local governments have entered bidding wars against each other in their efforts to attract or keep companies in your area.
So it seems nowadays that all cities want movies to be shot there. And there's a lot of incentives that are paid to the movie companies for that privilege. Why is it considered such a payday for a city to have a movie shot there?
STORY: Well, you know, there's a buzz that comes along with Hollywood coming to town. This happens all over the country. In fact, there's about 45 states that offer financial incentives to the film industry. It's one of the best firm incentives, but it's also an industry for which incentives are relatively new.
There were not many incentives for the film industry in the 1990s. And what happened was that Canada started recruiting some moviemakers away from New York and L.A. And Louisiana took a look at that and said, oh, wow. Hollywood will go for money? And Louisiana created a very lucrative program, offering a 20 percent rebate on what movie companies spend there, and movies started going to Louisiana.
And then when other states saw that they said, oh, wow. We should offer that, too. And it's amazing. It's astounding how many new programs for filmmakers have been created just in the past 10 years. And so then what happened was New York and L.A. - where it used to be clear that people would want to shoot movies - they had to create their own programs to convince moviemakers not to move. And so now, the free-flow of this movie incentive money has become wrapped into the budgeting process of films.
I talked to numerous movie producers, and, you know, they work on the budgets. And they told me, now you can't tape very often without an incentive. Because if you try to tape without an incentive, then the financial backers say, well, go get an incentive, because it's offered so many places.
You know, I interviewed a fellow named Michael Benaroya. He is from a wealthy Seattle real estate family. Now he bankrolls films. He was the backer of "Margin Call," that movie about Wall Street. And, you know, it's a movie about Wall Street. It was shot in New York. I talked to the movie's director and one of the other producers. They said it had to be shot in New York. They couldn't shoot it anywhere else, that they needed that feeling. They didn't want to fake it.
So I asked Michael Benaroya, who financed it: OK, well, why should New York give you incentives? Because, you know, your director and the other producers said it had to be here. And he said, well, you know, he's an investor. He could invest in any industry. He's not a long-time Hollywood person. And he said one of the reasons he invests in the movie industry is because they're such big subsidies there. And he told me he would never make a movie without an incentive. But, of course, you know, back in the '90s, when they didn't exist, people made movies all the time without incentives.
GROSS: So it was surprising to read that Oliver Stone's movie that was the sequel to "Wall Street" - that I didn't see, but I understand it has a kind of anti, like, capitalist theme - that film got incentives. Michael Moore's story, "Capitalism: A Love Story," which is in part about corporate welfare, that film got incentives to shoot in Michigan. I'm not saying that Michael Moore necessarily negotiated this himself or that he had any say over those incentives, but it is kind of ironic.
STORY: It has become so standardize in this movie business. You know, in fact, recently, I talked with an official from the Motion Picture Association, and they said, well, these incentives definitely work. I said, well, how do you know? And they cited a few reports that, you know, have some figures about jobs there, which, you know, people have questions. So, but put that aside, he also said, well, we know they work because look at how many states offer them.
And the problem is, I talked to a lot of state officials, and they say, well, we wish we didn't have to offer them, but we have to offer them because everyone else offers them. So this is what, you know, you'd have business school professors call, you know, collective action problem, because, you know, states feel like they've got to do it because other states are doing it.
GROSS: So one of your articles deals a lot with General Motors and what happened when it went bankrupt before it was bailed out. And you say that there were 50 properties that GM had plants on that had made deals with the city or the county that they're in for financial incentives. So what happened to those places that had agreed to the financial incentives after GM went bankrupt?
STORY: Well, you know, throughout 2008 and going into 2009, it was obvious to people in any community that GM had a big presence, that the carmaker - like the other big carmakers - was in big trouble.
And so you had a lot of communities preemptively trying to offer even more money. They had already offered a lot - going back, you know, sometimes 10, 20 years - but offering more money to keep GM. You know, one community, for instance, that I talked with was a place called Bay City, Michigan, and they created a 100-year tax abatement for GM to get GM to stay. And, in fact, it worked for them. GM did stay through the bankruptcy.
But a lot of other places that offered incentives, like Moraine, Ohio and Janesville, Wisconsin were not as lucky. And in 2009, as part of the bankruptcy, the company left a bunch of properties behind in what became a legacy GM, an old GM. And, you know, the company actually is a new company, and it doesn't have the obligations to those old properties. And those properties are being sold now, very slowly. There were local officials in states and cities tied to about 50 of those properties that had given incentives. And they were dismayed when they saw, you know, we gave you this money to help with jobs, and now you're leaving.
One place that I spent a lot of time talking to people about was Ypsilanti Township in Michigan. They have a very storied facility there. It's called the Willow Run plant. It was actually originally used back in World War II to make bomber planes, and then later it was a Ford facility. And then pretty soon after that, it was GM for most of the last 50 or so years.
And they thought they had a deal with GM, that if GM ever left, they could clawback some of those incentives, that they could demand some of that money back. So they thought they had covered themselves, because they'd actually had a rough experience with GM in the early 1990s, when GM shut another one of the plants there.
And so they thought they'd build in these safeguards. And it turned out that GM was able to leave those sorts of contractual obligations behind in the bankruptcy process. And so Ypsilanti Township has a claim in right now still in the bankruptcy proceeding, but it doesn't look like it's being taken up. And even if they do get those clawbacks, you know, it won't fix all of the harm that has happened. It's a place that's really having a lot of trouble.
GROSS: You mentioned that Ypsilanti had an earlier bad experience with GM. What was that problem?
STORY: This is a very notable case in the history of economic development, because when GM closed one of the two factories in Ypsilanti, Ypsilanti sued. It was a factory that had made the Chevy Caprice. And Ypsilanti sued and said, wait a minute. According to our agreement from you back in the late '80s - there was an agreement, and now they're suing in the early '90s. According to our agreement, you said you were going to create jobs. You were going to keep these jobs, and you were going to maintain employment.
And, actually, the lower court in Michigan found for Ypsilanti and agreed with the township that GM could not pack up and leave, that GM had made that agreement. But then it did go to appeal. And in the appeals court, the judge said these sorts of agreements are not promises and did not hold GM to them. But it's a very important case because, of course, if GM had been held to that agreement, you know, there are companies all over that have these sorts of agreements. And so it could have wide repercussions.
GROSS: There's a group of taxpayers in Michigan and Ohio that sued DaimlerChrysler, basically saying these kinds of financial incentives, tax incentives for big corporations aren't fair to taxpayers. Would you explain what that suit was about?
STORY: That was a really interesting case. So in the late 1990s, the state of Ohio and the city of Toledo gave a bunch of money to DaimlerChrysler for the Jeep car. And this is back - you know, Chrysler and Daimler are actually separate companies now, but they were the same company back then.
And so taxpayers from Ohio filed a suit. And what they said was it's unfair for us to have to pick up the tab for this money you're giving to DaimlerChrysler. It's just unfair. And then in their suit, they joined with some other taxpayers from Michigan. And those taxpayers said: This is a violation of the Federal Commerce clause, which governs interstate commerce, because it's giving Ohio an unfair advantage to get this facility, which, you know, should also - DaimlerChrysler should consider Michigan. But, you know, it's skewing the playing field.
And so this case, it, you know, went all the way up to the system on appeal. In the circuit courts, the court ruled for the taxpayers, and actually did rule that it was an unfair advantage for a state to give these incentives out. Then the case went to the Supreme Court, and you had all the big automakers, a lot of companies, as well as a lot of local governments write briefs to the Supreme Court, saying these are absolutely essential for us to be able to have these incentives to compete.
Ultimately, the Supreme Court ruled that the taxpayers who had brought it didn't have the legal standing to bring the case, and so then the case ended. So the Supreme Court did not rule on whether incentives worked or whether incentives were fair or not. But certainly, if they had ruled on that, it would have been pretty important.
GROSS: Well, if you're just joining us, my guest is New York Times reporter Louise Story. She's with the investigations unit. She has a new three-part series in The Times, which is called "The United States of Subsidies."
Let's take a short break here, and then we'll talk some more. This is FRESH AIR.
(SOUNDBITE OF MUSIC)
GROSS: If you're just joining us, my guest is Louise Story, a reporter with the investigations unit of The New York Times. She has a new, three-part series called "The United States of Subsidies," about how states, counties and cities are giving up more than $80 billion each year in tax breaks and other financial incentives in order to convince corporations to either remain in that city or state, or to relocate there. Their idea is to either keep jobs or create new jobs.
So I don't know if you have these figures off the top of your head, but if you look at, say, a place like Texas, which is really ahead of the pack in the number of dollars it gives to corporations in financial incentives, like, what size of the state budget is that? Like, proportionally, what are we talking about in Texas or in some of the other states that are very actively recruiting corporations through financial incentives?
STORY: Well, in Texas, it comes to out to about half of their budget. So that's very sizable. There's other places where it comes out - you know, like, Oklahoma, it comes to about a third. You know, Maine, it comes out to just under a fifth. So it's sizable parts of their budget. Now, of course, it's not all cash out the door. Some of it are cash grants, but some of it is tax revenues they're just not getting.
GROSS: You know, somebody who you interview in your series asked the question: Where does economic development end and corporate welfare begin? Can you make the case on each side, one that these financial breaks are economic development, and the other that, no, they're really corporate welfare?
STORY: Yes. So the argument that they're economic development is if you give money to companies and they do create more jobs than they would have, well then the people in those jobs, you know, will have money to spend in the local economy. Those workers will also pay income taxes. And so it can have a multiplier effect, because also, they'll buy supplies for the company.
And so that's the argument that it's economic development, that if you can bring companies in, sometimes you can create a whole industry. You might target - you know, Austin, for instance in Texas, has historically been big semi-conductor space, which is where they make chips for things like iPhones. So if you bring all those in, you can say, oh, and then, you know, they'll have suppliers. And so it creates a local economy, perhaps, where one wasn't.
The argument that this can border into the corporate welfare has to do with: Who are the ultimate beneficiaries? You know, who really benefits? I had an interesting conversation with a producer of a movie, the producer of "Margin Call." And I asked him, I said: When you get these incentives, do you pay the workers more because you got these incentives? Because your profits will be higher by having the incentive than if you hadn't had it.
And he said, no, no. I pay them the same. I said, so who gets the financial upside from the incentive? And he said he does. And, you know, he does, and he shares a little bit of the profits with the director and the star actors, but not the camera crew, the make-up people.
And so there's a distribution question here, because, again, if you're giving money to companies and what it does is they - if what they're doing is behaving as they were already going to behave, well, then what you're doing with the money is you're just boosting their profits. And ultimately, profits are not shared equally in a company, of course. They go predominantly to executives and to shareholders and, you know, wealthier people.
And so there's just a whole distribution element of this that goes a little bit under the radar because no one's been looking at the national picture.
GROSS: So, you know, it seems that in the '70s and the '80s corporations were really (technical difficulties) unions to lower wages, to accept less money. And if not, corporations were threatening to relocate to other countries. And many corporations, in fact, did. And now it seems like, well, the squeeze is on the cities, states, counties, you know, give us more breaks.
STORY: Well, it's interesting you mentioned unions because in city council notes I saw from a number of meetings about local incentives, I would see often union representatives attended these city meetings when they would vote on whether to give an incentive to a company. And the unions generally support the incentive and local officials in many places told me sometimes it was hard for them to go against the incentives because also, you know, they didn't want to alienate the local unions.
And if you think about it, you can see, you know, why this is the case. And that's because if you've got a plant that's open somewhere, you know, the union workers there don't want it to close. And so they turn out at these city council meetings and say, yes, please support this incentive. But of course they don't have the whole corporate picture on what's going on. They don't really know if it would leave or not. And, you know, to other tax payers in those places, you know, some people say it might not be fair that they're then subsidizing the jobs for those particular workers.
GROSS: Was this a hard story to report? I mean, I don't imagine that, like, cities and states or corporations were enthusiastic about opening up their books to show you what the incentives look like.
STORY: Well, you know, at first I was really surprised that there was not already a federal repository on these things because they're so impactful on local budgets. You know, the U.S. Census does have every local community file a report - it's called a CAFR - every year about tax income and their expenditures. But they don't ask them about incentives.
So when I realized that, I thought, oh, gee, how am I going to get a handle on the cost? And so what I did is, you know, every state has a website that's something along the lines of we are open for business. And it's a site, you know, talking about how great the state is. And so I would go to those sites and most of them have a link to their incentives.
So I'd go look at what they said were their incentives and what they said, you know, why companies should come. And then I would call them up and look for reports on their websites and various agencies. In many states I had to go between four or five different agencies because these programs are not run in one central place in most states.
I would call them up and I would say, well, how much is this program costing you in the most recent year you have data for? And if they had it, you know, most places were happy to give it to me. But one challenge that I hit was a lot of places don't know. For instance, Connecticut has a corporate income tax exemption for insurance companies and for certain types of financial firms like hedge funds and some trading firms.
So I called, you know, Connecticut's Department of Revenue. I said, OK, well, so how much is this worth to all these financial companies? And they said, well, you know, we don't know because since they don't have to pay corporate income tax they don't file anything with us about how much money they're making. So therefore we don't know what we're giving up.
So, you know, how can you evaluate in a place like Connecticut if it's worth it if you don't know what you're giving up? Or in some cases, like in the case of Alaska and several other states their programs, they won't tell me the amount because they say they are protecting tax payer confidentiality. Meaning they're protecting the confidentiality of companies there.
GROSS: Well, Louise Story, thank you so much for talking with us about your series.
STORY: Thank you.
GROSS: Louise Story's three-part New York Times investigative series "United States of Subsidies" concluded yesterday. You'll find a link to the series on our website freshair.npr.org. Coming up, a movie that was infamous as a disaster is being reconsidered because of a new director's cut that has been released on DVD. John Powers reviews the new edition of the 1980 Western "Heaven's Gate" after a break. This is FRESH AIR. Transcript provided by NPR, Copyright NPR.