Sustained Outrage

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There’s a new report out this morning from the folks at Good Jobs First, which they summarize this way in their press release:

State and local governments waste billions of dollars each year on economic development subsidies given to companies for moving existing jobs from one state to another rather than focusing on the creation of truly new positions … Summarizing studies demonstrating that interstate job relocations have microscopic effects on state economies, the report reviews the history of economic competition among the states and presents eight case studies of those areas of the country where job piracy is currently most pronounced.

Among the highlights:

— In the Kansas City metro area, companies have been getting eight-figure subsidy packages to move from the Missouri side to Kansas, or vice versa.

— In Texas, the “deal-closing” Texas Enterprise Fund as well as a privately financed marketing group called TexasOne are used to brazenly lure companies from many states, including California.

— New Jersey has doubled down on both job piracy and job blackmail payoffs, continuing to lure firms from New York City-many of them Wall Street firms that were likely to come anyway.

— Georgia, which we rename the Poach State, stunned officials in Ohio when it successfully lured the headquarters of NCR from Dayton, where the company had been based for 125 years.

— Tennessee embodies all the policy contradictions. Its largest city, Memphis, is frequently the victim of poaching by bordering Mississippi, yet Tennessee created a whole new subsidy program to lure the North American headquarters of Nissan from southern California.

— The booming Charlotte region has job growth most states would die for. Yet instead of managing their growth, the 16 counties in North Carolina and South Carolina routinely poach jobs from each other, using both state and local subsidies.

— Rhode Island has long pirated jobs from Massachusetts, but when it gave a very large package to lure video game maker 38 Studios, founded by retired Boston Red Sox star Curt Schilling, the deal soon blew up and criminal prosecutions are now under way.

— Huge job blackmail subsidies have left many taxpayers bitter in states such as Illinois and Ohio, and Sears Holding Corp. has continued to shed jobs despite getting a second nine-figure retention deal from Illinois.

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Shedding light on Stamping Plant tax deal

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The South Charleston Stamping Plant will be home to Gestamp, an $11 billion international automotive stamping company. Gazette photo by Chip Ellis

The big news in the Kanawha Valley this week has been the announcement of plans to reopen the Charleston Stamping Plant, creating perhaps as many as 700 jobs working for the company Gestamp at the facility in South Charleston. Media coverage made brief mention of a tax break plan passed by South Charleston to try to land the project:

The city council approved an ordinance last week that will cap the business and occupation tax at $365,000 a year for companies that meet certain criteria of employment numbers and revenue.

And now, the good folks at the West Virginia Center on Budget and Policy have tried to put a number on how much this tax break is going to cost.  They explain:

As for the tax incentive, it involves a credit against the local B&O tax, which the plant must meet certain sales and employment requirements to receive. The credit is for 50% or 25% of the B&O tax liability, depending on the number of years of operation. The amount of the tax that can be owed is also capped, at $365,000 per year for the life of the credit.

The credit would go into effect in the facility’s fifth year of production, if it has sales of $100 million and meets the employment requirements. It is impossible to know what the sales will be four years or 12 years down the road, so we are assuming that they are the minimum requirements set forth in the tax credit.

In short:

Over the time frame, the credit would reduce the amount of B&O taxes owed from $14.6 million to $10.4 million, a savings of $4.2 million

But, they explain:

The cap on the tax is actually more valuable than the credit over the life of the credit … with the cap in place, the facility would only owe $5.1 million, an additional savings of $5.3 million. This is because, beginning in year 9, the amount of tax owed is greater than the $360,000 cap. So while the credit falls from 50% to 25%, the size of the tax break actually increases, due to the cap.

The Center concluded:

To be clear,  this analysis is not suggesting that this isn’t a “good deal” for the state. We think it is great that there is a possibility of creating new good paying jobs. Like we’ve said a million times, we are all for a strong economy and for government to play a smart role in economic development.  Our only aim with this post is to shed some light on what the fiscal impact might be on the deal.  Since these job subsides are taxpayer funded, the public has a right to know the costs and benefits. While history shows that deals like these often go sour,  we hope it not only works out but that it revitalizes auto parts manufacturing in the region.