cartoon by Khalil Bendib
Lurking within the records of most cities and states in America there lies a scandal.
A tax scandal. A jobs scandal. A corporate and political scandal.
It's the Great American Jobs Scam: an intentionally constructed system that
enables corporations to exact huge taxpayer subsidies by promising quality jobs
- and then lets them fail to deliver. The other benefit often promised - higher
tax revenues - often proves false or exaggerated as well.
Take for example: New York City, which must hold the record for job blackmail,
though it is hardly alone. One study of 80 companies that had received "retention"
subsidies from the Big Apple found that at least 39 had later announced major
layoffs, or they had entered into large-scale mergers or put themselves up for
sale - events that usually trigger mass layoffs. A detailed analysis of 10 subsidized
companies found they had a total loss of more than 3,000 jobs.
Bank of America, for example, received two "job retention" subsidies
from New York City, in 1993 and in 2004. The 1993 subsidy was given to induce
the bank to move employees into the World Trade Center following the 1993 bombing.
In exchange for at least $18 million in benefits, the bank promised to retain
at least 1,700 jobs in Tower One for 15 years. Instead, it laid off at least
800 people in 1997 after merging with Security Pacific National Bank. This was
such a severe drop in employment that the city canceled the subsidy in 1998,
but didn't require Bank of America to refund any past subsidies.
After it was displaced by the attacks of September 11, 2001, Bank of America
won a new subsidy in 2004 for the consolidation of several offices into a new
headquarters building in midtown Manhattan. The deal is supposed to retain 2,995
jobs and create as many new jobs over 25 years. The state and city offered a
total package of $82.6 million. The Bank also got $650 million in triple-tax-exempt
"Liberty Bonds," special low-interest loans enacted for New York City
following the September 11 attacks. But shortly after the deal closed, Bank
of America merged with Fleet Bank (which had also received an NYC job-retention
subsidy). The new entity announced it would cut a total of 17,000 jobs nationwide.
The overall job impact on New York City was unknown as of late 2004.
$50 Billion A Year
Scams like this cost taxpayers an estimated $50 billion a year in total spending
by states and cities. The bottom of the iceberg - in every sense of the word
- is the tax breaks. Those granted by states - income, sales, and excise taxes
- are the least visible, least accountable, and most corrosive means by which
states fund job creation. Those granted locally - in particular, property tax
abatements and diversions - are especially harmful to schools.
Look up the names of corporations that have received taxpayer subsidies in
the name of jobs. Almost every big company has gotten them. In fact, the average
state now has more than 30 economic development subsidies, many of which are
locally granted by cities and counties. These subsidies include property tax
abatements, corporate income tax credits, sales and excise tax exemptions, tax
increment financing, low-interest loans and loan guarantees, free land and land
write-downs, training grants, infrastructure aid - and just plain cash grants.
Chances are you will find companies - many companies - that have failed to
create or retain as many jobs as they said they would. Companies that are paying
poverty wages or failing to provide healthcare to their employees. Companies
that are abandoning our cities and sprawling onto farmland and natural spaces.
Even companies that are outsourcing jobs offshore.
Dig a little deeper and you'll undoubtedly find companies that have not created
any new jobs - even some that have actually laid people off since they got the
subsidies. Other companies that have gotten paid just to move existing jobs
from one place to another, where they are proclaimed to be "new jobs."
How can companies get away with this? Because the system is rigged. Corporations
have it down to a science. They have learned how to chant "jobs, jobs,
jobs" to win huge corporate tax breaks - and still do whatever they wanted
to all along, including actually laying people off.
The impact of call centers points to the prevalence of corporate job scams
in rural as well as urban areas. Call centers - offices where people make outbound
calls trying to sell things or receive inbound calls for customer service -
are a major source of employment in the United States. Trade associations claim
they account for about three million jobs. They are often touted for their job
creation in small cities and rural areas. Requiring inexpensive equipment that
takes little time to set up, call centers can create jobs quickly, especially
now that fiber-optic telephone lines are more common. But they can also leave
town just as fast.
Tampa-based Sykes Enterprises Inc. operates call centers in the United States
and abroad. The company has a widespread history of receiving subsidies, typically
in small cities or rural areas. Indeed, a company vice president once said:
"Every one of our locations is a result of some incentive plan. If a community
is inviting Sykes to build a call center, they are expected to deed the land
for two call centers to us, and give incentives of at least $2.5 million."
The trouble is, employment in the facilities fluctuates a lot, and the company
has closed many of them.
In Kansas, the city of Manhattan and the state offered Sykes a subsidy package
of about $6.2 million in 1998 based on its promise to create an estimated 432
jobs. From the city came a $2.6 million cash grant, free land, $500,000 for
site improvements, and property tax reductions for five years. The state provided
$550,000 from an "Economic Opportunity" fund, enterprise zone tax
breaks worth nearly $1.8 million, and a project and training grant of $800,000.
In June 2004, the remaining 256 workers lost their jobs when Sykes moved the
work to Asia and Latin America. The Manhattan plant closed only six months after
the enterprise zone tax breaks expired.
The job scam industry relies on an all but unknown group of key actors attracted
by the $50 billion-a-year pot: secretive site location consultants who specialize
in playing states and cities against each other; "business climate"
experts, with their highly politicized interpretations of tax and jobs data.
The system includes an organized corporate network orchestrating attacks on
state tax systems; rented consultants proffering rosy projections about job
creation and tax revenue; subsidy-tracking consultants to help companies avoid
leaving money on the table; and even an embryonic industry that's helping businesses
buy and sell economic development tax credits.
Site Location Consultants
Site location consultants are among the most powerful yet least regulated consulting
industries in America. Most avoid publicity like the plague, yet they are in
the middle of the majority of high-profile deals. Their tactics they use--pitting
one location against another in a job creation auction-- have raised serious
questions about conflict of interest, because many work for both sides of the
street: for companies looking for places and for places looking for companies.
"Site consultants" said the Baltimore Sun's Jay Hancock, "think
about states the way 17-year-old boys think about 17-year-old girls.'
This dual role gives them inordinate power, and they are central figures in
the creation and escalation of the subsidy-bidding wars for jobs. They have
a monetary self-interest in this escalation, because it makes their work more
valuable and because they sometimes work on commission, taking a cut of the
subsidies they help companies negotiate. They are the rock stars in expensive
suits at economic development conferences, before whom public officials line
up to give their cards. They are the shock troops of the corporate-orchestrated
"economic war among the states" that is slashing corporate tax rates
and manipulating state and local governments everywhere
Despite billions spent luring higher wages, better benefits, a stronger tax
base, or better public services, in the last quarter century most workers' wages
have stagnated or fallen, healthcare has become less affordable and available,
and pensions have shrunk in number and value. States and cities have developed
structural budget deficits, forcing cutbacks in everything from school programs
to infrastructure maintenance.
And those cutbacks are particularly hard when coupled with poverty wages. An
analysis of more than 500 deals all over Minnesota found that almost two-thirds
of the companies it had subsidized were paying wages so low a family of three
would qualify for Medicaid, and more than a fourth paid so low the same family
would qualify for food stamps.
In Kentucky, in just one two-year period, the state had granted tax breaks
to at least 31 companies that paid average wages below the federal poverty line
for a family of four, according to Kentucky Economic Justice Alliance. In the
same period, KEJA found 10 deals in which tax credits exceeded $100,000 per
When uniform maker Cintas announced a sewing plant in Kentucky's city of Hazard
in 1993, it was given a $1.6 million building and $2 million of equipment, no
corporate taxes, plus the company got to keep taxes deducted from the employees'
paychecks. The pay: $5 an hour. Bill Bishop of the Lexington Herald-Leader who
had been documenting how the Kentucky Rural Economic Development Act and other
subsidies were attracting poverty-wage jobs, argues that poor wages create no
tax base and that "low-wage industries, once settled in an area, work hard
(and successfully) to keep high-wage businesses out." Kentucky, he noted,
was following the path of Arkansas, where a retired economist who had studied
the subsidies-for-low-wages strategy called it "rural ghettoization."
Declining schools and roads drove prosperous people out, putting the economy
and tax base into a downward spiral.
Of course, the all-time poster child for hidden taxpayer costs must be Wal-Mart.
The world's biggest retailer has benefited from more than $1 billion in bricks-and-mortar
subsidies. Those are the front-door costs. The back-door costs are the safety-net
expenses to help Wal-Mart workers and their families survive on everyday low
wages. U.S. congressional staff have estimated that each Wal-Mart store with
200 employees costs federal taxpayers $420,750 a year. That's when you add up
costs for programs such as State Children's Health Insurance Program, Section
8 housing assistance, free or reduced-price school lunches, the Earned Income
Tax Credit, and low-income energy assistance.
At the core of this scandal are corrupted definitions of "competition"
that obscure cause and effect. We must create no-tax zones for factories, say
the governors, to be competitive with other states - even though the whole country
is bleeding manufacturing jobs and the obvious issue is globalization. We have
to create a new TIF district (that's "tax increment financing") and
steal shoppers from neighboring suburbs, say the mayors, to compete for tax
base - even though malls in older areas are dying.
Those who peddle and those who buy into these corrupted definitions salute
the corporate bottom line while thumbing their noses at common sense, social
science, and good government. These corruptions are the deliberate creations
of a 50-year campaign by corporations to divide and conquer the states - as
well as the suburbs. This corporate gospel of competition preaches that governments
at all levels must not be allowed to cooperate with each other. Public relations
campaigns, consulting studies, lobbying of federal and state legislators, litigation
all the way to the Supreme Court - companies will do whatever it takes, but
governments must not be allowed to work together against the corporate assault.
They must be kept in the dark and allowed into the room only when it's time
to talk about subsidies. Localities must compete for tax base by pirating jobs
and retail sales from each other, even though this means chewing up farmland
for wasteful sprawl and throwing away older areas, poor people, and past infrastructure
At every level, this system demeans and degrades public officials: the economic
development official forced to bid for an unknown company against unknown competing
sites; the school board members who have no say in the property tax abatements
that will corrode their budget; the revenue director whose sober advice is upstaged
by the frothy projections of an economist rented by the Chamber of Commerce;
the governor who overspends on a "trophy" project because she so fears
being known as "the governor who lost us Mercedes-Benz." Those who
would dare to ask an impertinent question are quickly singled out for ridicule
and isolation: they must be against jobs.
These blindfolded public officials practice job creation guided by wolves posing
as Seeing Eye dogs. Companies, on the other hand, often know just where they
want to go (or stay), but create a bogus competitor in order to "whipsaw"
locations against each other and get more subsidies from the place they intended
to go to all along.
A retired North Carolina construction executive who had used this scam admitted
during a lawsuit deposition:
"I hate to give the example, but we decided very early in the game we
were going to locate somewhere in the Winston-Salem/Greensboro area and narrowed
it down to Kernersville rather rapidly; but spent a lot of time in Siler City
and Asheboro and other communities hearing their story, primarily to use as
a leverage to get all we could out of Winston-Salem. Now I give you that as
a local example. But a more recent one - in Dickson, Tennessee, we had about
ten west Tennessee municipalities chasing us with all kinds of offers; although
we knew through the whole process it was going to be Dickson. And it was unfair
and probably, as bad as it sounds, we used the others to get what we could out
of where we were going in the first place. . . . you know, I've been around
it a long time; but to me it's the process. Usually, you know early where you
are going, and you use your leverage."
Besides creating corporate windfalls, the Great American Jobs Scam is causing
all manner of collateral damage. It was used to blunt calls for trade reform
long before NAFTA. It bankrolls the pirating of one state's jobs by another
state. It corrodes state budgets. It subsidizes private for-profit prisons -
and hundreds of Wal-Mart facilities. And it is used to help bust unions. It
subsidizes poverty-wage companies that saddle us with hidden taxpayer costs
such as Medicaid and Children's Health Insurance Program bills. It is helping
create a massive tax-burden shift away from big companies onto working families
and small businesses. It is diverting precious resources away from the two investments
that really do grow good jobs - skills and infrastructure. And just don't get
me started about stadiums.
Winners and Losers
That the scam could get this far out of hand suggests a profound breakdown
in whatever consensus we ever had about corporate responsibility to our society.
The way you handle your money is your value system. By their rampant tax dodging,
large corporations are collectively saying: We don't care if the schools fall
apart and the bridges are crumbling and the public health systems are impoverished
and college is becoming unaffordable. We are not all in this together. We are
not investing in our communities' futures. We are disinvesting.
The only clear winners are large corporations. In return for building new facilities
in many states, companies are actually getting negative income taxes. Subsidy
packages routinely exceed $100,000 per job. Guess who's getting stuck with the
tab. When the big boys pay less, either the rest of us pay more or the quality
of our public services declines - and usually it's some of both.
And even while individual corporations rack up short-term profits from tax
breaks and publicly funded incentives in the name of job creation, these policies
actually harm not only the public, but the business climate as well. When big
companies pay less, governments are forced either to raise taxes on homeowners
and businesses that don't get the tax breaks or to cut the quality of public
services (with education taking the biggest hit), or some of both. And the irony
is that "the single most important factor in site selection today,"
according to Robert Alty, perhaps the country's most experienced site location
consultant, " is the quality of the available workforce." And that
quality is undermined by poor education, lack of social services and below poverty
This is what economic development in the United States has become. Welcome
to the Great American Jobs Scam.