This document discusses corporate welfare and strategies for reform. It begins with a brief history of corporate subsidies from the railroad era to modern programs created in response to unemployment. It then defines and provides examples of different types of corporate welfare programs and estimates their large costs. It discusses arguments for and against corporate welfare and whether these programs achieve their goals of job creation. The document examines failed reform attempts and barriers to reform at both the federal and state/local levels. It concludes by comparing more transparent legislation in Minnesota to less transparent programs in Florida that are exempt from open records laws.

1. MONEY
FOR
NOTHING
Strategies for
Corporate Welfare
Reform

2. HISTORICALHISTORICAL
 Began with subsidies and rights of wayBegan with subsidies and rights of way
during railroad eraduring railroad era
 Government non-intervention in economicGovernment non-intervention in economic
regulation late 1800s to early 1900sregulation late 1800s to early 1900s
 New Deal and expansion of federalNew Deal and expansion of federal
economic programseconomic programs
 Modern corporate welfare in response toModern corporate welfare in response to
unemployment and stagflation in earlyunemployment and stagflation in early
1980s1980s

3. WHAT IS IT?WHAT IS IT?
 Property or income tax deferrals,Property or income tax deferrals,
abatements or creditsabatements or credits
 Tax Free Enterprise zonesTax Free Enterprise zones
 Tax exempt bondsTax exempt bonds
 Tax Increment Financing (TIF) zonesTax Increment Financing (TIF) zones
 General tax code changes (e.g.General tax code changes (e.g.
accelerated depreciation or off-shoreaccelerated depreciation or off-shore
havens)havens)

4. WHAT IS IT?WHAT IS IT?
 Low interest loans or loanLow interest loans or loan
guaranteesguarantees
 Subsidies for infrastructure,Subsidies for infrastructure,
training or advertisingtraining or advertising
 No bid contract awardsNo bid contract awards
 Cash grantsCash grants

6. HOW MUCH DOES IT COST?HOW MUCH DOES IT COST?
(Federal, 1996)(Federal, 1996)
 $85,000,000,000$85,000,000,000
 CATO INSTITUTE (Libertarian)CATO INSTITUTE (Libertarian)
 $167,000,000,000$167,000,000,000
 CENTER FOR RESPONSIVE LAW & ESSENTIALCENTER FOR RESPONSIVE LAW & ESSENTIAL
INFORMATION (Liberal)INFORMATION (Liberal)
 $265,000,000,000$265,000,000,000
 PROGRESSIVE POLICY INSTITUTE (Moderate)PROGRESSIVE POLICY INSTITUTE (Moderate)

7. HOW MUCH DOES IT COST?HOW MUCH DOES IT COST?
 Job Creation and Worker AssistanceJob Creation and Worker Assistance
Act of 2002Act of 2002
 Jobs and Growth Tax ReliefJobs and Growth Tax Relief
Reconciliation Act of 2003Reconciliation Act of 2003
 Projected to cost $175 Billion overProjected to cost $175 Billion over
three yearsthree years

8. Arguments Against CorporateArguments Against Corporate
WelfareWelfare
 Federal Gov’t has a disappointing recordFederal Gov’t has a disappointing record
of picking winners and losersof picking winners and losers
 Huge drain on Federal TreasuryHuge drain on Federal Treasury
 Creates an uneven playing fieldCreates an uneven playing field
 Fosters an incestuous relationshipFosters an incestuous relationship
between business and governmentbetween business and government

9. Arguments Against CorporateArguments Against Corporate
WelfareWelfare
 Anti-consumer—results in higher pricesAnti-consumer—results in higher prices
 Anti-capitalist—leads to the creation of theAnti-capitalist—leads to the creation of the
“statist businessman”“statist businessman”
 Unconstitutional--outside CongressionalUnconstitutional--outside Congressional
spending authorityspending authority

10. Arguments in Favor of CorporateArguments in Favor of Corporate
WelfareWelfare
 Protection of domestic industries andProtection of domestic industries and
preservation of jobspreservation of jobs
 Funds important research that private industryFunds important research that private industry
could not otherwise affordcould not otherwise afford
 Insures “level playing field” against competitorsInsures “level playing field” against competitors
subsidized by foreign governmentssubsidized by foreign governments

11. Arguments in Favor of CorporateArguments in Favor of Corporate
WelfareWelfare
 Maintain viability of strategic industriesMaintain viability of strategic industries
necessary to national securitynecessary to national security
 Privatization/Military Industrial ComplexPrivatization/Military Industrial Complex
 Ventures are financed that would otherwise beVentures are financed that would otherwise be
too riskytoo risky
 Presumes ventures are socially desired or usefulPresumes ventures are socially desired or useful
 Assists socially disadvantaged groups inAssists socially disadvantaged groups in
establishing new businessesestablishing new businesses

13. DOES IT CREATE JOBS?DOES IT CREATE JOBS?
 State of Alabama paid Mercedes-State of Alabama paid Mercedes-
Benz $168,000 per jobBenz $168,000 per job
 Philadelphia paid a NorwegianPhiladelphia paid a Norwegian
shipping company $323,000 per jobshipping company $323,000 per job
 Caledonia, MN paid a Dairy QueenCaledonia, MN paid a Dairy Queen
franchise $275,000 for one job payingfranchise $275,000 for one job paying
$4.50 per hour$4.50 per hour

14. DOES IT CREATE JOBS?DOES IT CREATE JOBS?
 Former FL Gov. Jeb Bush comparesFormer FL Gov. Jeb Bush compares
economic potential of biotech to coming ofeconomic potential of biotech to coming of
the railroads.the railroads.
 $510 million pledged to Scripps, $310$510 million pledged to Scripps, $310
million to Burnham Institute for Medicalmillion to Burnham Institute for Medical
Research and $90 million to Torrey PinesResearch and $90 million to Torrey Pines
Institute for Molecular StudiesInstitute for Molecular Studies
 Average cost per job: $814,666Average cost per job: $814,666

15. DOES IT CREATE JOBS?DOES IT CREATE JOBS?
 Seaboard closes hog processing plantSeaboard closes hog processing plant
after receiving $2.9 million from Albertafter receiving $2.9 million from Albert
Lea, MN.Lea, MN.
 JP Morgan Chase receives almost $100JP Morgan Chase receives almost $100
million from Tampa, FL for variousmillion from Tampa, FL for various
benefits over 10+ years. Chase closesbenefits over 10+ years. Chase closes
Tampa credit card center in January,Tampa credit card center in January,
2005, laying off 1,900 workers.2005, laying off 1,900 workers.

17. Does it Motivate Businesses?Does it Motivate Businesses?
 Studies show that business locationStudies show that business location
decisions are made more on basis ofdecisions are made more on basis of
skilled work force, cultural amenities andskilled work force, cultural amenities and
access to suppliers, customers andaccess to suppliers, customers and
markets.markets.
 A $50 billion per year industry of siteA $50 billion per year industry of site
location and “business climate”location and “business climate”
consultants scavenges unclaimedconsultants scavenges unclaimed
subsidies and drives up bidding warfare.subsidies and drives up bidding warfare.

18. Does It Motivate Businesses?Does It Motivate Businesses?
 ““If you are giving money away, I willIf you are giving money away, I will
take it. If you want to give metake it. If you want to give me
inducements for something I aminducements for something I am
going to do anyway, I will take it.”going to do anyway, I will take it.”
 Paul O’Neill, former CEO of Alcoa andPaul O’Neill, former CEO of Alcoa and
former US Secretary of Treasuryformer US Secretary of Treasury

19. REFORM ATTEMPTSREFORM ATTEMPTS
FederalFederal
 Bipartisan McCain-Kennedy legislation inBipartisan McCain-Kennedy legislation in
1995 creates Corporate Subsidy Reform1995 creates Corporate Subsidy Reform
CommissionCommission
 Some of Commission’s recommendedSome of Commission’s recommended
eliminations for less controversialeliminations for less controversial
programs are adoptedprograms are adopted
 Incremental, one-time modest successIncremental, one-time modest success

20. REFORM ATTEMPTSREFORM ATTEMPTS
State and LocalState and Local
 1995 legislation in MN created first1995 legislation in MN created first
aggressive disclosure and accountabilityaggressive disclosure and accountability
mandatesmandates
 Today, 11 states have some form ofToday, 11 states have some form of
disclosure requirementsdisclosure requirements
 Local action has been driven byLocal action has been driven by
community activist groups against specificcommunity activist groups against specific
project or industryproject or industry

21. POLITICAL BARRIERS TOPOLITICAL BARRIERS TO
REFORMREFORM
 Corporate campaign financeCorporate campaign finance
donationsdonations
 Corporate lobbyingCorporate lobbying
 ““Pork barrel” parochialismPork barrel” parochialism
 Fear of competitive disadvantageFear of competitive disadvantage
 Fear for political career if official isFear for political career if official is
perceived to be “anti-jobs”perceived to be “anti-jobs”

23. CULTURAL BARRIERS TOCULTURAL BARRIERS TO
REFORMREFORM
 ““Primacy of the Market”Primacy of the Market”
 Corporate welfare is not consideredCorporate welfare is not considered
to be redistributiveto be redistributive
 Benefits are presumed and do notBenefits are presumed and do not
need to be “proven”need to be “proven”

24. FLA vs. MINNFLA vs. MINN

25. FLORIDA LEGISLATIONFLORIDA LEGISLATION
 Chapter 288, Fla. Stats.Chapter 288, Fla. Stats.
 Encourages gov’t-private partnerships inEncourages gov’t-private partnerships in
foreign trade, export finance, internationalforeign trade, export finance, international
affairs, film & entertainment, etc.affairs, film & entertainment, etc.
 Enterprise Florida—not a governmentEnterprise Florida—not a government
agency—selects eligible businessesagency—selects eligible businesses
 Enterprise Florida is expressly exemptEnterprise Florida is expressly exempt
from public records disclosure (Sunshine)from public records disclosure (Sunshine)
lawlaw

26. MINNESOTA LEGISLATIONMINNESOTA LEGISLATION
 ““Right to Know” requires all economicRight to Know” requires all economic
development subsidies submit reports to adevelopment subsidies submit reports to a
single, centralized agency.single, centralized agency.
 Mandates net increase of jobs within 2Mandates net increase of jobs within 2
years of receiving assistanceyears of receiving assistance
 ““Clawbacks”—gov’t must be repaid ifClawbacks”—gov’t must be repaid if
business fails to meet wage and jobbusiness fails to meet wage and job
creation goalscreation goals

27. FLORIDAFLORIDA
INCOME and EMPLOYMENTINCOME and EMPLOYMENT
DATADATA
Source: USSource: US
CensusCensus
% Employed 56.0 54.9
% Unemployed 3.4 3.2
Median Family Income $32,212 $45,625
Per Capita Income $14,698 $21,557
% Families in Poverty 9.0 9.0
% Individuals in Poverty 12.7 12.5
2000200019901990

28. MINNESOTAMINNESOTA
INCOME and EMPLOYMENTINCOME and EMPLOYMENT
DATADATA
% Employed 66.0 68.2
% Unemployed 3.6 2.9
Median Family Income $36,916 $56,874
Per Capita Income $14,389 $23,198
% Families in Poverty 7.3 5.1
% Individuals in Poverty 10.2 7.9
Source: USSource: US
CensusCensus
19901990 20002000

29. % Change, 1990-2000% Change, 1990-2000
% Employed -2.0% -3.0%
% Unemployed -5.9% -19.4%
Median Family Income 41.6% 54.1%
Per Capita Income 46.7% 61.2%
% Families in Poverty 0.0% -30.1%
% Individuals in Poverty -1.6% -22.5%
FLFL
AA
MINNMINN

30. INTERGOVERNMENTALINTERGOVERNMENTAL
EFFECTSEFFECTS
 Commerce Clause (Art I, Section 8)Commerce Clause (Art I, Section 8)
 Congress has greatly expanded federalCongress has greatly expanded federal
control over states through Commerce powercontrol over states through Commerce power
 States may not enact legislation that burdensStates may not enact legislation that burdens
or discriminates against interstate commerceor discriminates against interstate commerce
 But…states may regulate so long as “validBut…states may regulate so long as “valid
factor unrelated to economic protectionism”factor unrelated to economic protectionism”
 Globalization,Treaties and SupremacyGlobalization,Treaties and Supremacy
ClauseClause

31. INTERGOVERNMENTALINTERGOVERNMENTAL
EFFECTSEFFECTS
 Interstate rivalry and the prisoner’sInterstate rivalry and the prisoner’s
dilemmadilemma
 1993—National Governors Association1993—National Governors Association
passed a resolution to restrict subsidies topassed a resolution to restrict subsidies to
individual corporations. Was not bindingindividual corporations. Was not binding
or enforceable and did not work.or enforceable and did not work.

33. INTERGOVERNMENTALINTERGOVERNMENTAL
EFFECTSEFFECTS
 Difficult to trace money across multipleDifficult to trace money across multiple
layers of governmentlayers of government
 Accounting and auditing functions addAccounting and auditing functions add
costscosts
 Creation of quasi-independent publicCreation of quasi-independent public
authorities in 1970s and 1980s hasauthorities in 1970s and 1980s has
aggravated public-privateaggravated public-private
interdependencyinterdependency

34. WHAT TO DO?WHAT TO DO?
 Disclosure/Exposure/SunshineDisclosure/Exposure/Sunshine
 Stringent accountability and clawbacksStringent accountability and clawbacks
 Design analytical tools for “de-politicized”Design analytical tools for “de-politicized”
data collection and cost-benefitdata collection and cost-benefit
determinationsdeterminations
 Means testing?Means testing?

35. Federal or State Enforcement?Federal or State Enforcement?
 ““It is one of the happy incidents of theIt is one of the happy incidents of the
federal system that a single courageousfederal system that a single courageous
State may, if its citizens choose, serve asState may, if its citizens choose, serve as
a laboratory; and to try novel social anda laboratory; and to try novel social and
economic experiments without risk to theeconomic experiments without risk to the
rest of the country.”rest of the country.”
 Justice Brandeis inJustice Brandeis in New State Ice Co. v.New State Ice Co. v.
LiebmanLiebman, 285 US 262, 311 (1932), 285 US 262, 311 (1932)