D. Dowd Muska


The Year in State and Local Corporatism

January 02, 2014

Some things never change.

In 2013, state and local governments continued their pell-mell rush to shower businesses with tax breaks, investment deals, loan guarantees, and infrastructure projects. “Economic development” undermines the free market, nurtures corruption, and fleeces taxpayers. But it’s terrific for dirt-scooping pseudo-events -- and in the Great Recession/Great Stagnation, pols and bureaucrats are more desperate than ever to appear to be “creating jobs.”

Welfare for film, television, and videogame productions advanced in several states. Liberal, conservative, and libertarian economists concur that giveaways to Hollywood are unwise, but Nevada’s solons, heavily lobbied by the star of Leaving Las Vegas, approved $20 million in annual tax credits. (Hey, if you can’t rely on money advice from Nicolas Cage….) In New York, perks were extended to the upstate region, and a super-sleazy provision was adopted to lure “The Tonight Show” back to the Big Apple.

The president has little to say on the subject, but corporatism sure loves to enrich “millionaires and billionaires.” In October, the Minnesota Vikings and Minnesota Sports Facilities Authority signed “very detailed documents” outlining the funding for the NFL team’s new stadium. Total public tab: $498 million. In November, the Atlanta Braves inked a memorandum of understanding with Cobb County to build a new ballpark. Georgia tea partiers immediately balked at the $300 million subsidy, and sued. Their skepticism about the project as a catalyst for private investment is warranted -- the club’s current stadium, Bloomberg reported, “stands isolated among acres of parking lots bordered by derelict neighborhoods.” The minors got in on the largesse, too. Nashville approved $65 million for a new home for the Sounds, and Biloxi okayed $36 million for a ballpark for a team the city does not yet have.

Entertainment, cybersecurity, “green” power, drones -- if it’s trendy, governments wanted to write it a check in 2013. But as reliably as the largesse was spread, an equally consistent stream of investigative reports, audits, bankruptcy proceedings, and academic analyses exposed corporate welfare’s failings. This year yielded an impressive harvest of inconvenient truths:

• Rhode Island auctioned off the assets of 38 Studios, a defunct videogame company founded by former MLBer Curt Schilling. According to The Providence Journal, “taxpayers potentially owe $89.2 million on Schilling’s state-backed loan.”

• The Louisiana legislature’s chief economist penned an essay critical of the impact statements prepared for his state’s incentive packages. He believes the documents “overstate true economic impacts and consequent fiscal benefits” and “understate the true total fiscal costs.”

• An audit of Wisconsin’s economic-development corporation found that it “did not have sufficient policies … to administer its programs effectively,” awarded “some grants, loans, and tax credits to ineligible recipients, for ineligible projects, and for amounts that exceeded specified limits,” and “did not consistently perform statutorily required program oversight duties.”

New York’s comptroller revealed that as part of its promotional activities, Empire State Development “had spent $2.7 million on foreign offices in the 2011 and 2012 … without paying adequate attention to whether the spending was benefiting New York businesses.”

• A two-part profile of the N.C. Rural Economic Development Center by The News & Observer uncovered “claims of jobs being created … where no or far fewer jobs exist,” and that $69 million was “unspent … largely because of projects delayed, not yet started or from busted deals.”

The Oklahoman disclosed that since 2010, “six companies … have had mass layoffs while enrolled in the Quality Jobs Program -- sometimes receiving incentive payments from the state weeks before laying workers off, or continuing to receive payments after layoffs.”

In June, a manufacturing trade association in Connecticut -- the only state to experience negative economic growth in 2012 -- released the results of a survey of its beleaguered industry. Half had considered moving to, or expanding in, friendlier locations. Manufacturers believed their best prospects were Texas, South Carolina, North Carolina, Florida, and Virginia.

The five states pop up frequently in attractiveness-to-business rankings. (Utah, Nebraska, Indiana, and Tennessee also merit interest from an enterprise looking to do right by its shareholders.) Not surprisingly, they’re also high-achievers in economic growth. The strategy is deceptively simple. Keep taxes low. Restrain the “public” sector. Eschew junk-science-fueled regulations on energy and the environment. Pass right-to-work legislation. Don’t micromanage land-use decisions.

Benign neglect, in other words, offers the best path toward prosperity. But that’s not enough for government’s “visionaries.” No “action plans”? No “listening sessions”? No photo ops with starlets, tech gurus, and professional athletes?

Forget the invisible hand. Corporatists prefer the visible press release.

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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