Bribe Games By the Number
“Politics: A strife of interests masquerading as a contest of principles. The conduct of public affairs for private advantage.” Ambrose Bierce
Bribing companies to create jobs is not an effective way to promote economic development. It is not a comprehensive way to promote prosperity. The primary, and often only, result of business development tax incentives is simply reduced tax collections from the favored businesses. Everyone else pays for the incentives provided for the few.
In Wisconsin the job creation numbers provide proof. Citizen Action of Wisconsin has several reports on programs run by the Wisconsin Economic Development Corporations (WEDC), the quasi-public agency created by the Walker administration to promote economic growth. The analysis uses WEDC’s own data and shows the troubled agency has a poor record of producing jobs and of holding companies accountable for their job promises.
The Citizen Action analysis reveals that 60% OF WEDC SUPPORTED COMPANIES FAILED TO MEET JOB CREATION GOALS. The analysis covered awards at least three years old to allow time to execute the agreed upon hiring plans. The analysis found large gaps between actual jobs created and the number of jobs promised.
Specifically, of the 337 WEDC awardees 60% (203 awardees) failed to meet their goals. Of these 203 awardees the difference between their actual job creation as reported by WEDC and their goals are 14,744 jobs. Ironically the WEDC job creation gap is larger than the total number of jobs being claimed by the Foxconn deal.
The analysis is available at the Citizen Action web site (http://www.citizenactionwi.org). Here are several representative cases including two from Superior:
Kohl’s Corporation: Waukesha, awarded $62.5 million in 7/12 to create 3,000 jobs. Allegedly created 473 jobs and received $18.3 million. Company outsourced 67 employees to India in 12/13.
Kestrel Aircraft Company: awarded $20 million in credits and loans in 1/12 to create 1,265 jobs. They have 45 jobs in Superior and received $717,500 in verified credits. Company has not built the manufacturing plant announced. According to the Duluth News Tribune in addition to WEDC incentives, Superior offered Kestrel two parcels of land and $1.125 million in tax increment financing, as well as a $2.4 million loan. Kestrel has paid back about $369,000 of the loan. Douglas County also loaned the company $500,000 and modified the loan to interest-only payments that began in March.
Exodus Machines: Awarded $1.1 million in loans in 10/12 to create 250 jobs. Currently 35 employed in Superior. In 9/16 the company was certified as having outsourced 20 jobs.
W.W. Grainger: Janesville, awarded $500,000 in 7/11 to create 130 jobs. Thus far they have added NO jobs and received $50,000 in verified credits. In 8/15 the company was certified as having outsourced jobs to Panama.
Citizen Action also found that WEDC has not held companies accountable for these failures. WEDC does not have accurate numbers on jobs created nor does it sanction many companies that fail to meet goals.
WEDC does not require companies receiving public dollars to create a “net” positive number of jobs (i.e., jobs created minus jobs lost due to outsourcing, lay off, or quits). Citizen Actions says it is well documented that many WEDC recipients have outsourced other jobs while taking state tax credits to create jobs.
A Wisconsin Legislative Audit Bureau report in May said all of WEDC’s job creation claims are suspect because the agency has failed to implement basic verification procedures. They concluded that WEDC does “not contractually require grant and loan recipients to submit information sufficiently detailed to allow it to determine the extent to which jobs were actually created or retained.”
The Audit Bureau says WEDC doesn’t collect enough information on existing employees of tax credit recipients to determine if required jobs have been created or retained. WEDC also did not comply with statutes to verify jobs-related information submitted by companies.
WEDC programs mostly go to southern Wisconsin. A Wisconsin Center for Investigative Journalism report (May 2015) says “WEDC programs steer money to prosperous Dane County while little aid goes to areas with greater economic needs.” Dane County has received more than a quarter of total incentives given by WEDC but has the state’s lowest unemployment rate.
Another Citizen Action report sites U.S. Department of Labor data showing that at least 11,331 Wisconsin workers have had their jobs outsourced to other countries since Governor Walker’s scandal ridden jobs agency began in 2011. These figures are low because they only count workers covered by the federal Trade Adjustment Assistance program. The figures do not count jobs lost from business closings, downsizing, or re-locations to other states.
But the bribe game is used everywhere. Good Jobs First, which tracks these subsidies nationally, says “mega-deals” are growing in number and dollar amount. The average cost per job is $456,000. Despite the high costs many deals involve little new job creation. Some companies blackmail communities with the threat of leaving. Often it is simply “job piracy” with jobs being moved from one community to another.
In short, the standard economic development strategies are not working. Tax incentives, subsidies, grants, and loans are not producing the promised results. A few jobs are being “created” (but we don’t know if they would have happened without incentives). A small number of the 140,000 plus businesses in Wisconsin are paying less (or nothing) in taxes.
But the Pew Charitable Trust say the middle class in Wisconsin has shrunk 5.7%, more than in any other state. Since 2000, median adjusted household income in Wisconsin has fallen 14.7% when adjusted for inflation (from $60,344 to $51,467). The Center on Wisconsin Strategies says Wisconsin ranks 34th for job growth. They say Wisconsin would have 90,000 additional jobs if we merely had kept pace with national job growth since 2011.
But politics is about division of the spoils. It is about conducting public business for “private advantage.” The economic development feeding trough is a great place to seek private advantage.