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Curbing Corporate Welfare

Providing tax breaks and other kinds of subsidies to attract or retain businesses has become increasingly common over the last twenty years. Wal-Mart, for example, has received over $1 billion in public subsidies from state and local governments, according to a recent report by Good Jobs First.

There are three primary problems with development subsidies:

Questionable Public Benefit - Few cities and states have binding standards to ensure that subsidies actually produce quality jobs. A study in Minnesota found that half of recent subsidy deals went to companies paying wages more than 20 percent below market levels for their industries.

Pirating Jobs - Cities and towns frequently use tax incentives and development subsidies to lure companies from other cities or states. Corporate threats of relocation can spark a bidding war between cities. "Job piracy" produces no real economic benefit, as no new jobs are created.

Undermining Local Businesses - Subsidies are rarely provided to locally owned businesses. Instead, these businesses often see their tax dollars used to subsidize their biggest competitors.

Subsidies are particularly unwarranted in the retail sector. Providing subsidies and tax breaks for big box development not only creates an uneven playing field for locally owned businesses, but studies have found that big retail stores produce no net gain in employment. That is, they destroy as many jobs as they create by taking sales away from existing businesses that then downsize or close. Big box retail also contributes to sprawl and increased public costs for services like road maintenance and police.

Bans on Tax Abatements
A common way that big-box stores and shopping centers are publicly subsidized is through tax breaks. Many cities have provided property or sales tax abatements for new retail development. At least one state has banned such giveaways.

Living Wage Laws
Some cities have adopted living wage laws that stipulate that any company receiving a tax break or public subsidy pay wages sufficient for employees to meet basic needs.

Regional Tax-Base Sharing
The quest for revenue-generating development creates competition among neighboring jurisdictions, which may engage in bidding wars to offer developers the biggest tax breaks or least stringent environmental regulations. Regional tax-base sharing offers one way to alleviate this problem.

TIF Reform
When used to off-set the high costs of redeveloping blighted sites in poor neighborhoods, Tax Increment Financing (TIF) can be an effective economic development tool. However, all too often, cities are using TIF to underwrite projects in non-blighted, affluent areas, to subsidize construction on previously undeveloped land, and to finance big box retail.

More:

• In "TIF, Greenfields, and Sprawl," published in the February issue of Planning & Environmental Law, Greg LeRoy of Good Jobs First tells the sordid tale of how an incentive created to alleviate slums has come to subsidize upscale malls and New Urbanist developments.
• Corporate retailers not only seek subsidies to build their stores. They also pressure cities to lower their property tax bills once they're operating. In "Rolling Back Property Tax Payments," Good Jobs First found that Wal-Mart appeals its property tax assessments on one-third of its stores. It succeeds in getting a reduced valuation nearly half the time. Another Good Jobs First study, "Growing at Whose Expense," found that General Growth Properties, the nation's second-largest owner of shopping centers, is up to much the same.
• Wal-Mart Subsidy Watch - A service of Good Jobs First, this site enables users to search a massive database of Wal-Mart subsidies. Find out how much public funding the retailer has picked up in your state.
• Big Tax Breaks for Big Boxes -- a good, detailed article on how subsidies tilt the playing field for independent businesses, from the Syracuse Post-Standard, April 1, 2007
• Reforming Failed Tax Subsidies - a nice collection of resources and information from the Progressive States Network, June 2006
• Are tax incentives good for state and local economies? - an informative answer from the New Rules Project's Dr. Dave
• What Do TIF Subsidies Cost Denver? - published by the Front Range Economic Strategy Center in 2005, this report finds that TIF has grown dramatically and now costs Denver taxpayers almost $30 million annually in foregone revenue; that many TIF projects fail to meet their revenue projections; and that they generate new public services costs that other taxpayers must shoulder.
• Good Jobs First has extensive resources to help grassroots organizations and policymakers ensure that economic development subsidies are accountable and effective.
• Shopping for Subsidies: How Wal-Mart Uses Taxpayer Money to Finance Its Never-Ending Growth [PDF] - Published by Good Jobs First, this report identifies 244 Wal-Mart stores and distribution centers in 35 states that have received subsidies totaling just over $1 billion.
• Straying from Good Intentions: How States are Weakening Enterprise Zone and Tax Increment Financing Programs [PDF] - Published by Good Jobs First, this report reveals that many states have weakened the criteria for establishing tax increment financing (TIF) districts. TIF was originally intended to spur development in poor neighborhoods, but many states have broadened the criteria, allowing subsidies to flow to more affluent, suburban locations. The number of TIF districts has since mushroomed. Many include big box retail. The report also highlights a handful of states that have instead tightened their TIF laws and channeled subsidies to impoverished areas.
• No More Secret Candy Store: A Grassroots Guide to Investigating Development Subsidies - Published by Good Jobs First, this is a comprehensive guide to researching state and local subsidies, economic development agencies, and companies. The TIF chapter explains how TIF works, describes the problems associated with TIF, and gives tips on researching TIF usage in your own community.
• Tax Increment Financing in New Orleans [PDF] - Published by the Bureau of Government Research, a New Orleans-based nonpartisan organization, this report offers a detailed critique of tax increment financing (TIF), particularly with regard to how it has been used in New Orleans. It argues that "subsidizing a retail operation with TIF revenues gives it an unfair advantage over its competitors." The report recommends that the state prohibit the use of TIF for retail development, except for "main street" revitalization efforts.
• The Neighborhood Capital Budget Group has posted lots of information on the use of TIF in Chicago---how TIF works, its use for big box retail, suggested reforms and action steps, etc.
• Public Power, Private Gain - Published by the Institute for Justice, a libertarian public interest law firm, this report documents thousands of cases in which government agencies used their power of eminent domain to transfer property from one private owner to another, including many cases in which buildings housing small businesses were condemned to make way for chain retail development.