The Cologne Collector
Smells like Rick Perry is up to his old tricks again. In late October, the Republican governor of Texas once again used the Texas Enterprise Fund (TEF) to stick it to small businesses and cities not only across the Lone Star State but also in other states.
Gov. Perry Gives Away Tax Money To Big Insurer
SAN ANTONIO, Texas — Smells like Rick Perry is up to his old tricks again.
In late October, the Republican governor of Texas once again used the Texas Enterprise Fund (TEF) to stick it to small businesses and cities not only across the Lone Star State but also in other states.
This time, he threw $2.5 million at Nationwide Mutual Insurance Company as an “incentive” “to expand corporate operations in San Antonio.”
Perry promised that the “investment” will create $94.8 million in capital and 750 “high paying jobs” in Texas, though San Antonio Mayor Julián Castro said the company would create 838 jobs for San Antonians.
Moreover, the San Antonio Express-News quoted unnamed “economic development leaders” as saying that San Antonio “could have lost the Nationwide jobs already here.”
Nationwide has 932 existing employees here, and their jobs could have supposedly gone to another city on its list: Raleigh, N.C.; Tulsa, Okla.; or Little Rock, Ark.
But why is losing these jobs such a big deal? And what does Nationwide do exactly?
According to the press release from the governor’s office, the company “offers a full range of insurance and financial services.”
“The bulk of the initial job growth will be in sales and services positions. These positions will support an existing book of business and generate new growth for the company,” the press release said.
And that $90 million in capital investment will go toward the company’s third regional corporate headquarters slated for completion by December 2011, according to the Express-News. (The other two headquarters are in Columbus, Ohio, and Des Moines, Iowa.)
And that doesn’t include another $29 million in equipment for the new pad.
So Perry gave a suitcase of cash to “one of the largest insurance and financial services companies in the world” to build a building for people to push papers?
But, of course, Nationwide couldn’t have used any of its $21.832 billion in revenues last year to build its 300,000-square foot piece of office space over 25 acres of almost-never freezing land.
How much of that cash is going to go to coffers of the state and local municipalities?
Said Gov. Perry. “Companies like Nationwide will continue to create jobs in Texas because of our state’s low taxes, regulatory environment and educated and diverse workforce.”
Note the “low taxes” part of Perry’s equation; that’s Perry-speak for “nothing.”
Actually, truth be told, Nationwide got a whole lot more free money out of the deal than from the Texas Enterprise Fund.
San Antonio City Hall and Bexar County collectively gave away $1,000,000 in taxpayer dollars to Nationwide, plus 10-year, 100 percent property tax abatements.
“The city’s 10-year tax abatement is valued at $3.7 million,” the Express-News reported.
That’s over $7.2 million just to keep a non-Texas business from pulling its operations out of San Antonio.
But that’s not all!
“The site also will be nominated for a state enterprise designation, which will allow the company to obtain state sales tax refunds for construction and equipment purchases,” San Antonio’s newspaper reported.
In other words, more free money!
But such is the idea behind the way we do business here in Texas.
Gov. Perry likes to tout the fact that the Texas Legislature created the TEF for him in 2003 and has re-appropriated funding in 2005, 2007, and 2009.
His press release also spelled out that projects proposed for TEF giveaways must be approved by the governor, lieutenant governor, and speaker of the House.
What his office doesn’t tell you, though, is that giving tax breaks and incentives to corporations doesn’t always work toward its goal of retaining jobs in state.
Prior to the Nationwide giveaway, The Houston Chronicle’s business columnist Loren Steffy noted such was the case for Winston-Salem, N.C..
Five years ago, the Southern city had lured the Round Rock-based Dell Corporation to open a plant there to the tune of $240 million in tax breaks over 15 years in exchange for up to 8,000 jobs.
However, Dell admitted last month that it wouldn’t be needing all that time since it planned to shutter this factory by January 2010.
Bernard Weinstein, an economist at Southern Methodist University, could have told Winston-Salem that no company can predict its long-term growth.
He could have also pointed to quite a few studies that show tax abatement programs are economically stupid.
“In most instances a company does not make a locational decision based on the level of local taxes,” Weinstein told Steffy.
In fact, taxes are barely even on the list of reasons corporations use to relocate operations.
So why giveaway the taxpayer money in the first place?
Weinstein says it’s pure politics.
“Politicians want to be seen as delivering jobs to their communities,” he said.
Moreover, how are Texans benefitting from the payola to Washington Mutual, for example?
The TEF mafia handed out two disbursements to Washington Mutual, $10 million in 2005 and $5 million in 2007. But now Washington Mutual is owned by Chase Bank after the near-fatal economic meltdown last fall.
Steffy wrote that though the Fund does have“claw-back” clauses across the board as a general rule, “it’s unclear whether the state will actually collect” in any situation where a company fails to live up to its part of the TEF bargain.
According to Weinstein’s logic, it’s a better policy to just stop local and state tax breaks cold turkey because if the municipalities get hoodwinked, who is going to hold the bag but the federal government.
Wrote Steffy, “Local and state tax breaks actually increase the federal tax liability for businesses by lowering their deduction for local taxes. So blocking local tax abatements would reduce federal tax revenue.”
But ending this policy of tax breaks will be tough since it is so “institutionalized,” as Weinstein put it.
There’s a whole industry in place that hustles cities and municipalities for free money with which to relocate corporations.
So far, over $383 million has been distributed from the Perry’s pet fund.
And there’s no signs of slowage.
