States Pay for Jobs, but It Doesn't Always Pay Off
By LOUIS UCHITELLE
The N. Y. Times, November 10, 2003
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excerpts:
INDIANAPOLIS A huge, light-gray building, trimmed jauntily in blue, rises
from the rolling, grassy fields on the far side of the runways at
Indianapolis International Airport. From the approach road, the building
seems active. But the parking lots are empty and, inside, the 12
elaborately equipped hangar bays are silent and dark. It is as if the
owner of a lavishly furnished mansion had suddenly walked away, leaving
everything in place.
That is what happened. United Airlines got $320 million in taxpayer money
to build what is by all accounts the most technologically advanced
aircraft maintenance center in America. But six months ago, the company
walked away, leaving the city and state governments out all that money,
and no new tenant in sight.
The shuttered maintenance center is a stark, and unusually vivid, reminder
of the risk inherent in gambling public money on corporate ventures. Yet
the city and state are stepping up subsidies to other companies that
offer, as United once did, to bring high-paying jobs and sophisticated
operations to Indiana. Many municipal and state governments are doing the
same, escalating a bidding war for a shrunken pool of jobs in America
despite the worst squeeze in years on their budgets.
Their hope is that the new employees at the subsidized companies will give
back their incomes to the community in tax payments and spending, more
than justifying the subsidies. Critics argue that the same tax dollars
produce a greater return when they are channeled into education and public
transportation, for example, rather than corporate ventures. They also say
that subsidies distort markets: United, for example, might not have walked
away so quickly if the $320 million had been its money, not the city's and
state's.
That doesn't mean that Governor Kernan [of Indiana] intends to stop
offering subsidies. "I understand the argument that taking jobs away from
Boston and putting them here is nationally a zero-sum game," he said. "But
Indiana, like virtually every other state, is not going to unilaterally
disarm."
Far from disarming, Indiana's legislature recently revamped the corporate
tax structure in effect offering a reduction in a company's state tax
bill as an incentive to locate in Indiana, or to remain here. With the
United fiasco in mind, the emphasis is on tax credits, the governor said,
rather than upfront "bricks and mortar investments in particular
projects." Indianapolis, for its part, is giving generous support to big
employers like Eli Lilly, the multinational pharmaceutical company
headquartered here. Lilly is getting a $106 million package in exchange
for a promise to invest $1 billion and add 7,500 jobs by 2009.
There is no official data on how much is distributed in subsidies across
the country. Alan Peters, a professor of urban planning at the University
of Iowa, and one or two other academics have tried to estimate the total
loss of city and state tax revenue through abatements, lower income taxes,
outright payments, training grants, wage subsidies and the like. Their
estimates start at $30 billion a year and range up to $50 billion, with
Mr. Peters putting the number somewhere in the $40 billions, based on a
recent survey of tax expenditures.
"It seems like almost every state is giving away grandmother, grandfather,
the family jewels, you name it, everything," Mr. Peters said. The
anecdotal evidence of the escalating bidding war is greater than the
statistical, he said.
United plainly drove a hard bargain. But the deal was signed during the
1990-91 recession, and the hard times encouraged the state to fold some
Keynesian stimulus into the agreement, said Mark S. Moore, director of
public finance for the state of Indiana, and one of the negotiators.
"Whether we spent the dollars or United spent the dollars, let's not
forget it was a recession," he said. "We put lots of people to work
building that facility for a lot of years at good wages."
[T]he city and state gambled, and the gamble eventually went sour. Caught
up in conflicts with the unionized mechanics and pushed into bankruptcy by
the abrupt cutback in airline travel after Sept. 11, United turned to cost
cutting to survive. Heavy maintenance was a victim. It went increasingly
to private contractors in the South, who took longer to get the airliners
back into service. But the cost of using them was low enough to offset the
loss in passenger revenue, airline officials said.
Mechanics in the South earning a third of the wages and benefits paid to
their counterparts in Indianapolis helped to make this possible and last
April, United closed the Indianapolis center, laying off the last few
hundred mechanics still there. Penalty payments built into the subsidy
agreement failed to deter the airline's executives.
The city and state, meanwhile, are paying $34 million a year toward
retiring the $320 million bond issue, and the Airport Authority is paying
an additional $6 million a year to maintain the center, an outlay that
United once shouldered, along with nearly $700,000 a year for the lease.
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