#175-176 Fall/Winter 2013-14 — Jobs

Are You Subsidizing Big Business?

Massive corporations, not start-ups or local job creators, get the lion's share of state and local development incentives.

Shelterforce Weekly survey, 2013.

State and local governments spend some $75 billion a year on economic development subsidies for business. Primarily in the name of job creation, these governments hand out a wide variety of tax breaks (corporate income tax credits, property tax abatements, sales tax exemptions on construction materials and machinery, etc.), plus other forms of financial assistance, such as low-interest loans, free or low-cost land, infrastructure improvements, reimbursement for worker training expenses, and cash grants.

It’s often hard to know who gets them and what they do with them, but in recent years an increasing number of state economic development agencies (as well as some at the city and county levels) have begun to put lists of recipient companies online. Since 2010 my organization, Good Jobs First, a nonprofit clearinghouse on economic development accountability, has been collecting the information from these far-flung online sources and assembling it in a single database called Subsidy Tracker. We have also obtained unpublished datasets for scores of other subsidy programs and added them to the mix. The search engine now contains nearly 250,000 entries covering more than 500 subsidy programs from all 50 states and the District of Columbia.

Frequently, firms receiving government largess are divisions and subsidiaries of much larger companies. So Good Jobs First decided to enhance the data by identifying the parent companies of the recipient firms. This process has enabled us for the first time to estimate the amount of total state and local economic development awards going to big business.

The answer is: a lot. At least 75 percent of cumulative disclosed subsidy dollars have gone to just 965 large corporations, even though these companies account for only about 10 percent of the number of announced awards.

To come up with this number, we compared our database to subsidiary lists drawn from SEC filings and other sources for about 1,300 firms, including the following: all the companies in the Fortune 500, the Fortune Global 500, the Forbes list of the largest private companies in the United States (224 companies), the Private Equity International list of the 50 largest private equity firms, and the top 150 of the Fortune Second 500 list. In addition, we identified parents for many of the largest remaining subsidy awards, including all subsidy “megadeals”—deals worth $75 million or more. We will add more parent coverage in the future, but for now the companies we have checked represent a good proxy for big business.

Nearly three-quarters of these companies had received at least one subsidy award; the rate would be even higher if we were to exclude the numerous companies on the Fortune Global 500 that do not operate in the United States.

Among the 965 parents we identified as subsidy recipients, the average number of awards is 26 and the average total dollar amount (from awards for which this information is disclosed) is $102 million. The parent companies on the Fortune 500 alone account for more than 16,000 subsidy awards worth $63 billion, or about 43 percent of total Tracker dollars.

These awards accrue to corporate parents directly and through their divisions and subsidiaries. For example, subsidy awards worth more than $1 billion have been given to Warren Buffett’s Berkshire Hathaway by way of companies it holds such as Geico, NetJets, Nebraska Furniture Mart, General Re Corporation, Lubrizol Advanced Materials, and Webb Wheel Products.

Who Is Getting the Most?

In dollar terms, the biggest recipient by far is Boeing, with a total of more than $13 billion, reflecting the giant deals it has gotten in Washington and South Carolina, as well as more than 130 smaller deals around the country. The others at the top of the cumulative subsidy dollar list are Alcoa ($5.6 billion), Intel ($3.9 billion), General Motors ($3.5 billion) and Ford Motor ($2.5 billion). A total of 17 companies have received cumulative subsidy awards worth more than $1 billion; 182 have received awards of $100 million or more.

The company with the largest number of awards is Dow Chemical, with 416. Following it are Berkshire Hathaway (310), General Motors (307), Wal-Mart Stores (261), General Electric (255), Walgreens (225), and FedEx (222). Forty-eight companies have received more than 100 individual awards. The award numbers include some for which no dollar amount has been disclosed (reflecting the inconsistent quality of state and local disclosure).

The list of most-subsidized parent companies overlaps considerably with the companies who are getting the largest single deals. Among those on the new list of 100 Top Parents, 89 are linked to at least one megadeal.

Given the decline of manufacturing in the United States, it is interesting that the list of top parent companies is dominated by industrial firms. Of the 10 biggest recipients, only one—Cerner—is primarily a service provider. As for specific industries, auto is well represented, with GM, Ford, Fiat (which now owns Chrysler), and Nissan in the top 10. Toyota is 16 and Volkswagen is 22. Other heavy industries represented include aerospace (Boeing, no. 1), semiconductors (Intel, 3), petroleum (Royal Dutch Shell, 7), chemicals (Dow, 12) and steel (ArcelorMittal, 13).

Also significant is the presence of foreign-based corporations. There are 3 in the top 10 (Fiat, Royal Dutch Shell, and Nissan) and another 5 in the next 15. Since we include private equity firms as big-business parents, the list includes several of those firms. The most subsidized is Silver Lake Partners, which now controls the computer company Dell and thus has Dell’s megadeals in North Carolina and Tennessee attributed to it.

Although our parent company matching is a work in progress, one conclusion is already clear: large corporations account for an overwhelming share of the tax breaks and cash grants state and local governments have given out in the name of job creation.
Clearly, there is a trend toward the “corporate rich getting richer,” with help from the public.

The article was adapted from the report Subsidizing the Corporate One Percent.

Philip Mattera is research director of Good Jobs First

At a Glance:

Big business parents of subsidy recipients identified so far 965
Total number of subsidy awards associated with these parents 25,000
Total value (of that known) of the awards received by these companies $110 billion
Value of those awards as a portion of total value of Subsidy Tracker universe  75 percent