The recent Good Jobs First report Megadeals is the most detailed compilation to date of the largest economic development incentive packages ever given by state and local governments. Defined as incentive packages of $75 million or more in nominal value, these deals have multiplied in both number and value in recent years as governments compete for a smaller pool of large investments.
Starting with Pennsylvania’s 1976 $100 million deal for
Volkswagen, the report details 240 megadeals through May 2013. The total
cumulative amount of the deals comes to $64 billion. The report uncovers many
deals of which I had been unaware, including a new number one subsidy of $5.6
billion for Alcoa in 2007 consisting of discounted electricity from the New
York Power Authority, a state agency.
Consistent with reports
I have made on several occasions, but with a better database of incentive
packages, Megadeals finds more and bigger deals than before the Great
Recession. To be exact, since 2008 the number of such deals has doubled from
about 10 per year (in the previous 10 years) to about 20 per year, with the
average total of such deals doubling to about $5 billion per year over the same
period.
As Good Jobs First reported earlier this year in The Job Creation Shell
Game, the number of significant investment projects as reported by
Conway Data (publisher of Site Selection
magazine) has fallen from a 1999 peak of over 12,000 per year to less than
6,000 per year in every year since 2005. This means that states and local
governments are desperate to land the few projects that are available and
therefore they are willing to pay more for them. Note that Conway Data reports
projects meeting any one of three criteria: fifty new jobs, $1 million in
investment, or facility size of at least 20,000 square feet. In particular, $1
million in investment is a low threshold.
One thing we should realize is that while megadeals generate
the most press coverage for obvious reasons, they are only the tip of the
iceberg of total state and local investment incentives. The reason, of course,
is that there are so many more smaller deals that collectively account for
large amounts of money. The smaller ones receive little or no media coverage,
which makes it hard to track them.
My only real criticism of the report is that I believe it
would be more accurate to calculate present values for the subsidies that are
given, rather than reporting only nominal values. Companies themselves will
calculate the present value of an incentive package, and the European
Commission does so as well in its supervision of EU subsidy rules. It should be
more widely done in reporting in this country. $3.2 billion over 20 years
(Boeing in Washington state) is not the same thing as $3.2 billion in cash; by
my calculations, it is about $1.98 billion, as I first published in Investment
Incentives and the Global Competition for Capital. Similarly, the $5.6
billion nominal subsidy for Alcoa comes to $3.22 billion present value, by my
calculations. This is still more than 50% bigger than the Boeing incentive
package and easily the largest single subsidy in U.S. history.
In addition, I think it is a tossup whether to count Nike’s 2012
deal with Oregon for 30 more years of single sales factor (SSF) as a subsidy.
SSF is already law in Oregon; Nike’s bargain only guarantees that it will not
change. Still, Nike obviously thought it was important enough to bargain for,
and it is possible to estimate the company’s savings relative to the pre-SSF apportionment
formula, so its inclusion is certainly justifiable.
Besides the great report, you can download a spreadsheet with all the data and sources at the link above.
Disclosure: Good Jobs First shared its megadeals database with me in conjunction with a paper I gave in May, and I exchanged notes with authors Phil Mattera and Kasia Tarczynska as I prepared the paper and they finalized the report.
Cross-posted at Angry Bear.
Disclosure: Good Jobs First shared its megadeals database with me in conjunction with a paper I gave in May, and I exchanged notes with authors Phil Mattera and Kasia Tarczynska as I prepared the paper and they finalized the report.
Cross-posted at Angry Bear.