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Corporate Handouts Are Leverage
States and cities can make free money less free, if they try.
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Last month, Pennsylvania Gov. Tom Wolf, as part of an ongoing fight he has with the Republican-controlled state legislature over the minimum wage, released an executive order requiring corporations that receive tax incentives or grants from the state to pay the same minimum wage that state contractors must pay ($13.50 an hour, increasing to $15 in 2024) and to provide their workers with paid sick leave.
“With Pennsylvanians renowned for our work ethic, this is an opportunity to improve jobs in the state, which will attract and retain hardworking people to live here and bring new industries to the commonwealth that want a talented, skilled and dedicated workforce," Wolf said.
My reading is not that Wolf cares all that much about corporate incentives such as they are, but saw them as leverage to get what he really wants: More workers receiving a higher minimum wage in a state that still sticks by the federal minimum of $7.25 an hour.
And that’s fine! In fact, more locales should be attaching far more strings to their corporate handouts programs that would benefit workers, even if their chief concern is not incentive reform for the sake of incentive reform.
Now, to be clear, my first preference is for eliminating corporate incentive programs altogether, because they achieve none of their stated aims and are bad for democracy. My second preference, if repeal isn’t on the table, is to redirect all the funding to small businesses, giving local firms and entrepreneurs help competing against entrenched incumbents, rather than the typical practice of subsidizing already dominant corporations in order to help them build monopolies.
But barring those, sticking loads of conditions onto these deals is a good backup option.
These conditions can come about in a couple of ways: One is that the public body overseeing the programs implements them, as is the case in Pennsylvania now, or when the various levels of economic development agencies and boards in certain states require certain things from corporations (though they often go to great lengths not to enforce those agreements).
A second avenue is to require what are known as community benefits agreements between the corporation and the municipality or local groups (such as labor unions or non-profit organizations) within the area where the corporation will be located. For instance, New Jersey’s big incentive reauthorization this year, while awful in many ways, does require any project where the total cost will be more than $10 million to include a community benefits agreement with the local municipality.
The process allows residents and officials to demand various things, such as wage levels, residency requirements for employees, investments in transit or housing, or whatever else, in return for public money. No agreement by the corporation, no funds.
The community benefits agreement approach was pioneered in Los Angeles in 2001, around what to do regarding development near the Staples Center, errr, Crypto.com Arena. It was also used to good effect more recently by activists in Nashville who secured an agreement in an incentive deal for a publicly-funded professional soccer stadium.
Here’s a state level bill authorizing community benefits agreements in corporate incentive deals. To make it a requirement, all an enterprising state lawmaker would need to do is replace “may” in the first subsection with “must.”
What local folks should most definitely not do is follow the example set this week by Knoxville, Tennessee. The city council there voted to gift Randy Boyd — a local rich dude who owns the Tennessee Smokies minor league baseball team and is the president of the University of Tennessee System — $65 million in public funds for a new stadium.
Local labor leaders and some members of the council wanted Boyd to sign an agreement about worker pay and other matters. Boyd said no, with the following justification:
Another reason he declined to sign an agreement, Boyd has said, is that unlike out-of-town investors who may not have the interest of the community in mind, he and his family have a philanthropic history that proves his dedication is sound.
That’s to be clear, exactly why you need binding written agreements: So the benevolence of the folks benefitting from corporate subsidies isn’t all that holds standards to a certain level.
Again, barring a realistic chance to abolish incentive programs, attaching high and hard standards and ensuring community input is the next best thing. Pennsylvania got it right and Knoxville got it very very wrong.
SHAMELESS SELF-PROMOTION: The toolkit for state lawmakers who want to take on Big Tech’s economic power that I released last week got a nice writeup in Roll Call on Tuesday. You can read the full toolkit (and then send it to your elected officials) here.
I also chatted with the Investigative Post for a story about the potential for a new taxpayer-funded stadium for the Buffalo Bills, which you can read here, and stopped by the Rick Smith Show to talk about the launch of New Yorkers for a Fair Economy, which I wrote about in last week’s issue. You can give that a listen here.
Finally, I talked with the New York Times for a story about semiconductor manufacturers trying to leverage massive subsidies out of cities. You can read that piece here.
ONE MORE THING: Via the good folks at Reinvent Albany, here’s an outrageous story for you: Rochester, New York, has a tax incentive program known as 485-a that mostly helps big developers who charge sky-high rents, foisting the city’s revenue needs onto smaller developers and homeowners. The program was set to expire at year’s end, and in the recent election, enough of its critics won seats that there’s good reason to believe it would have been allowed to expire.
So, of course, the current council and mayor — a mayor who is stepping down next month as part of a plea deal over corruption charges, it should be noted — rushed through a renewal before the new council and mayor could take power, which will lock in more big development handouts for a decade.
Maybe the new council can work on a repeal next year?
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— Pat Garofalo