More Corporate Welfare!

[FOTD]

http://www.tulsaworld.com/news/article.aspx?subjectid=12&articleid=20091007_12_A13_CivilS926159

Firm seeks $6 million from BA
FlightSafety wants to build a new facility — with the city's help.


Buy the corporation, fore the corporation.....

[Conan71]

After reading the story, I don't see how this qualifies as corporate welfare.

Flight Safety is asking BA to contribute roughly 20% ($6.6mm) of the contruction cost for a new $30mm facility. According to the story, this is projected to have a net positive job impact of 300-plus new positions in a fairly high-tech firm.  Let's say the average payroll impact is $40K per job, that's $12mm a year in additional payroll in the area.  Sounds more like an investment in the community to me.  Even at $20K per year, that's a one year payback in increased payroll.

Please explain in detail how this is a bad thing, especially when you think the government printing money it does not have to extend unemployment benefits and you think it's a good idea for the government to pick up the tab for everyone's health insurance.  "Stimulus" money is being dumped into projects which aren't creating any new jobs whatsoever. 

BA isn't being asked for a hand-out for something unproductive, they are being asked to help create and maintain more jobs.

Lest anyone get the wrong idea, I have no problem at all with people getting UE benefits.  I simply fail to see how this can be construed as something bad, especially when there's probably no shortage of other communities who would gladly offer more to attract 1000 good jobs to their own area.  I wish all companies would and could make 100% investment in their ventures but there's a business climate out there which now expects an investment or reinvestment from the community to help create and maintain jobs.

My exception to all this is the OP seems to make this sound like a bad thing, especially after railing about not enough being done for the unemployed and underemployed.  In light of other places government can squander money, I think this seems like a sound investment to me.

"Welfare" doesn't encourage productivity.  It simply allows one to wallow in mediocrity.  Doesn't sound like welfare to me.

[FOTD]

It's socialism.

[rwarn17588]

Corporate welfare or not, it still rubs me the wrong way when a company does the "give us money or we'll move" horsesh*t.

There oughta be a special spit in hell for that type of extortion.

[FOTD]

Corporate welfare or not, it still rubs me the wrong way when a company does the "give us money or we'll move" horsesh*t.

There oughta be a special spit in hell for that type of extortion.

"Amen!" Satan

[cannon_fodder]

"Welfare" doesn't encourage productivity.  It simply allows one to wallow in mediocrity.  Doesn't sound like welfare to me.

How does this tax payer gift to a corporation encourage production? Of course the answer is, it doesn't.

The request for the money is an implicit threat to take those jobs elsewhere.  Just like Tulsa did with V2025 and American Airlines.  Or OKC did by giving money to the Thunder (and renovating the arena).    These activities aren't actually increasing any production - it's keeping the production here.

In the end, it is a ZERO SUM game.  Broken Arrow will transfer wealth from tax payers to the owners of a company in hopes of retaining some sort of benefit to the community at large.  However,  the company owners are guaranteed a benefit as soon as they receive the tax payer money.  It is a gift of tax payer money to company owners in the HOPES that SOME tax payers will get something in return.

Now, I'm not advising against playing the game.  If BA doesn't contribute to the project will they move Flight Safety to Dallas or Wichita?  Dunno.  Maybe Houston will step up and bribe away some new industries for a change.  From an economics perspective BA might be better off playing the game.  If they structure the deal right they will almost certainly come out ahead  . . .  but if they jump at it and throw money at every company that comes knocking, they will probably realize a short term gain and long term detriment.

But that doesn't excuse the fact that it is still corporate welfare.  Tax payer money directed at private companies.  The precedent has been set that bribing companies is the norm, call it whatever you but it is simply a redistribution of wealth from tax payers to company owners.

side note:  at least in the Tulsa area it doesn't appear individual cities bid against each other.  Dallas/Ft. Worth are HORRIBLE at bribing companies from one town to move to the next, and bribing them to move back when that expires.

[Conan71]

How does this tax payer gift to a corporation encourage production? Of course the answer is, it doesn't.

The request for the money is an implicit threat to take those jobs elsewhere.  Just like Tulsa did with V2025 and American Airlines.  Or OKC did by giving money to the Thunder (and renovating the arena).    These activities aren't actually increasing any production - it's keeping the production here.

In the end, it is a ZERO SUM game.  Broken Arrow will transfer wealth from tax payers to the owners of a company in hopes of retaining some sort of benefit to the community at large.  However,  the company owners are guaranteed a benefit as soon as they receive the tax payer money.  It is a gift of tax payer money to company owners in the HOPES that SOME tax payers will get something in return.

Now, I'm not advising against playing the game.  If BA doesn't contribute to the project will they move Flight Safety to Dallas or Wichita?  Dunno.  Maybe Houston will step up and bribe away some new industries for a change.  From an economics perspective BA might be better off playing the game.  If they structure the deal right they will almost certainly come out ahead  . . .  but if they jump at it and throw money at every company that comes knocking, they will probably realize a short term gain and long term detriment.

But that doesn't excuse the fact that it is still corporate welfare.  Tax payer money directed at private companies.  The precedent has been set that bribing companies is the norm, call it whatever you but it is simply a redistribution of wealth from tax payers to company owners.

side note:  at least in the Tulsa area it doesn't appear individual cities bid against each other.  Dallas/Ft. Worth are HORRIBLE at bribing companies from one town to move to the next, and bribing them to move back when that expires.

Do you mean to tell me that an increase in payroll or anchoring an industry leader in our area is a bad thing?  Weren't you leaning toward voting for the River Tax plan which was going to create a bunch of service industry jobs for $282 mm of our tax money? 

How can you categorize a $6.6 mm investment by the municipal government in this case as a zero-sum game when the potential payroll pay-back is at best going to double that amount every year?

Handing out $10mm in V-2025 funds to American Airlines to improve their waste treatment system is a far better example of corporate welfare.  How many jobs and long-term payroll did that project create?  Not many, if any.  Where's the pay-back to the citizens?

Using my estimate of $12mm a year in additional payroll to the area, I'd estimate at least $1mm a year of that will be returned to the community in the form of sales taxes, property taxes, fuel taxes, liquor taxes, etc. which can be used to provide other benefits to the community.

I really don't see how increased money coming into the local economy is a bad thing.  Am I happy that it's become the norm for corporations to expect perks and help from the locals, no, not at all.  Personally, I'd prefer it if Flight Safety would go to Uncle Warren (they are owned by Berkshire Hathaway) and ask for a loan.  But, if a company is asking for money to help fund a construction project (in this case, they are only asking for about 20% of total project cost) which will create good paying jobs, I don't have as big a problem with it. 

Sorry, wish I had more time to expand on the issue this morning in more detail but I don't.

[Breadburner]

Who cares it's BA.....They can do what the want...Not to mention the fact they can say no....I thinks its a solid investment....

[cannon_fodder]

Yes.  I am saying it is corporate welfare.  The are taking tax payer money and giving it to a corporation.

The end.

I'm not saying it is a bad investment.  I'm not arguing against playing the game.  I made it very clear that the City very well might come out ahead in this transaction.

But that doesn't change the fact that they are redistributing wealth from the tax payers to company owners.  Plain and simple.  And on a basic principled level that is corporate welfare.   Even if it was a loan it would still be corporate welfare (tax payers on the hook for corporate risk).

If no one played the game and a community was forced to stand on the merits of doing business there, all communities would be much better off.  And that is because it is a ZERO SUM GAME.  The business either needs to expand and create more jobs or it doesn't.  It isn't contingent on whether or not the tax payers of BA subsidize the project or not - they either need more capacity or they don't.  Thus, the only reason BA will consider paying the bribe is to stop them from moving to some other community that will (unless BA feels they are not the best location for this industry in which case they are bribing the company to make up for their shortcomings).

Thus, it is a zero sum game.  In the end a bribe from BA will neither increase nor decrease overall economic production or employment.  It might shift it around in favor of Broken Arrow, but simply because corporate welfare has become common place that they feel the need to play the game.

You can get into trouble in this loop. Companies EXPECT to be bribed to stay.  Mega Corp will EXPECT a bribe to move to or stay in Tulsa.  And what does that say to other businesses?  In Tulsa, why did American Airlines get millions of dollars to employ people but Joe's Small Company gets no help at all?    Worse yet, in some instances you are bribing one company to the detriment of another local company.   By giving money to Bass Pro to come to town Broken Arrow is punishing any long standing sporting good stores in town.  Many worse examples exist (what if Arvest wanted to move HQ to Tulsa and we gave them $10mil to do so, isn't that punishing BOK for their long standing community support without bribes?). 

See what I'm saying Conan?  Play the game if you think you have to, but the game sucks.

[rwarn17588]

Yes.  I am saying it is corporate welfare.  The are taking tax payer money and giving it to a corporation.

The end.

I'm not saying it is a bad investment.  I'm not arguing against playing the game.  I made it very clear that the City very well might come out ahead in this transaction.

But that doesn't change the fact that they are redistributing wealth from the tax payers to company owners.  Plain and simple.  And on a basic principled level that is corporate welfare.   Even if it was a loan it would still be corporate welfare (tax payers on the hook for corporate risk).

If no one played the game and a community was forced to stand on the merits of doing business there, all communities would be much better off.  And that is because it is a ZERO SUM GAME.  The business either needs to expand and create more jobs or it doesn't.  It isn't contingent on whether or not the tax payers of BA subsidize the project or not - they either need more capacity or they don't.  Thus, the only reason BA will consider paying the bribe is to stop them from moving to some other community that will (unless BA feels they are not the best location for this industry in which case they are bribing the company to make up for their shortcomings).

Thus, it is a zero sum game.  In the end a bribe from BA will neither increase nor decrease overall economic production or employment.  It might shift it around in favor of Broken Arrow, but simply because corporate welfare has become common place that they feel the need to play the game.

You can get into trouble in this loop. Companies EXPECT to be bribed to stay.  Mega Corp will EXPECT a bribe to move to or stay in Tulsa.  And what does that say to other businesses?  In Tulsa, why did American Airlines get millions of dollars to employ people but Joe's Small Company gets no help at all?    Worse yet, in some instances you are bribing one company to the detriment of another local company.   By giving money to Bass Pro to come to town Broken Arrow is punishing any long standing sporting good stores in town.  Many worse examples exist (what if Arvest wanted to move HQ to Tulsa and we gave them $10mil to do so, isn't that punishing BOK for their long standing community support without bribes?). 

See what I'm saying Conan?  Play the game if you think you have to, but the game sucks.

+1

Or as may dad would say: "There oughta be a law against that horsesh*t."

[Conan71]

I personally define "welfare" as a hand out which expects no measureable increase in productivity as a return or simply maintaining and rewarding mediocrity.  An education grant is awarded assuming someone will improve their station in life and increase personal productivity.  Do you consider education grants welfare?  After all, they are a hand out, right?  Giving Flight Safety money to expand is investing in increased productivity, if they are projecting a gain of 300 jobs, is it not?
 
Giving a company $6.6mm to build a new facility and NOT increase sales or payroll would be a better example of corporate welfare or a zero sum game.

I agree as much the game sucks, but you cannot call something which ends up creating an additional 300 jobs, a zero sum game.  I'd agree with your choice of characterization if the $6.6mm investment by the city only resulted in a $6.6mm payback.  As it is, figuring a $12mm/yr increase in payrolls and figuring conservatively that 10% of that will be paid back in local taxes, it's about a six to seven year pay-back.  Point is, it is a gain to the area tax base that would essentially only take 6 to 7 years to pay back if we accounted for things like this.

Quality jobs programs which give companies tax breaks for hiring x amount of people would be corporate welfare as well, by your logic.  Flight Safety ostensibly will put more back into the local economy than they will take out from the taxpayers on this project, so by definition, this cannot be a "zero sum game"- unless BA invests the money and Flight Safety goes tits up before the city would realize all of it's investment.

Is it a zero sum game or corporate welfare when a city like Jenks votes for a TIF package to finance infrastructure improvements for a massive mixed use commercial/office/residential development?  Is it corporate welfare when a city constructs streets, sanitary sewers, storm sewers, and water lines for a new residential development being developed by a private developer?

One thing the story did not note, is whether or not the taxpayer end of the Flight Safety expansion is infrastructure improvements or simply providing a parcel of land worth $6.6mm to build on or if it's 1/5 of the total construction cost on the building.  Would you still consider a city-provided parcel of land or simply infrastructure improvements for this project to be welfare or a zero sum game?

[guido911]

I personally define "welfare" as a hand out which expects no measureable increase in productivity as a return or simply maintaining and rewarding mediocrity.  An education grant is awarded assuming someone will improve their station in life and increase personal productivity.  Do you consider education grants welfare?  After all, they are a hand out, right?  Giving Flight Safety money to expand is investing in increased productivity, if they are projecting a gain of 300 jobs, is it not?
 
Giving a company $6.6mm to build a new facility and NOT increase sales or payroll would be a better example of corporate welfare or a zero sum game.

I agree as much the game sucks, but you cannot call something which ends up creating an additional 300 jobs, a zero sum game.  I'd agree with your choice of characterization if the $6.6mm investment by the city only resulted in a $6.6mm payback.  As it is, figuring a $12mm/yr increase in payrolls and figuring conservatively that 10% of that will be paid back in local taxes, it's about a six to seven year pay-back.  Point is, it is a gain to the area tax base that would essentially only take 6 to 7 years to pay back if we accounted for things like this.

Quality jobs programs which give companies tax breaks for hiring x amount of people would be corporate welfare as well, by your logic.  Flight Safety ostensibly will put more back into the local economy than they will take out from the taxpayers on this project, so by definition, this cannot be a "zero sum game"- unless BA invests the money and Flight Safety goes tits up before the city would realize all of it's investment.

Is it a zero sum game or corporate welfare when a city like Jenks votes for a TIF package to finance infrastructure improvements for a massive mixed use commercial/office/residential development?  Is it corporate welfare when a city constructs streets, sanitary sewers, storm sewers, and water lines for a new residential development being developed by a private developer?

One thing the story did not note, is whether or not the taxpayer end of the Flight Safety expansion is infrastructure improvements or simply providing a parcel of land worth $6.6mm to build on or if it's 1/5 of the total construction cost on the building.  Would you still consider a city-provided parcel of land or simply infrastructure improvements for this project to be welfare or a zero sum game?

Well stated and I agree.  To me, calling something "corporate welfare" is just a way to poison an argument. Corporations do not exist for government or the people that work there, they exist to make money. So to that end, BB is right. BA does not have to pay the "bribe" and this company can pack up and leave with THEIR jobs (not BA's or the employee's jobs) if it chooses to do so.

CF WROTE: 

"Yes.  I am saying it is corporate welfare.  The[y] are taking tax payer money and giving it to a corporation.
The end."

Just "wow" on that sweeping definition of welfare. By that definition, I guess the giving of taxpayer money to the fire and police departments is "welfare"?  Is it me or do all of us hate those welfare recipients that protect us from crime and rescue our homes from fires.  What about churches that are exempt from paying property taxes...they too on "welfare"? Also, I had no idea that when I was in the military and getting paid by tax dollars I was on welfare.

[cannon_fodder]

Guido,

A firefighter, police officer, and service member are "employees" doing service in exchange for monetary gain.  Thus, it isn't welfare.  A corporation is a privately owned for profit venture with the principle aim of making money for the owners.  Thus, when public money is given to the company to help the owners profit . . . it's welfare.

Please, tell me you were being obtuse and that you understand the difference between a public employee and a private company.  Maybe no one explained to you when you were in the military that a) you weren't a for-profit corporation and b) you were being paid for being in the military.  My guess is those two distinguishing features play a significant roll in determining the definition of corporate welfare.

Additionally, if the city of Broken Arrow was giving millions of dollars to a church just for doing what churches do . . .then yes, it would be welfare.  But since they don't, then no . . .I'd say that suggestion isn't at all relevant.

- - -

It IS a zero sum game.  Beyond any doubt and beyond any debate.  The company is NOT producing more because they are getting a bribe from BA - they are producing more because there is a greater demand for their product.  Without the standard practice of providing corporate welfare it would not be demanded.  If no one provided corporate welfare the production levels would be the same.  Again, NO production is gained by corporate welfare.  It merely redistributes tax payer wealth to individual owners - thus, it's a zero sum game. 

The only way to deny that argument is to say that without a gift of tax payer money they wouldn't expand their business.  Which doesn't make sense.  Either the demand for their product is there or not.  Either their business model makes money, or it does not.  If their business model is contingent on tax payer subsidies then in the long run it must be allowed to fail.  (and I feel the need to point out yet again, that this is presupposing all parties acting the same.  That is to say if no one gave money to companies.  Since they do, I'm not advising against playing the game.  I've been very clear).

Quality job IS corporate welfare.  We are taking money away from tax payers and giving it to the owners of companies.  It is a very easy concept to understand:  if a company is given money for doing nothing other than operating its business . . . it's a handout.

YES, by operating the company they may inject MORE into the economy than is taken out.  It might end up being a good investment.  But that doesn't change the fact that you redistributed wealth to reach that end.  You took money from many people to gain a large benefit for a select few and a small benefit for several others.  Just like the argument that society as a whole is better off by taking money from many tax payers and handing it out as benefits to the poor.  In theory we all end up ahead - but that doesn't suddenly mean it isn't welfare.

A TIF development is corporate welfare to a lesser extent.  It is essentially a tax payer backed loan to private enterprise.  However, it is somewhat different because infrastructure is a proper responsibility of government.  At the end of the day government builds roads, sewer lines, and other items that it ends up owning to serve a new tax base - - items which by the design of the TIF the persons benefiting from those assets end up paying for.  Where as by handing money over to a corporation an immediate $6mil transfer of wealth has occurred and the person benefiting from that transfer and those paying for it share no correlation.

Would you still consider a city-provided parcel of land or simply infrastructure improvements for this project to be welfare or a zero sum game?

Infrastructure has been relinquished as a job of government and is available to all comers - it is not bestowed upon select companies.  That's largely what cities do. So I don't usually consider infrastructure to be corporate welfare. A city provided parcel of land would be welfare in my world (if it was given).


- - -

What has Flight Safety done that thousands of other companies in Tulsa haven't done?  Why do they get a tax payer handout and no one else does?  If we are giving out $22,000 for every job, then I'll go ahead and start a small company employing 5 people and take my $100,000 check.  Or do only *some* companies get tax payer money?  Why them?  Do we give them more when they threaten to move?  What about the next company that wants to expand - we had better set aside a few million for them too.

In essence, Broken Arrow is paying $22,000 for each job the company promises to bring in.
- - -

Corporate welfare is the norm.  It's expected.  So even conservatives are totally immune to the concept. 

When we take money from tax payers and redistribute it to another group of people, we're happy to call that welfare even when the theoretical result is that the community is better off.  But when we take money from tax payers and give it to a group of people that own a company and the theoretical result is that the community is better off - for some reason that's not welfare.  On the basic level they are both redistribution of wealth ostensibly for the common good, you can argue one works and the other doesn't - but it's the same animal.
- - -

And again, I'm not arguing against this transaction.  I have worked with Flight Safety and it is a nationally known company.  If I was on a panel I'd try to structure it as a loan or with some provisions in there other than just a gift (maybe a guarantee on the assessment tax occupied or not for X year [which would equal payoff]). . . but I'd want those 300 jobs. 

What disturbs me is that people, even fiscal small government conservatives, seem to jump on giving money to companies to do what they would be doing anyway (operating and growing the business).   Economist Brian Gongol, the Cato Institute, and many out of the Chicago school  have plenty to say on the topic if you want a better argument than my 10 minutes can allow.

(sorry for the ramble, had to write on the fly)

[Conan71]

Good logic, but you ignore a couple of points

"The only way to deny that argument is to say that without a gift of tax payer money they wouldn't expand their business.  Which doesn't make sense.  Either the demand for their product is there or not.  Either their business model makes money, or it does not.  If their business model is contingent on tax payer subsidies then in the long run it must be allowed to fail.  (and I feel the need to point out yet again, that this is presupposing all parties acting the same.  That is to say if no one gave money to companies.  Since they do, I'm not advising against playing the game.  I've been very clear)."

It's not all about demand for their product.  If the city investment were for additional equipment and machinery that the corporation could not otherwise afford or finance which would create more different jobs that otherwise would have been done at another facility out of state, that's not a zero sum game.

Here's the other thing we don't know for certain: could the city contribution be strictly for infrastructure work?  In that case, there'd be no welfare in your book as infrastructure is seen as the job of government.

Finally, as hand-out to a company it adds back to the community by providing or maintaining jobs.  As a hand-out to individuals, what do people buying cigarettes, generic beer, and pork rinds really add back to the community.  Don't you think it's sound logic to help provide jobs instead of a disincentive to work like an entitlement check? 

That's as far as I care to take the argument, carry on if you like.

[cannon_fodder]

Again, I'm not arguing against playing the game.  Just saying the game ends up a loser for the tax payers as a whole when the system is extrapolated.

Per creating "different jobs":  They either need the new positions or they do not.  If they can not get financing for the new jobs - the question must be asked why not?  Is the company not financial sound?  Is there not a high demand for the product?   That argument says states that the company has the demand and is fiscally sound enough that they will contribute to the community for years --- but they are too great of a risk for private industry to do business with.

I understand that in reality it might only cash flow if they get a handout.  Or, more likely, it is only worth the risk for the company to invest on 300 new jobs if they are given $6,000,000.  But I believe my overriding point still stands.

And per the handout to individuals:  in THEORY welfare is better for the entire community.  That's the purpose of it.  In exchange for various governmental welfare programs we are supposed to get less crime, cleaner streets, better educated citizenry and overall have a better community.

In exchange for various governmental corporate welfare programs we are supposed to get good jobs, increased tax base, and more economic activity . . .all leading to a better community.

In theory both have noble goals. In theory both have significant problems.   WE paid a good chunk of change to bribe manufacturing jobs from Iowa to Oklahoma.  As soon as the incentives ran out Waterloo Industries pulled up steaks and moved to the next community willing to bribe them (in Missouri).   And if they fail to bribe them whenever the incentive period is up they will surely move again.

If my argument isn't clear, let me know.  But I think we've beaten the horse to death.