New research shows that it's not rare for companies to lower their job promises after accepting tax incentives from the government.
BY LIZ FARMER | MARCH 6, 2019 AT 4:00 AM
SPEED READ:
Foxconn announced that it likely won't meet its job target for a manufacturing plant in Wisconsin.
According to a University of Texas at Austin study, in 25 percent of cases, the state changed the terms of corporate deals after the fact.
These broken promises are often not revealed to the public.
Three weeks after Amazon announced it would back out of plans to build a second headquarters in New York City, Mayor Bill de Blasio and Gov. Andrew Cuomo are still lobbying to woo the company back in hopes of getting the 25,000 jobs and billions in community investment that it promised.
But there's no guarantee a company will deliver on its job promise in the first place. In fact, new research shows that it's not rare for companies to end up lowering their job targets after inking a tax incentives deal with the state. Most recently, global electronics maker Foxconn announced that it likely won't meet the job target for a manufacturing plant in Racine County, Wis.
Foxconn's voluntary announcement is an anomaly, though. More often than not, these broken promises aren't made public. In some cases, they're broken after the incentives are already given out.
In New York, for instance, a 2016 audit of the state Excelsior Jobs Program -- the same incentives program used for the state's Amazon bid -- found that economic development staff regularly lowered the number of jobs required in contracts when companies were about to fall short of meeting those targets. "New York state gives away millions of dollars each year in tax breaks for companies that are supposed to create jobs and expand under the Excelsior program," said State Comptroller Thomas P. DiNapoli in a press release at the time. "Oversight leaves a lot to be desired."
It's difficult to determine how common such changes are because they're usually only revealed in audits. But a new University of Texas at Austin study on the transparency of economic development shows how common they are.
The study found that in 46 out of 165 cases -- about 25 percent -- the Texas Enterprise Fund, which awards corporate incentives, amended once-finalized contracts for companies receiving tax breaks. In most instances, the number of required jobs were lowered or the schedule for meeting those requirements was changed. And many times, contracts were renegotiated right before a company would be subject to clawback provisions, which would require companies to pay back some of the incentives they received.
For example, the banking company Comerica received $3.5 million in 2007 to create 200 jobs and relocate its headquarters from Detroit to Dallas. Five years later, it was allowed to count 15 of its existing executives, including the CEO, toward their job and wage target, provided that these executives relocate to Dallas or Houston. "If you're worried about making the average wage you promised," says Nathan Jensen, the study's author, "adding 15 executives is a great way to ensure you do it."
The number of amended tax incentive deals may actually be higher. Many companies challenged the university's public records requests. The university is still waiting on several dozen contracts to be disclosed. "This finding, from a single state, is troubling," says Jensen. "If companies can not only secretly renegotiate the rules, they can also make sure that public records laws shield them from revealing these renegotiations."
Foxconn voluntarily releasing its lowered job goals may be a sign, Jensen says, that highly scrutinized megadeals might have more transparency. Although, he cautions, New York and Virginia both agreed to notify Amazon of any public records requests in their deals with the company in order to give it the opportunity to legally challenge them.
Amazon plans to move forward with a headquarters location in Northern Virginia that could bring 25,000 jobs and with an operations center in Nashville that's expected to bring 5,000 jobs.
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Liz Farmer | lfarmer@governing.com | @LizFarmerTweets | Google+