Mississippi sets a record for unreported subsidies
As I have written before, when states announce a major new investment, it is far more likely that the announced subsidy is an underestimate than an overestimate. A new Good Jobs First study commissioned by the United Auto Workers unearths a new example of this, which I believe is the largest underestimate ever: Nissan in Mississippi.
When Nissan announced in 2000 that it had chosen Madison County, Mississippi, just north of Jackson, as the site for a new assembly facility, it was reported that the project had received $295 million in subsidies (at a present value of $289.7 million, as I calculated in Investment Incentives and the Global Competition for Capital). The project also was given the power of eminent domain, and while one family succeeded in avoiding condemnation, it no doubt weighed on voters when they overwhelmingly passed an eminent domain reform initiative in 2011.
It turns out, as Good Jobs First reports, that the announcements left a few things out. While the $295 million package was passed by the state legislature in a one-day session (North Carolina does this sort of thing, too), the project was also receiving incentives from Madison County, and the city of Canton agreed not to annex the plant for 30 years. In addition, it was eligible for huge subsidies under existing Mississippi programs, including Jobs Tax Credits, reductions in its business franchise tax, personal property and sales tax exemptions, as well as Advantage Jobs, which lets employers keep up to 90% of workers’ state tax withholdings. This is a type of subsidy of which Good Jobs First is highly critical, as is David Cay Johnston.
Just how much was left out? $867 million, as follows:
Jobs tax credits: $400 million over 20 years
Franchise tax reduction: $72 million over 20 years
Advantage Jobs: $160 million over 20 years
County infrastructure: $25 million
County property tax abatement: $210 million over 30 years
Not only that, but Nissan received a further $68 million for an expansion in 2002, plus about $13 million in miscellaneous subsidies more recently. Finally, Good Jobs First estimates that the state had to spend about $90 million to finance the bonds for the infrastructure at the beginning of the project.
The report notes that employment is around 4500. Counting all the subsidies, but omitting the $90 million for financing, that comes to about a nominal value of $276,000 per job, more than the usual assembly plant project. In addition, about 20% of the jobs there are held by temporary workers, making the value of the project less than if all workers were directly employed by Nissan.
No doubt some of this information was available before. But the fact that it’s taken over 12 years to get a full accounting of the costs of the project–and that the subsidy for the initial phase was almost three times the amount advertised–provides a stark warning about how difficult it is to have adequate oversight and accountability for even projects that receive a great deal of press coverage.
Cross-posted from Middle Class Political Economist.
“which lets employers keep up to 90% of workers’ state tax withholdings. This is a type of subsidy of which Good Jobs First is highly critical, as is David Cay Johnston.”
Un-[bleeping]-believable.
Like there is any freak’n way Nissan could create enough jobs to cover this loss revenue to the state.
Oh well, good thing the people have their people in DC watching out for them…Ha, Ha, Ha.
These kinds of “exposes” are published with routine regularity and these types of tax subsidy schemes occur all over the country. What is needed in addition to the description of the gross benefits to the corporations is exposure of who within each of these localities has actually benefited from the lure of each new factory. Remember that building a new factory in a new location has lots of expenditures/costs that those tax abatements are aimed at off setting. Someone local benefits from the actual expenditures. Who sold or rented the land? Who manufactured and/or sold all the equipment needed to build a new factory? There is a need for various forms of insurance to be placed in conjunction with such big projects. Someone local, state, county and city, is on the receiving end when the expenditures start adding up. Look to that issue and you’ll find why it is that such idiotic tax support deals are made in order to lure corporations to a specific location.
State and local politicians aren’t dumb rubes. They are mostly people with a business interest in their localities. What they do is aimed at enhancing those interests and their personal financial well being. It isn’t a mystery.
So it seems that we have government workers making Nissan vehicles in MS. The number of government workers per private worker is what (as per revenue source)?
Is that $267,000 per job spread over 12 years? If so that comes out to an annual subsidy of around $22,250 per job per year, a number that is still high but more realistic depending on what the average worker there actually makes, if it’s $30,000 or less then it an obvious rip off but if it’s $50,000 or more then maybe not. Then again, it’s Mississippi so likely that number is closer to $30,000…
@Darms, compared to what other states have paid for automobile assembly plants (discussed here: http://www.middleclasspoliticaleconomist.com/2011/09/wooing-of-electrolux-by-memphis.html), this is a pretty bad deal. Moreover, if you have government paying such a huge portion of the value of the facility, what is the point of private enterprise? Mississippi practically gave Nissan a free plant, but gets none of the profits.
Most of the subsidies are over 20 years, by the way.
@Jack, in political science what you describe is often referred to as a growth machine. But there is some chipping away at subsidies that states can no longer afford. California, the birthplace of tax increment financing, got rid of it last year when it abolished the redevelopment agencies which carried it out. From what I read, it freed up a billion a year for California schools.
@Kenneth Thomas, FWIW I am opposed to any governmental body paying any subsides whatsoever for industries to relocate. I watched Dell computer get massive subsidies to move to Williamson County only to pack up & relocate out of state once the subsidies expired. Total scam of ‘we, the people’ but great welfare to Michael Dell…
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