Government intervention, picking winners and losers in a ‘free market’ economy

Several years ago Arizona cities, particularly those in the state of Maricopa, engaged in bribery tax incentives to attract businesses to their communities. This came to a head in 2007 with the CityNorth and Westcor Prasada developments.

The Arizona legislature enacted a law (A.R.S. Section 42-6010) that outlawed subsides for retail projects in Maricopa and Pinal counties, which encompassed the Phoenix metro and include two-thirds of the state’s population. Arizona bans ta breaks for retail developments. Under the law, cities that continue to fund retail development will see their share of state revenue reduced by an amount equal to the incentives they give developers.

One of the arguments made for the law was the Libertarian free market philosophy of the Goldwater Institute that government should not be picking winners and losers in a free market economy by offering subsidies, i.e., “gifts.”

Now we have the Lucid Motors deal. Lucid Motors plans Casa Grande plant:

duceyA startup company aiming to compete with electric-vehicle maker Tesla announced plans Tuesday for an assembly plant in Casa Grande that could bring up to 2,000 jobs over five years.

Lucid Motors of Menlo Park, Calif., plans to start constructing the $700 million plant in the second quarter of 2017. Company officials said the facility could begin producing electric luxury sedans by the end of 2018. Parts for the vehicles would be manufactured by suppliers in Sonora, Mexico.

Arizona helped secure its piece of the ambitious, transnational effort in part by offering more than $46 million in subsidies tied to milestones the company must reach as it moves toward vehicle production.

Gov. Doug Ducey announced the company’s plans at a news conference at the state Capitol, joined by Sonora Gov. Claudia Pavlovich and Lucid executives.

Ducey noted the company expects to begin hiring next year and the plant could create more than 2,000 jobs by 2022.

“We’ve demonstrated that Arizona is among the most competitive states in the nation to work and do business — we’re talking technology companies, we’re in Silicon Valley. We’re talking with organizations considering Arizona over other states,” Ducey said.

He noted the company scouted 13 other states before settling on Arizona. “The word’s out on us,” Ducey said.

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While the state apparently succeeded in luring Lucid, it fumbled details of the subsidies during the news conference Tuesday.

Ducey sidestepped at least three direct questions about the potential cost to taxpayers. Instead, he directed the questions to Sandra Watson, president and CEO of the Arizona Commerce Authority.

Watson said the state used two existing performance-based programs to woo the company. In fact, it used three. She said Tuesday the value of tax credits the company could receive was unknown. On Wednesday, the authority noted “there seems to be some confusion” over the value of the subsidies.

“As the jobs are developed and as the investments are made, that’s when our incentives will kick in,” Watson said Tuesday. “It’s a combination of investment and the number of jobs so at this point it’s difficult to calculate,” she said of the facilities credits.

The company could receive up to $5 million from the Arizona Competes Fund. It also could be eligible for up to $40 million in tax credits if its facilities meet certain criteria and $1.5 million for job training grants tied to its hiring.

Susan Marie, a spokeswoman for the authority defended the subsidies Wednesday, comparing Lucid’s deal to a pair of high-profile deals in Nevada.

“It’s worth noting that if Lucid Motors received every dollar from each of the above mentioned programs, the total state level package would be worth $46.5 million, which pales in comparison to the $1.3 billion package for Tesla and the $335 million package for Faraday Future that Nevada did,” she said in a statement.

A spokesman for the Pinal County supervisors could not be reached for comment about its commitments to Lucid.

Gov. Ducey said Arizona’s “recipe” of low taxes, light regulation, “a good education system (sic),” and lifestyle make it attractive for companies to relocate or start operations in the state. And, he said, as a former CEO himself, he’s helping negotiate the deals.

Note: The Goldwater Institute sued Pima County earlier this year for a similar $15 million subsidy to a startup company, World View Enterprises,  seeking to develop a  high-altitude balloon ‘spaceport’ in Tucson. GI views the incentive deal as a corporate subsidy that violates state restrictions on gifts from governments to businesses (the gift clause). Goldwater Institute lawsuit over $15M Arizona space balloon port subsidy moves forward. Will GI be consistent and sue over the Lucid Motors subsidies?

The Republic’s Laurie Roberts pegs the taxpayer subsidies aka corporate welfare to Lucid Motors at $23,000 per job expected to be created. Roberts: State subsidy for Lucid = $23k per job:

Now we find out Ducey’s definition of government getting out of the way:

Our leaders offered $46.7 million in state subsidies to lure Lucid Motors to Arizona, according to a report by the Republic’s Ronald J. Hansen and Yvonne Wingett Sanchez. The plan is to build an assembly plant in Casa Grande that could eventually employ up to 2,000 people.

In other words, about $23,350 in subsidies for every job created.

Meanwhile, Pinal County will buy 493 acres for the plant — a price that county officials estimated at “way less than $100 million,” according to Capital Media Services’ Howard Fischer.

Interestingly, Ducey — who as a former CEO has said he’s negotiating these deals — didn’t mention the $46.7 million during Tuesday’s announcement. It seems he either didn’t know about it or he didn’t want to talk about it.

This Arizona story is playing out at the same time that Donald Trump is engaging in a PR stunt claiming that he “saved” 1,000 jobs at a Carrier plant in Indiana from going to Mexico. Carrier has announced that it will keep half of its 2,000 workers in Indianapolis, in return for $700,000 per year in state of Indiana tax breaks (the feckless media seems to be overlooking the unlucky 1,100 who did not make the cut as they play along with this Trump PR stunt). There is also the incentive of Carrier’s parent company United Technologies having lucrative federal defense contracts, which will now continue for having agreed to play along with this Trump PR stunt.

In an op-ed at the Washington Post, Senator Bernie Sanders points out that the Carrier deal arguably incentivizes other companies to shake down state governments for tax breaks and other corporate welfare by threats to move abroad. Bernie Sanders: Carrier just showed corporations how to beat Donald Trump:

President-elect Donald Trump will reportedly announce a deal with United Technologies, the corporation that owns Carrier, that keeps less than 1,000 of the 2,100 jobs in America that were previously scheduled to be transferred to Mexico. Let’s be clear: It is not good enough to save some of these jobs. Trump made a promise that he would save all of these jobs, and we cannot rest until an ironclad contract is signed to ensure that all of these workers are able to continue working in Indiana without having their pay or benefits slashed.

In exchange for allowing United Technologies to continue to offshore more than 1,000 jobs, Trump will reportedly give the company tax and regulatory favors that the corporation has sought. Just a short few months ago, Trump was pledging to force United Technologies to “pay a damn tax.” He was insisting on very steep tariffs for companies like Carrier that left the United States and wanted to sell their foreign-made products back in the United States. Instead of a damn tax, the company will be rewarded with a damn tax cut. Wow! How’s that for standing up to corporate greed? How’s that for punishing corporations that shut down in the United States and move abroad?

sandersIn essence, United Technologies took Trump hostage and won. And that should send a shock wave of fear through all workers across the country.

Trump has endangered the jobs of workers who were previously safe in the United States. Why? Because he has signaled to every corporation in America that they can threaten to offshore jobs in exchange for business-friendly tax benefits and incentives. Even corporations that weren’t thinking of offshoring jobs will most probably be reevaluating their stance this morning. And who would pay for the high cost for tax cuts that go to the richest businessmen in America? The working class of America.

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Trump’s Band-Aid solution is only making the problem of wealth inequality in America even worse.

I said I would work with Trump if he was serious about the promises he made to members of the working class. But after running a campaign pledging to be tough on corporate America, Trump has hypocritically decided to do the exact opposite. He wants to treat corporate irresponsibility with kid gloves. The problem with our rigged economy is not that our policies have been too tough on corporations; it’s that we haven’t been tough enough.

We need to re-instill an ethic of corporate patriotism. We need to send a very loud and clear message to corporate America: The era of outsourcing is over. Instead of offshoring jobs, the time has come for you to start bringing good-paying jobs back to America.

If United Technologies or any other company wants to keep outsourcing decent-paying American jobs, those companies must pay an outsourcing tax equal to the amount of money they expect to save by moving factories to Mexico or other low-wage countries. They should not receive federal contracts or other forms of corporate welfare. They must pay back all of the tax breaks and other corporate welfare they have received from the federal government. And they must not be allowed to reward their executives with stock options, bonuses or golden parachutes for outsourcing jobs to low-wage countries. I will soon be introducing the Outsourcing Prevention Act, which will address exactly that.

If Donald Trump won’t stand up for America’s working class, we must.

Good luck with that. With the Tea-Publicans in control of all three branches of government, the corporatocracy of Plutocrats is in charge and will get whatever it wants.

3 responses to “Government intervention, picking winners and losers in a ‘free market’ economy

  1. Does anyone remember the DeLorean?
    A former General motors executive left GM and founded a car maker named DeLorean to manufacture stainless steel automobiles. He talked Belfast, Northern Ireland into some huge subsidies to build a manufacturing facility. That didn’t work and Belfast was left holding the bag. In an effort to keep the company going the ex-GM guy talked Saint John, New Brunswick, Canada and the province into another huge bundles of subsidies. They to were left with an empty building. Have you seen any DeLoreans driving around lately?
    I suggest Doug Ducey and the Pinal County Supervisors do a little research.

  2. For Sure Not Tom

    Lucid Motors is financed by Tsing (China), Sumitomo (Japan), Venrock (USA, somehow),and LeEco (China).

    In other words, the tax incentives given to Lucid Motors mainly end up in banks owned by the government of China and other countries.

    Why is Ducey giving the government of China my tax money? In what world is extracting tax money from Arizona for China good economics?

  3. Frances Perkins

    Be very careful. Faraday in Nevada got a bunch of tax breaks and incentives to build a plant in North Las Vegas to build electric cars. Now granted they did have milestones they had to meet to win each incentives. Construction was started. But now they have “suspended” construction and they don’t know if they will ever be back.