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Tens of billions in 'corporate welfare' tax deals about to be exposed like never before

  • Special deals given by states to companies, including Apple, Google, Facebook, Microsoft and Amazon, can cost as much as $2 million per job.
  • One analysis of Mississippi's deal to land a Nissan auto plant found it four times more expensive as was known, and the costliest deal ever to bring in a foreign manufacturer.
  • A new accounting rule, GASB 77, will reveal to taxpayers tens of billions of dollars in spending never before disclosed and should result in a new debate about "corporate welfare."
A rendering of the upcoming Facebook data center in Fort Worth, Texas.
Source: Facebook
A rendering of the upcoming Facebook data center in Fort Worth, Texas.

Then-candidate Donald Trump made American jobs a hyper-politicized issue, and even though unemployment is low, it's still big news when Carrier lays off workers in Indiana or when Taiwanese electronics giant Foxconn eyes Midwestern states to possibly create thousands of new jobs.

States and localities spend aggressively to lure private investment: one academic study estimated $70 billion per year — and that was before the Great Recession prompted some governors and mayors to double down on tax-break offers.

About half the states have enacted special tax breaks for data centers, also known as "server farms," where the cloud of computing data resides. When we examined 11 incentive packages given to data centers for some of the nation's most prominent internet companies (Microsoft, Google, Apple, Facebook, Amazon Web Services), we found costs of almost $2 million per job.

Yet 10 states with special data center tax breaks still fail to disclose even the aggregate annual cost in lost revenue. A new government sunshine rule (see below) should change that for states like Alabama, Indiana, Iowa, Mississippi, Missouri, Nebraska, Oklahoma, South Carolina, Tennessee and Virginia.

Data center megadeals

State
Company
Year
Subsidy value ($)
Jobs promised
Cost per job ($)
Capital investment ($)
OR Google 2006 360,000,000 175 2,057,143 700,000,000
NC Apple 2009 321,000,000 50 6,420,000 1,000,000,000
NY Yahoo 2009 258,000,000 125 2,064,000 300,000,000
NC Google 2007 254,700,000 210 1,212,857 600,000,000
NV Switch 2015 229,000,000 100 2,290,000 3,000,000,000
TX Facebook 2015 146,700,000 100 1,467,000 1,000,000,000
IA Microsoft 2014 107,300,000 84 1,277,381 1,400,000,000
OH Amazon Web Services 2014 93,700,000 120 780,833 1,100,000,000
NV Apple 2012 89,000,000 41 2,170,732 1,000,000,000
AL Google 2015 81,000,000 100 810,000 600,000,000
IA Microsoft 2010 65,317,242 69 946,627 1,000,000,000
Good Jobs First

In Mississippi we examined the total cost of Nissan's auto assembly plant in Canton. Taxpayers remembered a special state legislature vote for a $295 million package. But when we examined local property tax abatements and state payroll-tax diversions, we found the cost was more than four times higher: $1.3 billion, making it the costliest "transplant" deal in U.S. history.

We know that Shelby County in Tennessee (which includes Memphis) grants about one third of all the property-tax abatement deals in the entire state. But the state's disclosure system, while it names corporate recipients, fails to reveal dollar values.

Using the Shelby example, we can't say what share of the revenue loss is suffered by any city, county or school district. But a new accounting rule, GASB 77, will change that — and lost property taxes matter greatly in a state with no personal income tax.

Time to upend conventional wisdom on 'corporate welfare'

Taxpayers are about to gain hard data on economic development tax breaks. Tens of thousands of governments will reveal tens of billions of dollars in spending never disclosed before. The data may rewrite the book and challenge conventional wisdom about "corporate welfare" spending.

The accounting rule is Governmental Accounting Standards Board Statement No. 77 on Tax Abatement Disclosures. GASB is the group best known for requiring states and localities to disclose how much they owe for retiree pensions and health care. GASB is actually not a government body, but rather a professional standard-setting body that controls Generally Accepted Accounting Principles, or GAAP, for the public sector. Governments adhere to GAAP for three main reasons: Some states mandate it, Wall Street likes GAAP accounting when it gives credit ratings, and some federal aid requires it.

GASB 77 took effect for calendar 2016 and beyond, so as governments close their books and report the prior year's spending, most will include a note, pursuant to Statement 77, disclosing how much revenue they lost to each economic development tax-break program. Because most cities, counties and school districts are on fiscal years ending June 30, most of this new data will arrive late this year.

Foreign auto '"transplant" megadeals

Parent company
Subsidy value($)
Year
State
Jobs data
Investment data($)
Nissan 1,250,000,000 2000 MS 4000 1,430,000,000.00
Volkswagen 554,000,000 2008 TN 2000 1,000,000,000.00
Hyundai Motor 410,000,000 2006 GA 2500 NA
Toyota 354,000,000 2007 MS 2000 1,300,000,000.00
Volkswagen 263,300,000 2014 TN 2000 600,000,000.00
Daimler 238,000,000 1993 AL NA NA
Hyundai Motor 234,600,000 2002 AL 2000 1,000,000,000.00
Volvo 212,000,000 2015 SC 2,000 - 4,000 jobs by 2030 500,000,000.00
Nissan 200,000,000 2000 TN 2000 1,000,000,000.00
Honda 158,000,000 1999 AL 1500 NA
BMW 150,000,000 1992 SC NA NA
Toyota 147,000,000 1985 KY 3000 800,000,000.00
Toyota 146,500,000 2013 KY 750 360,000,000.00
Honda 141,500,000 2006 IN 2000 550,000,000.00
Toyota 133,000,000 2003 TX 2000 NA
Good Jobs First

We expect the new data will reveal sharp differences and lots of hidden surprises. But the data will be crude and hard to access. Governments won't be required to name company names; they will only report one dollar figure per program per year. And in all but one state, the data will reside in individual governments' financial reports, usually in PDF documents.

Only New Mexico, thanks to State Auditor Tim Keller, has committed to collecting GASB 77 data electronically and making it accessible online. Keller, a former state senator whose incentive disclosure bills were vetoed by both a Democratic and Republican governor, wants taxpayers to immediately enjoy a more informed debate about the state's actual spending priorities.

Good Jobs First is also soon to launch Subsidy Tracker 2, where we will collect and publish GASB 77 data. (Our longstanding Subsidy Tracker database collects company-specific incentive data.)

In all 50 states, the GASB 77 data will likely spawn a whole new cottage industry of journalists, academics and nonprofits "wrangling" the data, then analyzing it from many perspectives.

Taxpayers will be enriched by the ensuing debate.

By Greg LeRoy, director of Good Jobs First, a nonprofit research center on economic development subsidies

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