Eliminating Subsidies for Big Business

Providing tax breaks and other kinds of subsidies to attract or retain businesses has become increasingly common over the last twenty years. Wal-Mart, for example, has received over $1 billion in public subsidies from state and local governments, according to a recent report by Good Jobs First.

There are three primary problems with development subsidies:

Questionable Public Benefit - Few cities and states have binding standards to ensure that subsidies actually produce quality jobs. A study in Minnesota found that half of recent subsidy deals went to companies paying wages more than 20 percent below market levels for their industries.

Pirating Jobs - Cities and towns frequently use tax incentives and development subsidies to lure companies from other cities or states. Corporate threats of relocation can spark a bidding war between cities. "Job piracy" produces no real economic benefit, as no new jobs are created.

Undermining Local Businesses - Subsidies are rarely provided to locally owned businesses. Instead, these businesses often see their tax dollars used to subsidize their biggest competitors.

Subsidies are particularly unwarranted in the retail sector. Providing subsidies and tax breaks for big box development not only creates an uneven playing field for locally owned businesses, but studies have found that big retail stores produce no net gain in employment. That is, they destroy as many jobs as they create by taking sales away from existing businesses that then downsize or close. Big box retail also contributes to sprawl and increased public costs for services like road maintenance and police.

Anti-Piracy Laws
Almost all federal economic development programs now have anti-piracy provisions, which bar aid to a company that is relocating from one state to another. A number of states have enacted similar measures. A California law, for example, prohibits public agencies from providing any form of assistance to auto dealerships or large-scale retail stores relocating from one city to another in the same market area. A Michigan law allows a city to veto a property tax abatement provided by another city when it's used to move a business from the former city to the latter.

Living Wage Laws
Some cities have adopted living wage laws that stipulate that any company receiving a tax break or public subsidy pay wages sufficient for employees to meet basic needs.

Regional Tax-Base Sharing
The quest for revenue-generating development creates competition among neighboring jurisdictions, which may engage in bidding wars to offer developers the biggest tax breaks or least stringent environmental regulations. Regional tax-base sharing offers one way to alleviate this problem.

TIF Reform
When used to off-set the high costs of redeveloping blighted sites in poor neighborhoods, Tax Increment Financing (TIF) can be an effective economic development tool. However, all too often, cities are using TIF to underwrite projects in non-blighted, affluent areas, to subsidize construction on previously undeveloped land, and to finance big box retail.

More Information:

• Years of Subsidizing Retail and Nothing to Show for It —  Our summary of a 2009 study in the St. Louis metropolitan region, which found: "Despite an enormous commitment of public funding to support retail development, neither taxable sales nor retail employment has grown significantly region wide." 

• Good Jobs First — A national nonprofit organization that has produced extensive resources to help grassroots organizations and policymakers ensure that economic development subsidies are accountable and effective. Among GJF's many reports on subsidies:
  • TIF, Greenfields, and Sprawl –  Published in the February 2008 issue of Planning & Environmental Law, Greg LeRoy of Good Jobs First tells the sordid tale of how an incentive created to alleviate slums has come to subsidize upscale malls and New Urbanist developments.
  • Rolling Back Property Tax Payments — Corporate retailers not only seek subsidies to build their stores. They also pressure cities to lower their property tax bills once they're operating. In this report, Good Jobs First found that Wal-Mart appeals its property tax assessments on one-third of its stores. It succeeds in getting a reduced valuation nearly half the time. Another Good Jobs First study, Growing at Whose Expense, found that General Growth Properties, the nation's second-largest owner of shopping centers, is up to much the same.
  • Shopping for Subsidies: How Wal-Mart Uses Taxpayer Money to Finance Its Never-Ending Growth - Published by Good Jobs First, this report identifies 244 Wal-Mart stores and distribution centers in 35 states that have received subsidies totaling just over $1 billion.
  • No More Secret Candy Store: A Grassroots Guide to Investigating Development Subsidies - Published by Good Jobs First, this is a comprehensive guide to researching state and local subsidies, economic development agencies, and companies. The TIF chapter explains how TIF works, describes the problems associated with TIF, and gives tips on researching TIF usage in your own community.
  • Policy Shift to Good Jobs:  Cities, States and Counties Attaching Job Quality Standards to Development Subsidies. Good Jobs First.  November 2003.

• Wal-Mart Subsidy Watch - A service of Good Jobs First, this site enables users to search a massive database of Wal-Mart subsidies. Find out how much public funding the retailer has picked up in your state.

• Big Tax Breaks for Big Boxes —  A  detailed article on how subsidies tilt the playing field against independent businesses, from the Syracuse Post-Standard, April 1, 2007

• Reforming Failed Tax Subsidies — A collection of resources and information from the Progressive States Network.