Right now, three tech companies—#1 and #2 microchip makers Intel and Samsung and electric-truck start-up Rivian—are staging secret subsidy auctions, playing states against each other for new facilities.
You probably haven’t heard of Rivian yet, but that’s soon to change. Backed by Amazon.com, Ford Motor Company, T. Rowe Price and Cox Automotive, Rivian will soon unveil a luxury SUV and luxury pickup; it also has a 10-year order for 100,000 Amazon last-mile panel vans. Already operating in a reopened auto plant in Normal, Illinois, Rivian is staging a competition for a $5 billion car and battery manufacturing plant. It has reportedly already attracted bids from Georgia and Texas, where Fort Worth has approved the company for $440 million in local subsidies .
It’s a brash start for a secretive, 10 year-old company that has no production track record, is targeting affluent customers, and tries to avoid comparisons with Tesla. Perhaps founder and CEO RJ Scaringe hasn’t noticed that Tesla founder and CEO Elon Musk has already extracted more than $3 billion in public subsidies. Or does Rivian’s definition of being a “green company” include the freedom to squeeze the green from your community?
Samsung is looking to build a $17 billion semiconductor manufacturing facility. It already has two chip factories in Austin, Texas for which it received over $300 million in subsidies . For the new facility, the Korean-based company has requested $1 billion in subsidies from the state, Austin, Travis County and a local school district, while saying it is also looking at other locations. Arizona, Western New York, and a small Austin suburb (Taylor) are also vying for the plant. In Taylor, $314 million in subsidies from a local school district are on the table.
As we noted at the time, Amazon’s public subsidy auction for HQ2 was only the sixth in U.S. history. The secret bidding now being staged by Rivian, Samsung and Intel is the norm and happens hundreds of times per year (though these are definitely bigger-than-average deals).
These auctions are often staged by site location consultants, themselves habitually secretive, and dealings with public agencies are typically hidden behind project code names and non-disclosure agreements, or NDAs. This corporate-dominated system makes economic development undemocratic.
In fact, hardly a week passes without a company receiving what we call a “megadeal” – that is, a subsidy package worth at least $50 million in public money. Columbus, Ohio just gave Google $54 million in tax breaks. North Carolina agreed to give about $60 million to a beverage manufacturing hub for Red Bull and two other big corporations (soon after the Tarheel State awarded $450 million to Centene and $845 million to Apple). Aiken County, South Carolina cut Rolls-Royce’s property tax for 30 years without disclosing how much this will cost the county residents. Florida gave Disney $570 million in tax breaks. Ohio gave Sherwin-Williams $114 million . Such eight- and nine-figure deals are bad enough in our pandemic-rocked economy.
In our uneven recovery, states and localities have higher priorities and the opportunity for community engagement. States could strengthen programs aiding small businesses with grants, rent assistance and access to capital, especially minority-owned firms that have been disproportionately harmed by the pandemic. States can improve unemployment insurance programs, improve access to quality affordable healthcare, invest in public education, augment main street programs or expand broadband to give all kids equal access to online learning. They could make themselves more resilient to climate change.
States and localities face a fork in the road: they can passively endure high-tech corporate secrecy and extraction, or they can choose community engagement plus community benefits. They can offer large sums and hope for corporate arrivals, or they can actively reinvest, or they can quit the subsidy bidding wars and actively reinvest in people and places.
We recommend reinvestment!