Will the Stimulus Be Frittered by Job Wars Among States?

June 30, 2009

In a perversion of President Obama’s intentions, there are troubling signs that the “

economic war among the states

” is threatening to fritter away the stimulus act.

If ever there were a time for the states to stop using taxpayer funds to chase smokestacks (and big-box retail and biotech and sports franchises and…), it would be now. Suffering their biggest budget deficits in decades, states have been

slashing everything

from healthcare for poor children to services for seniors.

Recovery Act dollars have staunched some of the bleeding: dozens of vital public services are being propped up by the Recovery Act’s

$177 billion in fiscal relief

, plus

$129 billion for safety net aid and training

, plus

$62 billion for energy and environment

, plus

$48 billion on transportation

, etc.)

Surely, President Obama does not intend for the states to take these funds, turn around and dole out massive giveaways to sweepstakes competitions or for job piracy. Yet despite state budget woes, companies still feel entitled to

game the system

, and the states are passively returning to

jobs wars as usual


Consider these familiar story lines: a company “whipsaws” states against each other for a massive subsidy package; a state reacts to “losing” a competition by announcing it is enacting costly new giveaways; a local government makes a big gaffe and asks for Recovery Act dollars for a job-consolidation deal; and a state cynically labels a giveaway to developers as the “Economic Stimulus Act of 2009.”

  • The Recovery Act includes $2.4 billion from the Department of Energy for the development of hybrid lithium-ion automotive batteries. A multi-company consortium, NAATBat, gets six states to compete for a 2,000-worker facility, and Kentucky “wins” in April with a package valued at

    $200 million

    , or $100,000 per job (before the DOE grant).
  • Michigan responds to this news the next day with $555 million worth of subsidies for several battery facilities. Soon the governor of blames his Senate for the loss of an expansion to Michigan, saying it failed to enact enough subsidies.
  • Multinational NCR (formerly National Cash Register) pits a few states against each other for its 1,250 headquarters jobs; the company has been based in Dayton, Ohio for 125 years. Georgia “wins” with a bid valued at

    almost $100 million

    ; the jobs will move to the Atlanta suburb of Duluth. Ohio officials of both parties

    sharply criticize

    the move, saying NCR never gave them a serious chance for retention.
  • To qualify for Georgia’s “Mega Job Tax Credit,” NCR simultaneously announces it will consolidate more than 800 ATM manufacturing in Columbus, Georgia. The jobs will apparently come from multiple locations (perhaps including some from overseas). In a major gaffe, local officials ask for about $5 million in

    Recovery Act monies

    as they prepare a vacant plant for the deal.
  • GM (majority-owned by U.S. taxpayers and the beneficiary of almost $21 billion in TARP funds) approaches the governor of Tennessee seeking $200 million or more in “front-end money” to produce a new small car in Spring Hill, Tennessee (pitting it against Janesville, Wisconsin and Orion Township, Michigan). To his credit, Gov. Phil Bredesen

    complains publicly

    about the cost and the front-loading. (But then, the Volunteer State set a

    new record last year

    for auto assembly-plant subsidies when it awarded Volkswagen a package worth $577 million.) GM chooses Michigan.

Finally, New Jersey: a bill there would create the nation’s most radical Tax Increment Financing (TIF) law, and it was cynically named the Economic Stimulus Act of 2009. The bill, apparently headed soon to Gov. Jon Corzine’s desk, would subsidize developers by allowing the diversion of 22 different revenue sources—that is not a typo, yes

22 revenue sources

. Yet the bill has no fiscal note estimating its cost, and the state does not comply with its law requiring disclosure of such giveaways. So taxpayers won’t be able to see how much money is taken away from schools and other public services.

The issue here is simple—

money is fungible

—so federal taxpayers have every right to question states throwing around such huge sums of it.

In most cases, the connection between Recovery Act dollars and sweepstakes subsidies is one step removed. Most states and cities got that memo long ago: use your own money when pirating jobs from one another, so that technically, legally it cannot be claimed that Uncle Sam is directly paying for interstate job piracy. And with Recovery Act dollars flowing through dozens of state agencies, direct connections are blurred.

But because money is fungible, states are more able to grant these giveaways because the Recovery Act has partially stabilized their coffers.

Cynics might say: what should we expect? Federalism means it is okay for large, footloose corporations to play states and cities like a fiddle so that small businesses and working families

get stuck

with higher taxes and lousier public services. (And home rule means it is okay for companies to do the same thing to cities and suburbs,

fueling sprawl

and stretching local tax bases so thin they become unsustainable.)

My cease-fire proposal: the U.S. Chamber of Commerce and the National Governors Association should jointly announce for the next two years, as the Recovery Act plays out, a moratorium on the economic war among the states. To borrow a phrase from Seattle activists:

It’s Time for More Important Things


President Obama: don’t let your Recovery Act investments get frittered away by corrosive, zero-sum, unbridled federalism!