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The Curse of Corporate Welfare

Thursday August 17th, 2017   •   Posted by Craig Eyermann at 6:38am PDT   •  

18954735 - businessman asking for bailout When it comes to the amount of money that’s wasted by governments, it’s hard to beat corporate welfare for both its size and its endurance.

All too often, once a company is gifted with taxpayer money to “stimulate the economy” or to “stabilize the market” or to “keep jobs here”, it opens the door to a continuing stream of subsidy payments or outright bailouts that once turned on, take on a life all their own, where the companies benefiting from the largess of politicians become completely addicted to the point where they cannot survive without them.

Worse, the politicians in charge of providing the welfare don’t seem to be either able or willing to truly stop it.

There’s a great example of the unintended consequences of corporate codependency on government welfare in New York, where Tim Knauss of the Syracuse Post Standard reports on the continuing gifts of public tax dollars to private corporations years after their funding spigot was supposedly turned off.

New York state shut down its out-of-control Empire Zone business incentive program in 2010 after providing millions of dollars to companies that state officials never intended to help.

Unfortunately for state taxpayers, the costs continue to pile up. Businesses that got in before the door shut can earn lucrative tax credits for up to 14 years.

The ultimate cost is likely to be at least $3 billion – with a B.

It could go even higher. Businesses are holding more than $1.5 billion in unused credits they hope to use someday to offset their taxes. That could push the final cost over $4 billion.

A lot of that money went to businesses that had already been operating for decades, added few if any new jobs, and were never at risk of leaving for North Carolina.

Knauss provides examples of the kinds of companies that cashed in on the New York state government’s willingness to give away tax dollars without any real consideration. Starting with the owner of two antiquated power plants.

The owner of two Korean War-era power plants near Buffalo received more than $190 million in Empire Zone tax credits between 2003 and 2015. During part of that period, the state was suing the Huntley and Dunkirk generating stations over their heavy pollution.

After 13 years of subsidies, both Huntley and Dunkirk closed, eliminating 136 jobs.

Another way to think of that money is that the utility owner was paid $107,466 per job “saved” per year to keep polluting the environment, which the state is also paying to clean up. Here’s another example of wasted stimulus spending for a different kind of utility company.

A company that owns 71 hydroelectric plants acquired from Upstate utility company Niagara Mohawk Power Corp. estimated a combined Empire Zone take of roughly $142 million. Most of the hydros were built at least 60 years ago. Some were built 100 years ago by predecessors of Niagara Mohawk.

Empire Zone credits were so lucrative that the hydro company paid $1 million a year to the town and village of Potsdam in return for drawing their Empire Zone to include nearby dams.

What kind of return on investment do you suppose the corporate owner of the hydroelectric plants got by “investing” $1 million of their money in the local politicians of an nearby town and village to incent them to redraw the map to their benefit? It was probably quite a bit higher than what the return would have been if they had invested in upgrading the company’s well-aged infrastructure!

Knauss concludes his reporting on the waste generated by New York’s Empire Zones by quoting Howard Zemsky, who is currently the state’s economic development commissioner.

“I’ve never done a study on Empire Zones,” Zemsky said. “(But) I would say the empirical evidence on the Upstate economy over many decades suggests that what we were doing, we should not be doing. This doesn’t really require a whole lot more analysis, in my opinion, than that.”

Although New York’s Empire Zone economic development program was terminated seven years ago, they tax credits they left behind don’t have an expiration date. The corporations that collected them can still cash in an additional $1.5 billion over as long a time as they might choose. It’s a gift from state politicians to their cronies in the corporate world that just keeps giving.

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August 2017