Friday, April 20, 2012

Corporate Welfare Watch: King-BIW deal resurfaces during tax-incentive scrutiny

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Bath Iron Works staff subsidize their own jobs as a result of a 15-year-old deal now coming under criticism from a national watchdog group. In 1997, Bath Iron Works threatened to leave Maine in search of greener pastures. In exchange for staying — and agreeing to invest $200 million in its shipyard here — lawmakers and then-governor Angus King agreed to pay BIW as much as $60 million over the years between then and 2018.
The payment comes even more directly from state coffers than if Augusta sent BIW a check. The company deducts state income tax from workers' paychecks, but from July 1 to the end of each year, BIW pockets the money, rather than the usual practice of turning it over to the state treasury.
Six years before that deal ends, it has been pinpointed as one of the biggest such handouts by Good Jobs First, a national watchdog group studying economic-development incentives. A recent report says the BIW tax break is the 14th-largest nationwide case of workers subsidizing their own corporations.
BIW is the only recipient of the state's custom-made Shipbuilding Facility Tax Credit, which is capped at $3.5 million per company per year. Nearly 100 other Maine companies take advantage of similar deals, under Employment Tax Increment Financing arrangements, which this year are slated to let companies keep $7.1 million of their workers' tax withholdings.
Maine is one of 16 states that has such a program (and one of six that has two), projected to cost Mainers $10.2 million in tax revenue this year alone — cash that would ordinarily be sent to the treasury but instead is kept by companies.
Good Jobs First research director Philip Mattera admits that it's "kind of an abstract issue" his group is worried about in this study. In other studies, he observes, "We're critical of a lot of these subsidy programs in general. They often go to companies that don't need them." He calls the tax-withholding rebates "even worse" than other kinds of corporate welfare because it opens up the opportunity for even more, and larger subsidies; states get much more money from income-tax withholding than from corporate taxes, and so have more cash to hand out if they can tap that source before it ever arrives in the state treasury.
He says the structure of the tax break — requiring specific investment over a specific timetable, and expanding or contracting the annual amount of the rebate depending on actual employment levels — means it's better than it might be, but is still too closely linked to workers' earnings for his group to be comfortable.
Jay Wadleigh, vice-president of Local S6, the biggest union operating at BIW, says workers are well aware of the arrangement. "We lobbied with (the company) to get it," he recalls. "What (lawmakers) did helped the shipyard," promoting investment and saving jobs. He notes that BIW's chief competitor, Ingalls Shipbuilding in Mississippi, also gets state subsidies.
He observed that while Good Jobs Now criticizes the form of the tax break, Maine could have given BIW the same amount by collecting all the workers' taxes and then sending a check from Augusta, and workers wouldn't object then, either.
Todd Gabe, an economics professor at the University of Maine who studies economic development, says business leaders care less about taxes than politicians often think, and says studies of government-subsidy programs are "mixed" as far as effectiveness.
The BIW and ETIF credits are the only corporate handouts in Maine that are actually tied to employment numbers and salaries. State officials have for years given loan guarantees, tax rebates, and other financial incentives to companies without promises of new jobs or decent wages.
The biggest such program, the Business Equipment Tax Reimbursement plan, is designed to reward investment by refunding from state coffers money companies pay in local property taxes for their equipment and machinery. In 2011, BETR gave companies a total of $55,263,656. Eleven companies got more than $1 million each in refunds from the state; of those, only LL Bean ($1 million) is headquartered in Maine. Six are out-of-state, including the biggest winner, Verso Paper ($4.3 million), BIW ($3.2 million), and Walmart ($1 million). The remaining four are owned by companies in other countries, like Nestle Waters North America (owner of Poland Spring; $1.9 million).
And these are hardly the only handouts the state offers. There are dozens of tax breaks on the books in Maine, all detailed in Maine Revenue Services reports (issued every other year, most recently in 2011). Lance Tapley analyzed the first such report on these so-called "tax expenditures" for the Portland Phoenix in 2008 (see "Tax Break Heaven") and found that of the state's $3.4 billion in tax breaks that year (an amount almost exactly the size of the state's actual spending), companies got $682 million, and wealthy Mainers got $808 million. Poor people got $157 million in tax breaks, and the middle class saw about half the total tax-break benefit, or $1.7 billion.