Sick of sneaky state subsidies? Ban secret deals
News just broke that Georgia legislators upped the ante in the corporate giveaway game by agreeing to provide $1.5 billion in taxpayer-funded subsidies — the largest such handout in state history. Officials, concerned with public pushback, flew under the radar by signing non-disclosure agreements during negotiations with electric carmaker Rivian.
It’s more than just southern hospitality — American taxpayers from coast to coast are on the hook for Georgia’s generosity. This is just one of many deals made possible by the excessive pandemic relief funds provided to state and local governments by the American Rescue Plan. That’s right: Extravagant federal spending didn’t just contribute to our inflation spike. The $350 billion sent to state and local governments helped supercharge an interstate competition in corporate cronyism. To paraphrase the late P.J. O’Rourke, giving cash to politicians facing reelection is like giving whiskey and car keys to teenage boys and reminding them to be home by curfew.
Georgia Governor Brian Kemp is far from the only chief executive using taxpayer money to claim credit for new (or relocated) jobs. Thirty-one governors are up for reelection, and research by economists Cailin Slattery (Columbia University) and Owen Zidar (Princeton University) shows that subsidy spending spikes during gubernatorial reelection years.
Tennessee Governor Bill Lee got out to an early start last year, providing almost $900 million for a Ford electric vehicle (EV) and battery manufacturing plant. It was Tennessee’s largest-ever corporate subsidy — at least, until the legislature approved Lee’s request last month for a $1.2 billion mix of state and local subsidies for the NFL’s Tennessee Titans.
Around the same time, Ralph Nader was criticizing New York Governor Kathy Horchul for championing $850 million in state and local funding for the Buffalo Bills’ new stadium. Horchul’s handout was the largest-ever NFL stadium subsidy — for about three weeks. Now Governor Lee holds that dubious trophy.
Michigan Governor Gretchen Whitmer, reacting to Ford’s selection of Tennessee, led the charge to provide $1.8 billion to General Motors and battery manufacturer Ultium for a similar EV plant. Kansas Governor Laura Kelly and Oklahoma Governor Kevin Stitt have started a new border war over where a Panasonic EV battery plant will be located. Kelly shoved $1.3 billion in subsidies through the Kansas legislature in February, prompting Stitt to rush through a $700 million offer from Oklahoma.
Meanwhile, Texas and Ohio are on the hook to provide Samsung and Intel $1.2 billion and $2.1 billion to build semiconductor manufacturing plants. And yes, both states’ governors face reelection this fall.
Politicians aren’t the only ones taking advantage of the situation. If you happen to be a team owner with a leaky stadium, a car manufacturer switching to EV production or a computer chipmaker looking to re-shore production thanks to risky supply chains, you’re in luck! The timing of these investments coincides with federally funded budget surpluses burning holes in state politicians’ pockets.
None of this spending will improve national economic growth. Academic research consistently suggests that the vast majority of these business projects would have occurred without the subsidies. My own research highlights how subsidies actually reduce economic development. As economist Allen Sanderson (University of Chicago) memorably put it, “If you want to inject money into the local economy, it would be better to drop it from a helicopter than invest it in a new ballpark.”
The good news is that political scientists Nate Jensen (University of Texas-Austin) and Ed Malesky (Duke University) find that when the public is reminded that there’s no free lunch – that every dollar of subsidy funding has to be siphoned away from other government programs or taxed out of other businesses and workers – support for subsidy-granting politicians switches to scorn. Former Wisconsin Governor Scott Walker seems to have learned this lesson the hard way after voters turned against his subsidies for Foxconn.
Greater transparency reminds voters that it’s their money being spent. The information they need is intentionally hidden behind non-disclosure agreements (NDAs) that preserve the practice of government-granted privilege. A bipartisan coalition of policy and advocacy groups is calling for state-level bans of NDAs that would shine a well-deserved light on subsidy deals.
Legislators in Illinois, New York, Michigan and Florida have already introduced transparency legislation, and based on feedback from policymakers, a lot more states are interested. After all, many rank-and-file legislators are in the same boat as taxpayers: kept in the dark until their unquestioning approval is abruptly demanded because of an artificially manufactured deadline.
A bright spotlight might convince political leaders to stop spending like drunken sailors on shore leave. After all, it’s not their money in the first place.
Michael Farren is a senior research fellow with the Mercatus Center at George Mason University.
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