Taxing Issues: Corporate Welfare

TAXING ISSUES: A SIX PART LOOK AT ISSUES THAT HINDER TENNESSEE’S ABILITY TO BE A JUST A PROGRESSIVE STATE.

Part II: Corporate Welfare

You’ve heard the stories. The country is hemorrhaging money because of welfare, specifically welfare that goes to some lazy, drug-addicted woman of color who has more children than she has teeth. Sometimes in the stories this fertile woman enjoys state funded amenities such as I-phones and Cadillacs.  She’s so undeserving, so lazy and so deliriously happy with her free riches! I’ve heard about her for years; she is the ultimate welfare strawman (strawwoman) and doesn’t really exist. The story is a cheap parlor trick designed to force attention away from the real culprits and to place blame elsewhere. It is an insidious trick that fosters bigotry, misogyny, distrust of the government, distrust of the poor while promoting the false assumption that if you have nothing you are lazy and stupid and if you have something then you are smart and hard working. Personally, I’ve known a lot of folks on public assistance. Most of them were in college trying to earn a degree to become a working, tax-paying citizen. No one was wealthy by any stretch of the imagination and none of them had more than one kid. The kids, by the way, were valued members of their families and not part of some scheme to score more groceries. I digress.

I could go on and on, but the title of this post is called Corporate Welfare so I’d better get to it. The thing that blows my mind is the reality of welfare. See, in the U.S. a full 2/3rds of the welfare budget goes to corporations. It goes to subsidize oil companies despite the fact that they are making record breaking profits each and every year, or welfare is being dispersed to giant agri-farms who are forcing mom and pop farms to close, employing factory style farming that inhumanly treats animals and don’t need the money. More digression. My point is that if your beef is with a wasteful welfare system, then at least start with the big potatoes. Personally, I’d rather give free breakfast to a needy kid than wallpaper a CEO’s private office bathroom. That’s just me though.

Yes, that's a solid gold toilet. 

Anywho, in Tennessee we have a very similar situation. There is lots of corporate welfare being handed out hand-over-fist all under the guise of attracting businesses to Tennessee. Ha! It’s laughable, really.

The thing that our political leaders try to tell us is that the only way to get businesses to come to Tennessee is to offer them incentives (which we’ll get to in a minute), but that’s not really the case at all. I mean, look at why people move to one area or another. They move for a host of reasons: the climate, to be close to family, good school systems, affordability, jobs, sufficient entertainment and infrastructure.  Corporations are the same. Lots of politicians will tell you that companies move to Tennessee because we don’t have an income tax. That is complete bunk. If that were the case then Tennessee would host more headquarters than California and New York combined. We don’t. Next. Companies are actually less likely to move their headquarters to Tennessee because we have very low rankings in terms of education, healthcare and social services. We have great interstates though, so that helps.

So, what do political leaders do then? If not having an income tax isn’t that big of a deal to corporations how do they get them to come live in Tennessee? CORPORATE WELFARE! This means Tennessee tax dollars (generated by the highest sales taxes in the country) help line the pockets of companies all across Tennessee.

One of these welfare items is giving companies free use of land for a time. This is called a PILOT or Payments in Lieu of Taxes. Basically it is free property taxes. Property taxes, by the way, are one of the main ways that schools are funded in Tennessee.  So, for instance, take a look at the Tennessee Comptroller’s IDB/H&ED Report for 2011 (the most recent). This is a list of the companies that have received a PILOT in 2011, how much the property is valued, how much they have actually paid, and how long they have this PILOT for.

So here are a few examples of PILOTS in action:

1. Centennial Village Apartments in Oak Ridge Tennessee, received a PILOT until 2029 or for the next 17 years. The property is valued at $11,110,194 dollars, the owners pay $1 a year in rent for the property and have graciously been paying $55,623 a year in payments in lieu of property taxes. However if there were no PILOT these landlords would have to pay about $605,505 in taxes a year. That’s $556,253 a year for the next 17 years that citizens of Tennessee and Oak Ridge will never see. Not to mention what will be going on in 17 years. Will these landlords simply sell the building and over to another state? Will the buildings fall into disrepair and have to be demolished? How many people will this apartment building employ? When do the citizens of Oak Ridge get to reap the benefits of this investment?

Centianial Apartments Clubhouse complete with "vacation style salt water pool."

1. Parr Industries in Pulaski, TN ; one of 6 locations in Tennessee with PILOTS. One property is worth $907,000 they pay nothing, nada, zip til 2030. Will they be around in 2030? How many people do they employ? They are less 30 miles from Alabama, so how many Alabama residents do they employ? Pulaski is missing out on $33,468 a year for 18 years. Will they break even on this deal?


2. Wrigley Manufacturing Group in Chattanooga, TN with an estimated property value of $13,352,267 pays nothing until 2018. This is a savings to Wrigley of $715,147 a year. How many people from Georgia (which is minutes away) are employed there? Is this company new to the area or did they get an extension or a new PILOT to stay?


3. Oreck Manufacturing Group in Cookeville, TN has an estimated property value of $19,643,519 and they pay $100 a year in rent and nothing else until 2032. That’s a savings of  $ 711,095 a year. Wow! What a deal! I want that deal too! How many people do they employ? Does the city of Cookeville essentially pay for the salaries of all of the employees this way? Will the company relocate to another state in 2031?

I only ask because it seems no one else has. Try and find these answers through any Tennessee agency. I have and no one is responsible for following up. Maybe these things work to the benefit of Tennessee sometimes, maybe they don’t. Who knows? I’d at least like to see some sort of cost benefit analysis in addition to some claw back legislation. TACIR, the Tennessee Advisory Commission on Intergovernmental Relations published a study on the negative impacts of PILOTS on schools and the lack of governmental oversight in the give-away process. It’s a good read. Albeit frustrating that this thing was written 8 years ago and not much has changed.

I’d like to tell you how much money the state would save or make if PILOTS were stopped or mitigated, but the data is hard to calculate. As you can see by the four examples above that calculating this stuff is difficult and time consuming… and there are so many of them too.

In addition to PILOTs, there are a whole host of other corporate freebies too, like REITs (Real Estate Investment Trust) which sole purpose is, according to Wikipedia, to reduce or eliminate corporate tax. What about Amazon’s 2 year deal to not collect sales taxes in Tennessee, giving them 10% discount advantage over everybody else in the state? Yep, that too was a corporate give away and the state lost out on around $200 million in revenue.

There’s no doubt that Tennessee needs to grow and be competitive, but are all of these corporate giveaways helping or hindering? What we do know is that Tennessee needs corporate welfare oversight and accountability, or in other words, CORPORATE WELFARE REFORM. Perhaps then we wouldn’t have to literally give away the farm just to get 14 blue collar jobs in this state if the citizen’s tax dollars were better spent on education, environment, safety and other vital infrastructure.  If Tennessee spent it’s citizen’s tax dollars on building a better Tennessee for all of us, then maybe the businesses wouldn’t require us to pay them for the privilege of locating in one of the most beautiful and friendly states in the nation.  Then businesses would come because we would offer, for example, some of the best schools and not just the best interstates.  You might say it’s a just a dream, but I say it’s a reality that we’ve not yet realized.

Stand with TFT and let’s get our tax dollars working for the people not the corporations!