Jobs Scam: A Q&A With Greg LeRoy
class=img_thumbleft> Greg LeRoy is the founder of Good Jobs First , a Washington, D.C.-based think tank that works to insure that companies receiving public subsidies create decent jobs. His latest book, The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation , was published last month. LeRoy will be in town on Monday for a Labor Day event. I caught up with him by telephone this morning.
Paul Demko: You're going to be here for Labor Day? What's the purpose of the visit?
Greg LeRoy: I'm going to be speaking to the Labor Day rally, which I guess is the big statewide hoo-hah sponsored by the St. Paul Trades and Labor Assembly. And then I'll be giving a workshop the following morning, Tuesday morning, to groups in the Twin Cities area about community benefit agreements.
PD: What are community benefit agreements? Why are they a good thing?
GL: These are project specific contracts between developers and local coalitions, usually composed of both community and labor groups, to make sure that big new development projects really benefit the local neighborhood. They provide for things like local hiring, living wages, maybe affordable housing set asides. There could be environmental cushioning, if you will: traffic management, open spaces, environmental design concessions. Depending very much on what the community identifies as needs there could be set asides for particular kinds of services, like a child care center or a community medical facility or other things that the community may identify as underrepresented in the community. They're quite flexible.
PD: Is there an example of a municipality where these have been effectively implemented that comes to mind?
GL: Los Angeles has done it eight times now. There's a group called the Los Angeles Alliance for a New Economy that really pioneered these things starting several years ago. The two biggest deals they've done involved the expansion of the Staples Center, the big entertainment sports complex where the Lakers play. And more recently the expansion and modernization of LAX International Airport. Two really big projects, one all private sector, one a public authority. But typically it's a deal between a private developer and a community coalition. What happens is the community coalition does not support any economic subsidies for the project until they get their agreement with the developer. Then they publicly support the assistance from the city for the project and the community benefit agreement is actually appended to the redevelopment agreement between the city and the developer so that it becomes legally enforceable. So there's really a triangular relationship here. The trouble is, historically, it's just a bi-lateral relationship. It's just a developer dealing with the city. There's no real formal community input.
PD: You detail at the start of the book 14 different scams by which businesses basically soak the taxpayers in the name of job creation. Number four on the list is "Take the Money and Run," where you highlight the exploits of Sykes Enterprises, which operates call centers across the country. One of those facilities was in Eveleth, Minnesota, where the company got more than $4 million in public assets in 2000 and then turned around and closed the call center two years later. Explain how this scheme works.
GL: They pretty much state publicly that in order to get them to locate a call center you have to give them free land and incentives of at least $2.5 million. The problem is call centers are not capital intensive. You're bringing in switchboards and headsets and linking up a fiber optic phone line. Which makes them incredibly easy to shut down and move. If the community doesn't have a claw-back in place--if there's no safeguard attached to the money saying if you don't stay for X number of years and create X number of jobs for X period of time--then it's all a wing and a prayer, so to speak. It appears to us that that's what's happened over and over again. It just looks like a lot of communities got burnt.
PD: Minnesota Governor Tim Pawlenty has implemented the Job Opportunity Building Zone Program. It's basically an empowerment zone program. Are you familiar with it? What to do you think of that program?
GL: I'm quite critical of it. The main concern we have is that it's pro-sprawl. We did a study called, "Another Way Sprawl Happens," where we chronicled 29 corporate relocations from Minneapolis and other inner-ring suburbs to the very fringe of the metro area in Anoka County. Well now with the JOBZ program why wouldn't a company looking for another sweetheart deal leapfrog yet again to the next county north if that was a JOBZ eligible county?
Enterprise zones, even at their best, if you're being intellectually honest about them, are simply designed to move activity around within a metropolitan area. There's no claim of net new creation of economic activity. You're talking about rural areas that are already hard hit and aren't experiencing a lot of job growth doing something to simply move them around and then reduce their tax liability for moving. It strikes me as a double loser. You could be dislocating workers at existing workplaces and you're reducing your tax base that's there to sustain the pubic goods that you need to attract other employers. To me you want to focus on making the county a more attractive place to do business--to grow your existing job base and to attract new employers--not just shuffle the deck and deplete your tax base at the same time.
PD: You say in your book that in the last three decades in particular we've seen the proliferation of these sweetheart job-creation deals. Is there anything in particular that changed nationally that allowed this to happen?
GL: I think it was a raft of things that came together. It was the beginning of the issuance of business studies, especially coming from Grant Thornton. It was the maturation of the site location consulting industry, with Fantus Company and it's competitors that really had matured by then and were moving hundreds of companies a year by then. I think it was the ramp up activity of the Council on State Taxation, dueling with the Multistate Tax Commission. From the mid-70s through the mid-80s, you had this very heightened debate. Basically Grant Thornton said to states like Minnesota, We will rate you negatively until you get more like the south, until you enact more giveaways and get rid of your labor friendly legislation. I think a lot of damage got done in that period. The number of states with a lot of giveaways on the books really mushroomed in that 10-year period.
PD: We have a Ford plant here in St. Paul that builds Ranger pick-up trucks. Ford generally has had a horrible year, in terms of sales, and the Ranger in particular has suffered. There's a discussion going on about how to keep this manufacturing plant open and talk about what kind of subsidies the state might provide to Ford. What would your advice be heading into this process?
GL: Fuel efficiency, fuel efficiency, fuel efficiency. Long ago I think any incentives granted to any auto plant by any level of government should have been conditioned on development of more fuel-efficient models. It's so predictable watching Ford and GM lose market share now with hybrids. It's like this slow motion train wreck playing out over the last 30 years. I just think supporting a retooling effort that speaks to a more fuel efficient future is huge right now. If you agree with the analysis that we're headed toward permanent price pressure on gasoline because of rising demand in places like China I just don't see how you survive without a more fuel-efficient model.
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