Toyota Reveals Limits of Great Southern Jobs Scam

Last month, Toyota made a decision that didn't get a lot of press, but sent ripples of concern through state houses across the South.

The Japanese auto giant announced that it was going to bypass offers of hundreds of millions of dollars in "recruitment incentives" (corporate subsidies) from several Southern states, and would instead set up shop in Ontario, Canada, which was offering much fewer give-aways.

The decision to head north was an embarassment for Southern states eagerly competing to lure Toyota, on several levels. Not only did they lose a trophy job-creator for their state. But the reason Toyota gave for the move was especially damning:

"The level of the workforce in general is so high that the training program you need for people, even for people who have not worked in a Toyota plant before, is minimal compared to what you have to go through in the southeastern United States," said Gerry Fedchun, president of the Automotive Parts Manufacturers' Association, whose members will see increased business with the new plant [...]

Several U.S. states were reportedly prepared to offer more than double [the] subsidy [Southern states were offering]. But Fedchun said much of that extra money would have been eaten away by higher training costs than are necessary for the Woodstock project.

He said Nissan and Honda have encountered difficulties getting new plants up to full production in recent years in Mississippi and Alabama due to an untrained - and often illiterate - workforce. In Alabama, trainers had to use "pictorials" to teach some illiterate workers how to use high-tech plant equipment.

Starting with Alabama's successful bid to lure a Mercedes plant in 1992 with an incentive package that eventually cost over $300 million in tax breaks and other give-aways -- while the state's education system was under court order for lack of funding -- Southern states have shoveled billions of dollars to huge foreign automakers, turning the South into the "new Detroit."

But now companies are waking up to the limitations of locating in a state that cares more about handing out tax breaks than investing in its people.

Unfortunately, state leaders haven't caught on -- indeed, states like North Carolina expanded their corporate give-away programs in the last legislative session. Below the fold is a piece I wrote on the North Carolina debate that will appear in today's Independent Weekly (not online yet, but check out this excellent weekly here it's online now here):


Chris Kromm

When North Carolina handed Dell Inc. - the second biggest computer maker in the world - over $280 million in tax breaks and other "recruitment" incentives last year to set up shop in the state, the backlash was fast and furious.

Community leaders and advocates howled at the idea of shoveling taxpayer money to a company that in 2004 made over $3 billion in profits. Lawmakers decried Dell's strong-arm tactics (which included questioning the state's "patriotism" if they didn't hand over the money). Journalists were incensed at the Dell deal's secrecy. A conservative former N.C. Supreme Court judge, Robert Orr, went to work on a lawsuit challenging the constitutionality of the give-away, which he filed in June.

"It's just an insult to other business owners in North Carolina," said Perri Morgan, an advocate for small and independent businesses. "I think with every deal, a few more people wake up."

Morgan likely had a shipment of alarm clocks sent to state leaders last week, when after months of growing skepticism over the Dell handouts, lawmakers decided to do it all over again.

Last Friday, Governor Mike Easley signed into law a two-year extension of the state's two biggest corporate subsidy programs, the William S. Lee Act and the Job Development Investment Grant Program, calling them "smart, targeted tools to bring and grow jobs in North Carolina."

But author and advocate Greg LeRoy has another label for such deals, which is the title of his recent book that he'll be discussing in Raleigh on August 10: "The Great American Jobs Scam."

North Carolina is "a kind of petri dish," said LeRoy in an interview for the Independent Weekly, for a silent scandal unfolding across the country. Every year, cash-strapped state and local governments shell out over $50 billion in tax breaks, free or cheap land, subsidized city services, cash grants, and other give-aways - mostly to big, profitable corporations - to entice them to re-locate or expand in their area.

The deals are often shrouded in secrecy, according to LeRoy, and offer few guarantees of delivering prosperity. And they commonly involve a laundry-list of "scams" that short-change taxpayers and communities, including:

* Create a Bogus Competitor: State documents reveal that Dell scared North Carolina leaders into thinking they were about to lose the plant to Virginia - although Virginia leaders now say they only offered $8 million for the facility.

* Pay Poverty Wages, Stick Taxpayers with the Tab: Subsidies often don't require that the jobs created offer a decent wage. Wal-Mart has collected over $1 billion in breaks nation-wide - including at least two counties in North Carolina - despite offering wages and benefits so low that, for example, 25% of the people on TennCare, Tennessee's health program for poor residents, are Wal-Mart employees.

* Take the Money and Run: Many companies have collected millions in taxpayer-funded subsidies, only to pack up as soon as they expire. Or worse, they don't do anything at all, like the company in Haywood County that shuttered after a year without having created a single job (the county got the money back after years of legal wrangling; not all places are so fortunate).

"Up until 1996, North Carolina had an approach that worked well," says LeRoy. "It was dedicated to investing in public schools and an excellent university system. That paid off."

But state leaders hastily passed the Lee Act in 1996 after nearby states had landed "trophy deals." LeRoy points to "a raft of evidence" that the Lee Act hasn't worked, draining millions in state tax revenue while largely benefiting wealthy areas.

Among the evidence is a 2004 study by the N.C. Justice and Community Development Center, which found that just 5% of the Lee Act credits had gone to the state's poorest counties. Despite some improvements, Amna Cameron of the Justice Center calls last Friday's extension "more of the status quo."

How to beat the jobs scam? Demand that the details of taxpayer give-aways be made public. Insist on standards, such as guarantees that jobs will pay a living wage, and "clawbacks" to reclaim subsidies if the company doesn't follow through.

But his top recommendation is to get back to investing in what works.

"This is my agenda for creating good jobs: reinvestment in skills and infrastructure, not more corporate disinvestment by tax dodging," LeRoy concludes his book. Corporate subsidy deals "were always dumb ideas. Now it is glaringly obvious: they are wasteful handouts we can no longer afford."

Sounds like Toyota agrees.