Cuccinelli’s opportunity to end Virginia’s corporate welfare programsEconomicsPoliticsVirginia

Over the weekend, the New York Times discovered that state and local governments, in their pursuit of jobs and economic growth, were lavishing billions of dollars of taxpayer money on corporations large and small. For some of us, this was hardly news. But the Times, to its credit, did what few others have been able to do, namely, create a corporate welfare database and break it down by state.

How does Virginia rate?

The commonwealth is not as generous as some states (Texas hands out cash like it owned a printing press), but we’re hardly slouches. According to the Times, Virginia gives companies $1.29 billion per year — $161 per capita, or eight cents out of every dollar in the state budget.

Looking down the list of welfare recipients, one sees some of the world’s largest companies…Microsoft, Rolls Royce, Northrop Grumman, Alpha Natural Resources. Even Steven Spielberg’s DreamWorks made the list as an LLC. That’s a neat trick.

The argument from economic development officials and from politicians is that such financial favors are an essential part of doing business with businesses these days. Without a nominal grant, a tax break, a loan guarantee, or all three, companies will take their capital investment, jobs, and the tax revenues they will generate over time to other states and localities eager to make a deal.

A JLARC report on Virginia’s incentive grant system notes that these monies “…appear to have a positive but small impact on the site selection decisions of businesses.” So the grants may be a deciding factor in some cases. Or they may have been no factor at all. Not exactly a resounding endorsement.

But in a state where a gas tax hike could take center stage in the next General Assembly session — one that, if implemented, would raise almost half of what state and local governments transfer to private corporations — and also where the Governor has called for further, modest reductions in state spending, one is forced to wonder how long the corporate welfare train can continue to roll before someone has the decency to say “enough.”

I had hopes that de facto GOP gubernatorial nominee Ken Cuccinelli would bring his considerable affinity for liberty and free markets to bear on the corporate welfare issue. I still do, if this portion of his remarks at the Republican Advance this past weekend are any indication:

Preserving Life, Liberty and the opportunity for every Virginian to pursue happiness continue to be the purposes of government. These principles are timeless and universal. They apply as much today as they did on July 4th, 1776.

They are alive and well in the 21st century, and it’s incumbent upon all of us to communicate and connect America’s first principles to real policies, policies that affect the lives of Virginians, in areas like taxation, transportation and economic development.

These are the issues that will determine our ability to provide for future generations the opportunities that we have enjoyed.

Universal opportunity means state government takes its checkbook and favors out of the market and competition decides who wins and who loses.

It would be a radical policy departure. It might also ding Virginia’s reputation as being “business friendly.” But in return, Virginia would become the first truly market friendly state in the nation.

Even more, if Cuccinelli is able to bring an end to Virginia’s billion dollar corporate welfare program, the state might find itself in a position to fully address other issues like transportation. Or, heaven forbid, it might even be able to give that money back to taxpayers.

  • Ryan Gleason

    Norm,

    Completely agree with you in principle, but there is a practical matter that will very much get in the way of this, and that is giving corporate welfare is a Prisoner’s Dilemma.

    Assume Maryland wants businesses and can choose to either give welfare or not. Virginia can choose the same thing. If VA chooses not to give Corporate welfare, and if MD doesn’t than the market is free. But, if VA doesn’t give Welfare and Maryland does, then VA will lose out on businesses. Same calculus from a MD’s perspective. For both States, it’s better for each individually if they give Corporate Welfare. A result which leads to the most inference into the market by state governments.

    From a practical standpoint, until the incentives in this game are changed, it is not going to be be realistic to expect any changes in Corporate Welfare from State Governments because it would be asking an elected official to make a choice that, real or perceived, would hurt his state.

    • NormLeahy

      You’re right, which is why the programs tend to grow. Breaking the cycle will take more courage and foresight than the political class will probably ever have. But I can still hope, right?

  • http://www.facebook.com/michaelj.barrett.355 Michael J Barrett

    In Hampton Roads, we studied local and statewide incentive programs and found that Virginia’s program is competitive for some, not not others. Areas of improvements included more flexibility but standardization to increase impact, and more innovation. Our consultants concluded we were in the middle of the pack.
    The larger question is whether in the long run, these mega incentive programs really are economically valuable. No one seems to have the answer to this question. In the meantime, Governors like to brag and to attend ribbon cuttings no matter what the ultimate fiscal impact really becomes.
    We do have clawback provisions if the company does not perform as advertised. That is a valuable protection. But in the long run, the best incentives are high performance of state functions; that is, education, transportation, work force development, and promotion of science and technology. Frankly, in those functional areas, Virginia is declining fast. No incentive can replace excellence in these crucial areas, and lacking these, incentives attract the wrong companies.

    • Tim J

      Mike, what are the “wrong companies”?

      • http://www.facebook.com/michaelj.barrett.355 Michael J Barrett

        Well for one, Stephen Spielberg who doesn’t need the money and will come and go before anyone knows he was here.

        • Nathan Miller

          I assume the Maloofs would qualify too…yet you are begging for the state to fork over $80 million to them to bring the Kings to Virginia Beach…

          • http://www.facebook.com/michaelj.barrett.355 Michael J Barrett

            That is a fair point. I would not characterize my position as begging, but as cautious openness to understanding the full economic impact of the deal before rushing to judgement. But your condemnation of potential deals that would raise the income generated within the City to replace that lost to the policy of no taxes ignores the dilemma posed by republican control of the House. These Delegates have demonstrated that no taxes is their policy of governance no matter the effects on state or local government. Do you expect local elected leaders to simply stand by as their cities and counties implode?

          • http://www.facebook.com/craig.m.kilby Craig M Kilby

            Mike, now, come on. That is almost as bad as the Red Skins sham. Talk about the “wrong” companies….

          • http://www.facebook.com/michaelj.barrett.355 Michael J Barrett

            Well as you know, when the Beach was presented with the Redskins deal a few years ago, we declined; that was the correct decision for us. However, this Arena deal is consistent with our tourism and convention business. Now, no one I know is willing to endorse this deal until the details are understood and tested for the worst case, but to have so many citizens dismissing this proposal without due consideration is a mistake. If in fact, as the Mayor promises, the deal can be financed and paid for by users of the Arena and the private investors, then it should move forward for consideration.

      • pinecone321

        At least some of the “wrong companies” would be the approx. 95 green energy companies, that came to VA with promises of state incentives. At least two of them also got federal grants from the Obama admin. Gov. McDonnell congratulated them on their federal government awards. No doubt many have been watching the growing list of Obama green energy companies, awarded federal tax dollars, who have already filed for bankruptcy, or are at bankruptcies door. Wind and solar have already been proven to be losers. Those sources are unreliable and unaffordable without massive government subsidies. AAA has sent a newsletter to their membership warning them to not use E15 fuel for their vehicles as it can destroy the vehicles engine, and it’s use will invalidate your vehicles warranty.

        If renewable or green energy sources were at the point of credibility and affordability without government revenue sources, someone in the private sector would have already brought them online, and there would be some very wealthy private business people out there.

        I’ve read before that there has been a constant challenge between VA and Texas to be number one in attracting new businesses, and creating more jobs, with the two states taking turns in the number one slot. If attracting businesses that likely have a short shelf life to the state has been the main goal, it will have a negative effect on the business community in VA over the long haul. I am guessing that Texas has been attracting many different and varied types of businesses, and not all of them are guaranteed to succeed, but, they won’t suffer when an entire industry is forced to fold.

        As to businesses not being attracted to VA from Maryland if no incentives are paid, those businesses have a multitude of reasons in moving from a state that is into taxing everything that moves, and even everything that doesn’t move. The ultra liberal Gov. O’Mally is reason enough to run from Maryland.

        I am also hopeful that Cuccinelli will back away from the ideas of corporate cronyism. It seems to be an issue he would hit in his first few days.

        • http://www.facebook.com/craig.m.kilby Craig M Kilby

          I may be wrong, but I have never gotten the impression that Cuccinelli would be any sort of reformer on things like this. He’s far too focused on (1) being Governor and (2) social issues. I really don’t think he the vaguest concern for stuff like this and would just be the same-old, same-old, cutting ribbons and handing “incentives.” If were not, he’d be SCREAMING at this redskins scam in Richmond.

          • pinecone321

            Ah, it’s those dang evil social issues again. How dare he? He was told to STFU about the social issues, and he just won’t listen. I’m sure no one needs to remind you Mr. Kilby, but just don’t vote for him, which I’m sure you won’t. It really is that easy.

  • Christopher Stearns

    Beautiful, Norm. Ditch the perks and the loopholes that create mal-investment in the marketplace and take a laser focus to the tax rates.

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