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« Liberty Church | Main | He rode in from the west . . . » December 4, 2005How to Take $64 Million From the Taxpayers Without Anyone Noticing Until It's Too LateThe Sunday Tennessean has the inside story of how the Bredesen administration and a very sharp Nissan consultant got the state legislature to give Nissan $64 million of taxpayers' money without the legislature or the public knowing what they were doing. A sidebar reveals that Tennessee now offers the richest corporate relocation incentives in the nation thanks to a policy passed by legislature that was deliberately kept clueless about what it was doing, with zero public debate, meaning the taxpayers who will have to foot the bill were unaware of the proposed policy change and, therefore, unable to make their opinions known. The Nissan deal - worth $194 million overall - is the largest HQ relocation deal in history, eclipsing the deal that relocated Boeing's HQ from Seattle to Chicago last year. But there's a key difference in the way the two massive corporate subsidies were passed. Boeing's relocation search turned into a very public competition between Chicago, Dallas and Seattle - with elected officials in each state very publicly debating incentives proposals. Nissan's move, by contrast, was a secretive affair with the taxpayers and their elected officials kept in the dark. And while early reports in September indicated Nissan was also considering Dallas as a relocation option, today's stories in The Tennessean make it clear that Nissan was always working hand-in-hand with a few Tennessee officials to pave a golden runway for its landing here. Today's stories put part of the October 20 Tennessean story by Richard Lawson in a whole new light: Earlier this week, California officials said they are putting together a package of economic incentives in hopes of retaining the headquarters. Bredesen wouldn't comment on whether Tennessee is putting together a package that goes beyond the standard incentives the state typically offers new or expanding companies. "This is important," the governor said. "It's got our attention."Five months after he signed into law the $64 million gift to Nissan, and massively altered Tennessee's previously very conservative approach to economic development incentives, the governor still didn't want the people to know what had transpired. No matter whether you think economic development incentives are good public policy or needless corporate welfare, I think today's Tennessean story ought to make you very, very angry at how the Tennessee legislature - supposedly representing "the people" - could be so easily mislead into passing a law writing a big corporation a $64 million check from the taxpayers' treasury, with virtually no debate or knowledge of what they were doing. That they are only learning the truth about what they did now, five months later, is truly awful. From The Tennessean: Lawmakers may have been in the dark, but Nissan North America's consultant wasn't when a new law came up for a vote last summer that would mean millions more taxpayer dollars for the car company if it moved to Tennessee. That's because the Nissan consultant helped develop the policy while the elected representatives who were voting on it were given little or no information about how it could affect the state's coffers.When the governor touts the Nissan corporate HQ move during his reelection campaign, keep this in mind: he took your money to pay for it, without telling you or the legislature what was really going on. But don't blame him - blame the system that let him do it. Blame the system that let a Nissan consultant/lobbyist write a law in secret that will transfer $64 million from taxpayers to Nissan, and get it passed without ever telling legislators what the law was really going to do. Blame the system that let the lobbyist and his executive-branch allies push a major policy shift and a $64 million giveaway of your tax dollars through the legislature in a matter of minutes, and with no public debate and no public disclosure of the anticipated cost of the legislation to taxpayers. Blame a system that allows contingency-fee lobbyists write laws to benefit their clients.* Blame the system - and then demand your legislators change it. UPDATE: Here's the amendment to Senate Bill 2310 and House Bill 2317 that included the language resulting in the $64 million Nissan subsidy. According to today's Tennessean article, state Sen. Jim Kyle, D-Memphis, says he introduced the amendment at the request of the Tennessee Department of Revenue. He didn't know who the bill would benefit and didn't ask. "I could see what it was about," Kyle said. "I knew they were working on some things, and they thought this was a good provision. I didn't think I needed to know any more, and I didn't ask any more. I'm a team player."Is this the way our legislators are supposed to represent us? By deliberating staying clueless about legislation that spends our money? Kyle introduced the amendment May 26 and it passed within minutes - on the very day that several current and former state legislators, including three sitting state senators - were being arrested for allegedly accepting bribes in exchange for pushing legislation to benefit a specific company. Before it was amended to include the $64 million Nissan subsidy, SB 2310 and HB 2317 contained a myriad of minor changes to the state's tax code that were estimated by the legislature's Fiscal Review office to cost the taxpayers only around $100,000 per year. The fiscal note was published April 1, 2005, an appropriate date since the legislation turned into the most costly April Fool's Day gag in state history. Jokes aside, the amendment enabling the $64 million Nissan subsidy never resulted in an updated fiscal note. But even though the amendment cost taxpayers $64 million, the lack of a fiscal note estimating that cost does not appear to violate state law. I asked Ben Cunningham of Tennessee Tax Revolt about state law governing the publication of fiscal notes for proposed legislation and he sent me and Tennessee Code Annotated 3-2-107: 3-2-107. Fiscal notes for revenue bills - Cumulative fiscal notes during session.Did Sen. Kyle request a fiscal note for his amendment? It doesn't appear that he did - or if he did it has never been posted to the web page for SB 2310/HB 2317. But as you can see from the section of the law that I underlined above, he didn't have to request one. Here's a suggestion for legislative reform: Change TCA 3-2-107 (a) (1) to read, in part: Within twenty-four (24) hours following the filing of an amendment to any pending measure on which a fiscal note is required by this section, the fiscal review committee shall prepare a fiscal note showing what effect the amendment would have on the estimates made in the fiscal note which applies to the bill or resolution. No amendment reasonably expected before the preparation of such a fiscal note to increase state expenditures or tax revenue by more than $1 million per year may be voted on by the full House until the fiscal note is prepared and passed until 24 hours after the new fiscal is prepared and published. If that law had read that way back in May, the people of Tennessee and their legislators - well, at least the legislators that didn't want to be kept in the dark - could have debated whether, at a time the state was tossing nearly 200,000 sick, poor, old and disabled people off its TennCare rolls in order to save money, it was wise to be altering state policy to enable massive corporate subsidies. ____________________________________________________________ * Although I mention "contingency-fee lobbyists" above, I don't know specifically if the Nissan consultant/lobbyist who wrote the $64 million Nissan subsidy legislation was paid by Nissan under a contingency-fee arrangement. It's a question worth asking. A $64 million question. Editor's note: Yes, I said a couple months ago I was taking a break from doing this kind of in-depth blogging about the Tennessee legislature. I still, mostly, am on that self-imposed break, but I took a break from my break today because I've been writing about the state's economic development policies since the early 1990s, when I and Bill Lewis wrote a series of articles for the Nashville Business Journal about the state's competitive position versus Kentucky in economic development. At that time, Kentucky had passed a very aggressive set of economic development incentives, the centerpiece of which was a provision that allowed a company building a new operation in Kentucky, such as a manufacturing plant, and adding jobs, to retain the state income taxes paid by those new employees to pay off the cost of building the building. Tennessee, which had and still has no income tax, couldn't match that incentive, and we documented how, several times, companies planning new plants and distribution centers had a Tennessee city or town on their short list but wound up in Kentucky instead - often in Bowling Green. As I wrote back on Dec. 1, 2003: Back in the early 1990s, when I was a reporter for the Nashville Business Journal, I wrote a series of stories exploring how Kentucky's more aggressive use of tax incentives was helping that state land a lot of new manufacturing company projects for which Tennessee was also on the short list. (None of the stories are online - this was before Al Gore invented the Internet.)The difference between then and now is this: In the early 1990s, then-Gov. Ned McWherter led Tennessee to a (slightly) more aggressive approach to economic development incentives, but it wasn't passed in minutes by a legislature kept deliberately in the dark - it took more than a year and the changes were publicly debated before they became law, not five months after. Posted in Tennessee Government News
Comments
I cannot fault the effort to bring more jobs to Tennessee. I read that Sundquist, Bredesen and Lamar Alexander all took a trip to California to promote the benefits of doing business in the state. I have also read that the incentive package is similar in size to others of this nature. The bottom line is Nissan's headquarters is now in Nashville Tennessee, and thats a good thing no matter who occupies the governors office. If the process needs to be more open then so be it, but if it it creates an issue that puts future deals in jeopardy we need to step back and examine what it is we are trying to accomplish. Is it true reform of the government we want or is it partisanship that is driving us? Posted by: John at December 4, 2005 10:00 AMMr. Bredesen seems to be continuing the traits he showed as mayor of Nashville. He had his way with Davidson County taxpayers more than once and now he has widened his scope to include the entire state. Will he be satisfied before he can screw the entire nation? Posted by: "John Galt" at December 4, 2005 10:05 AMIt is called an investment. Bill you (and the Tennessean) can spin it any way you want but the truth is... sometimes you have to spend money to make money. This is a no brainer. Posted by: Tom at December 4, 2005 1:25 PMMy post isn't about whether the investment was good or bad, but about the policymaking process that resulted in the investment. If you read my entire piece and don't understand that, well, I'm sorry your reading comprehension is so lousy. Posted by: Bill at December 4, 2005 1:40 PMJohn, it's 1200 jobs. 1200. One thousand too hundred. For about $200,000,000. That's nearly $200,000 per job. If someone gave me $200,000 (note: gave), I bet I could come up with more than one job. And that's one of the main problems with corporate welfare: it's never spent well. Nissan's HQ isn't worth it. Dell wasn't worth it. That money spent on small, local businesses would generate a far larger return. A good way to put it in the hands of small local businesses is to not remove it from those hands in the first place. Posted by: Michael Chaney at December 4, 2005 6:43 PMThanks for the discussion here Bill. Perhaps someone like Drew Johnson at the Tennessee Center for Public Policy could find a donor willing to finance a study on tax incentives such as this, and if such incentives actually benefit the economy of the state employing such measures. Oak Ridge with the help from the state, did just such an incentive for a group called InsLogic. A Canandian company, InsLogic was supposed to bring 400 or more jobs to Oak Ridge. The state kicked in heavy funds for "job training", which in essence, was really just money to pay the workers before InsLogic moved out. A mere two years later, InsLogic is moving out of town. A much larger company purchased the company--so, we can assume that the Canadians and their venture capital backers at Warburg-Pincus came out smelling like a rose. They do the start-up, Tennesseans finance the company with generous incentives and credits, they profit and then sell a company which looks on the books (thanks to the taxpayers) to be extremely profitable. They then sell out to big corporation and make a mint--all with the help of the taxpayers. Only the taxpayers didn't get or keep the 400 golden jobs they were promised. While InsLogic was opening shop in Oak Ridge with give-aways from the city, county, and state, part of the company's arm in Nashville (ClientLogic) was closing up shop and leaving Nashvillians unemployed. It would be interesting to see if ClientLogic received any tax incentives from Nashville city or the state before they dangled dreams of jobs in East Tennessee. Posted by: Terry at December 4, 2005 8:03 PMI think Tennessee has become known as a soft (naive) touch. Posted by: Donna Locke at December 4, 2005 9:23 PMDon't just blame the system. Most of the blame rests with the phony "legislators" who continously let those on the take write the laws they don't read before voting for them. You can't blame the businesses for misuse of taxpayer funds. Didn't we have the same thing happen earlier this year where a legislator introduced a wacked out bill then admitted he hadn't read it? If you go back and look at most relocation incentives where governments prostitute themselves for what appears to be economic development, you will find that it would have been cheaper to give the money to the employees in the long run, cut our losses and save what the "consultants" and middlemen scrape off the top. Terry, I'm sure you know that Oak Ridge isn't the only good ol' boy network in Anderson County. Clinton and Anderson County like other closed shop municipalities have been doing the same thing for years. No one knows about the back door sweetheart deals until it's too late and the ink has dried on the contract. Then you read about John Doe a good friend of the local yokels sells a piece of "prime" industrial property to the local fathers for 4 times what it is really worth for a taxpayer funded "economic development" project with years of tax abatement. Once the abatement is gone the company lets the lease expire on the buildings and moves on to another government sponsored ecodev scam. Government could achieve the same results if they returned(cut) the taxes so the taxpayer can invest and spend in his own personal economic development. Posted by: Rick Forman at December 4, 2005 10:05 PMI wonder if the anti-income tax crowd will still be so brazen as to take the credit for Nissan's HQ move here. Nice post, btw. Posted by: brittney at December 5, 2005 9:54 AM |
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