DMI Blog

Elana Levin

Getting Tough on Corporate Welfare? DMI’s Marketplace of Ideas event

It was great seeing so many people at this morning's Marketplace of Ideas event. Your amazing turnout shows that contrary to what some have claimed, accountability for which projects our tax money goes to support IS an issue the public cares about (and an issue that deserves more ink, and more critical thinking than it usually receives).

The subject was Increasing accountability for economic development subsidies. Minnesota State Senator, John Hottinger spoke about the legislation he worked back in MN that seems to have radically improved accountability and transparency when it comes to giving business public money in the name of creating growth. In fact in a 2003 study by the organization Good Jobs First entitled "Get Something Back! How Civic Engagement is Raising Economic Development Expectations in Minnesota" found that "Minnesota's business subsidy accountability law is a powerful tool to help economic development officials respond to citizen's rising expectations."

What did the bill do?

In 1995 they passed the nation's first law regulating corporate welfare and instituting subsidy accountability. The law mandated that any “business that receives state or local government assistance for economic development or job growth purposes must create a net increase in jobs in Minnesota within two years of receiving the assistance.” The law also contains a “clawback” clause requiring businesses who fail to reach job creation goals to repay the state a portion of the subsidy-- with interest.

In 1999, Senator Hottinger successfully updated and enhanced the law requiring state agencies to set standards for the wages of jobs created with these subsidies. It also requires a public hearing before major subsidies are approved and mandates all locally provided subsidies be approved by an elected body. The law also creates more stringent disclosure rules and it is credited with recouping millions of dollars in state funds.

How much? since 2000, nine companies that received subsidies from the $15 million Minnesota Investment Fund have been forced to repay $1.2 million for failing to comply with the requirements of the subsidy.


The Senator's inspiration behind the bill was the case of the Diamond Tool company. The city of Duluth paid the company 10 million dollars to stay in the state but 2 years later the company moved away anyhow, taking all that equipment bought by the taxpayers away with them.

Senator Hottinger said that when the bill first reached their governor, a moderate Republican, he vetoed it saying that he "didn't want to interfere with the free market". Seriously. That was the argument their governor used against a law that fights corporate cronyism. But the law was passed in the end. One of its many positive effects was it ended the practice of cities each trying to outbid the other in subsidy money to have a plant or project built in their area.

State Senator Hottinger said that his legislation was put through during the time everyone was talking about "welfare reform" and he found a good frame for explaining the problems of the old system of subsidies to the public was in terms of "corporate welfare". Assemblyman Richard Brodsky returned to that theme pointing out how government always talks about getting tough on poor people - yet they don't get tough on corporations. Funny how that works out.

The panel discussion featured some very heated discussion about an issue where progressives have often found themselves on different sides of a debate.

Assemblyman Richard Brodsky - the author of a subsidy reform bill of his own (which died in the Senate, go figure) spoke very powerfully about the need to hold corporations accountable, create transparency and get the deals pushed out of smokefilled rooms. Brodsky pointed out that New York already has subsidy accountability rules but the fundamentally corrupt administration of them undercuts the entire program. He told of companies that failed to create the jobs they promised re-incorporating under new names and then claiming that all the people they retained were new hires.

Errol Louis restated his support of the Atlantic Yards deal saying that no development had been happening there so maybe incentives were necessary to make anything happen. He also asserted that the subsidy deals made in NY weren't as bad as the horror stories Hottinger told of the pre-reform days in MN. And he asked us to consider the cost of not doing anything to develop land based on his own observations as a lifelong New Yorker.

DMI Fellow Adrianne Shropshire reminded everyone that Wal-Mart received $8 million in IDA subsidies in a two year period while their average wage for workers remains less than $14,000 a year. She spoke on how her organization has realized that rather than responding to development plans in a piecemeal fashion, organizers and community members need to work towards establishing a statewide floor for what anyone asking for an economic development subsidy would have to provide in terms of the quality of jobs, number of jobs etc.

In fact, Dan Steinberg of Good Jobs New York pointed out that this year alone the city has subsidized thousands of poverty wage jobs. Minnesota's situation suggests that those subsidies could have been leveraged to create good jobs instead of poverty wage ones.

And did those companies even need subsidies? State Senator Liz Kreuger restated an argument I recall her making during the Westside Stadium fight - that her district is the richest yet receives the highest amount of public subsidies for private development. She pointed out how public money spent on corporate subsidies is money that the government then cannot spend on things like education.

So, do companies in NYC even need subsidies? How about in more depressed economies like upstate? Decide what you think by checking out DMI's podcast and streaming video of today's forum. Its not online yet, give us a couple of week, but when it is you'll hear it here first.

As always here are some of the most interesting quotes from the discussion (that I haven't already paraphrased).

Community Business Agreements are not a substitute for accountability - Chris Owens
You want to talk about pork - I apologize to the pigs - Assemblyman Brodsky
People want to know if there is going to be a school or a daycare in the development project - Errol Louis
The larger question is should public money go to private development - Adrianne Shropshire
The government should be perceived as a room with bright lights - Hottinger

Have your own thoughts and questions? We will respond to as many as possible and panelists will be taking questions as well. So post away.

(also check out the blog posts by Bouldin at Daily Gotham and">The Atlantic Yards Report for some other thoughts on the event.

Elana Levin: Author Bio | Other Posts
Posted at 3:30 PM, Sep 18, 2006 in Cities | Community Development | Economic Opportunity | Economy | Employment | Fiscal Responsibility | Government Accountability | Governmental Reform | Labor | New York | Politics | States | public services
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