Just as the sun was about to rise on 2022, the Center for Economic Accountability (CEA) released its satirical “award” for “Worst Economic Development Deal of the Year” from 2021. Its top pick? One of Site Selection’s newly named Top Deals of the Year: the new Apple corporate campus in Research Triangle Park, whose total subsidy package was over $846 million.
“As with all truly bad subsidies, North Carolina’s elected officials gave a big company a giant pile of money to do what that company was already going to do anyway,” said John Mozena, president of the CEA. “A billion dollars is a lot of money for North Carolina’s taxpayers and communities, because that’s a billion dollars’ worth of public services not being funded. But for a company like Apple, which reported more than a billion dollars a day in revenues this past year, it isn’t anywhere near enough money to move the needle on a major site selection decision.”
The distinctly un-coveted award in the past has gone to such projects as the General Motors/LG Chem joint venture battery plant in Lordstown, Ohio in 2020 (another Site Selection Top Deal); the Charlotte Panthers’ team offices and practice facility move to Rock Hill, South Carolina, in 2019; and Amazon’s HQ2 in 2018 (a project that not only garnered Top Deal status from us but seemed to change the game in terms of process and a new open “sweepstakes” approach to some site selections).
Five factors drove the CEA to call the Apple deal the “Worst”:
1) A giant price tag: “North Carolina’s Apple subsidy has a headline cost of as much as $846 million over the next 39 years, based primarily on a grant program that allows the company to effectively keep 90% of eligible employees’ state income tax withholding. The average tax revenue loss to the state will be more than $21 million per year,” the CEA stated. Local subsidies could take the final price tag over $1 billion.
2) Unrealistic “competition” claims: As with most states, the CEA noted, “North Carolina state statutes only allow the Department of Commerce to provide subsidies if the project would otherwise go to some other state,” in this case Ohio. But key tech industry scorecards and site selection factors, the CEA said, wouldn’t put Ohio in the same ballpark as the Research Triangle (this was before Intel chose Ohio for its massive new fab). “For independent observers, this looks less like an actual competition and more like something bureaucrats had to say to nominally comply with state laws designed to limit wasteful corporate welfare,” the CEA said.
3) Disconnection from actual site selection factors: “While a significant majority of economic development subsidies are wasted on companies that would be making the same decision without government funding, independent research confirms that some subsidies do occasionally move the needle.,” the CEA said. “That’s why, to qualify for the Worst Economic Development Deal of the Year, critical site selection factors need to be so clearly in favor of the deal that the subsidy is obviously unnecessary. That’s true in this case, as the Research Triangle is one of the nation’s hotter regions for tech industry growth. It ranks highly in business-critical site selection factors like a high-tech workforce, good quality of life, proximity to universities, a sane regulatory environment and solid infrastructure quality.”
“The bigger a company is, the less chance there is that a state or local government subsidy will be capable of influencing the business case for a site selection decision, and the greater the chance that it’s being done so that elected officials can take credit with voters for ‘creating jobs.’ ”
4) Ridiculous economic impact predictions: “In order to qualify for Worst Economic Development Deal of the Year, a project’s economic impact projections need to exemplify Mark Twain’s famous adage that there are ‘lies, damned lies and statistics,’ ” said the CEA, noting Apple’s claim that its fully operational campus will generate more than $1.5 billion in economic benefits annually for the state. Such a claim, says the CEA, would make each of the new site’s 3,000 employees more than nine times as productive as the Raleigh region’s current workforce. “The most common tools for this kind of economic impact modeling have, at best, a five-year window of reasonable reliability,” said the CEA. “Extending those projections 30 to 40 years into the future is closer to science fiction than economics.”
5) A giant corporate recipient: “Apple has more money than North Carolina does. There’s nothing wrong with being a big business, but when it comes to who’s subsidizing whom it’s important to take relative resources into account. In FY2021, the entire state budget was $56 billion. Meanwhile, Apple’s total annual sales for 2021 were $365.8 billion … The bigger a company is, the less chance there is that a state or local government subsidy will be capable of influencing the business case for a site selection decision, and the greater the chance that it’s being done so that elected officials can take credit with voters for ‘creating jobs.’ ”
Three Questions, Three Answers
The CEA said the annual $95 billion in pre-COVID state government subsidies — “enough to fully fund the 11 smallest state budgets combined, or more than three times the total price tag of the federal government’s farm subsidy programs” — have grown in recent years into “an increasing burden on taxpayers and a growing danger to states’ ability to fund basic public services and protect their long-term fiscal health.”
I had a few follow-up questions. John Mozena answered them.
What were your runners-up or “Top 10 Worst” of 2021?
John Mozena: We didn’t do a ranked 1-10 list or anything like that, but the other deals that got serious consideration for this accolade included:
- A combined award for Ford’s Kentucky and Tennessee manufacturing projects. [Yes, those were Site Selection Top Deals too. — Ed.] Tennessee spent millions on putting together this megasite that was supposedly hugely in demand, so why did they then need to throw massive subsidies at Ford to get them to build there? (Also, added bonus points for how this got Michigan to freak out and pass a new subsidy law right after they’d finally let the old terrible subsidy law expire.)
- Florida’s $570 million Walt Disney Co. deal for offices to house employees they’re moving from California [another Site Selection Top Deal]. It’s not like they’re going to move those people someplace else; and it’s certainly not like they need the money.
- Columbus, Ohio’s $54 million deal (plus unknown state tax exemptions) for a Google data center that used a shell company name and came with 20 FTE jobs. Less a function of this one single deal — although it’s absolutely a terrible deal — and more about data center subsidies as a whole. (I’ve called them one of the “three dumb things” that states should just stop subsidizing entirely, along with stadiums and distribution centers.)
- Nashville’s $240 million subsidy of Oracle [dang it, got us again. – Ed.], in a city where their biggest problem is managing the growth they already have. [Mozena thought the same thing about subsidies for the 5,000-job Amazon tech center that the city landed a few years ago, yet another Site Selection Top Deal.]
I realize there is subjectivity and a bit of tongue in cheek, but am interested nonetheless in the data points, weighting, methodology, etc., that you’re relying on (i.e. Good Jobs First, etc.).
John Mozena: Although we come from different places on the political spectrum, I’ve got nothing but love and respect for the Good Jobs First team and absolutely rely on the work they do with their data collection and reporting. So yes, GJF’s databases and megadeals list help a lot to make sure we’ve got the right numbers and didn’t forget some deal when it comes time to start thinking about this. For instance, I’d thought Samsung’s Austin deal was this year — at some point, they all start blending together. We also follow trade media (like Site Selection Magazine), industry blogs and other news and opinion sources across the country.
This award does involve a lot of subjectivity in terms of how it weights various factors, but what it sets out to do is identify a deal that objectively demonstrates the flaws and fallacies of the prevailing model of government-managed “economic development” in America today. We’re basing our work on the consensus findings of high-quality research being done by academics at major universities across the country, and by think tank researchers from across the political spectrum. (If you’re interested in what kind of research I’m talking about, we curate a selection of the more meaningful work here: https://economicaccountability.org/research-resources/.) So, it’s not just a “We like this best” award in the sense of applying personal taste to something like “The year’s best movies” or “Song of the year,” but rather looking at the facts behind the bigger deals of the year and identifying the one that we feel best encapsulates the flaws of these public policies. The hope is, of course, that it’ll make people in that community and elsewhere stop and think a little bit about what these things are costing them, and what they’re getting in return.
“I’ve called data centers one of the ‘three dumb things’ that states should just stop subsidizing entirely, along with stadiums and distribution centers.”
— John Mozena, President, Center for Economic Accountability
Since people’s eyes tend to glaze over when I start talking about research and I get accused of being in an “ivory tower” and not understanding how things work in the real world, I’ll note that I personally came to this role thanks to my personal experience of having spent about two decades in the private sector where I represented entities on both sides of the economic development subsidy game, including DDAs, a major CVB, commercial real estate developers, manufacturers who received high-profile subsidy deals, trade associations and more. Nothing that I see in the research being done today conflicts with what I saw first-hand behind the scenes of these programs.
Do you find some degree of hope in improved transparency and accountability practices as documented by Pew, etc.?
John Mozena: Yes, but probably not in the sense that you likely mean. Our organizational mission is “to advance economic opportunity for all by promoting transparency, accountability and free-market-based reform of state and local economic development initiatives across America.” Our belief is that transparency and accountability are necessary prerequisites for meaningful reforms, as they’re what will make it possible to help the average American realize that these subsidy programs generally don’t “create jobs” in their communities. Sure, transparency and accountability are nice, but there’s plenty of examples of state auditors just excoriating their EDCs’ practices and math in public audit reports and nothing changing. (I’ve said that nothing I could say about an economic development agency could ever be as harsh as the things that their state or local auditor regularly says about them. Read the state auditor reports on Georgia’s film tax credit program sometime, or the former Cook County, Illinois, clerk’s “take off and nuke it from orbit” reviews of Chicago’s TIF programs.)
“Nothing I could say about an economic development agency could ever be as harsh as the things that their state or local auditor regularly says about them.”
— John Mozena
Frankly, what’s needed is less transparency and accountability around the economic factors of these deals and more around the political factors. Let’s be honest, they’re not truly economic tools — if they were, then companies that made political donations to the relevant elected officials wouldn’t be four times as likely to get subsidies as those that don’t, and states where governors are running for reelection wouldn’t be twice as likely to see a sudden 20%-plus jump in subsidy deals as those that don’t have an election pending. They’re political tools, because politicians can get a measurable political benefit from voters for claiming to “create jobs.” One study found that a swing-state governor running for reelection who takes credit for “winning” 1,000 manufacturing jobs can see a voter intent increase among independents of more than 9%. That’s enough to win a lot of elections.
Again, this is something I saw first-hand: My personal score card for politicians at press conferences and groundbreaking events I had a hand in organizing is four governors, four U.S. senators, three U.S. cabinet secretaries and a President of the United States, along with innumerable state legislators, mayors, city councilors, etc. That’s why we say that the purpose of economic development subsidies isn’t to create jobs; rather, it’s to make voters believe that politicians are responsible for creating jobs.
