In the last 35 years, companies in the United States have received a whopping $64 billion from the government in the form of deals and subsidies. Most of the funds have been in the form of aid or breaks from taxes and levies in order to encourage businesses to establish operations in certain parts of the country. In fact, 240 so-called “megadeals,” interactions in which the government shelled out more than $75 million to promote the state or local interests of a business, have been identified by nonprofit group Good Jobs First.
It will surprise no one familiar with the U.S. economy that many of the deals have gone to members of the auto industry. Between the recent bailouts and fears of outsourcing that were prevalent in the 1990s and 2000s, automakers were the frequent beneficiaries of generous government packages. It should also come as no surprise that it is Michigan, the onetime hub of the auto industry, that has given out the most megadeals, followed closely in second by New York. The next states to dole out such deals come nowhere near the totals of the two leaders. Unfortunately, Michigan continues to have one of the weakest economies in the union despite all the help it has given to the automotive industry.
Let’s take a closer look at the eight biggest megadeals in which companies were subsidized by the government, using figures from a June report compiled by Good Jobs First, which calls itself “the nation’s leading resource for grass roots groups and public officials seeking to make economic development subsidies more accountable and effective.”
The first company on our is list is Nissan (NSANY.PK), which received a total of $1.2 billion in subsidies and tax credits for opening a plant in Jackson County, Mississippi. What Good Jobs First is critical of is how the project was managed by the state’s legislature. A hasty bill passed nearly $300 million in subsidies for the company, but those provisions left out the massive tax breaks Nissan received from the state, as well as local support in calculating the total cost to Mississippi in attracting the automaker there. When all is said and done, the cost will be well over four times the amount officially declared by the state’s government.
Next up, we check in with Chrysler, which was awarded $1.3 billion in tax breaks by the state of Michigan in exchange for expanding its operations at its plant in Sterling Heights. While the company did create some 900 new jobs in the state because of the program, that price tag is still enormous, especially for a state already plagued by budgetary woes. While Rick Snyder, the current governor of Michigan, had promised to roll back incentives after his predecessor, Jennifer Granholm, had granted unprecedented numbers of subsidies, he has only partially lived up to his promises, as evidenced by the Chrysler deal.
6. Royal Dutch Shell
In 2012, Pennsylvania’s legislature passed a $1.65 billion series of tax credits for Royal Dutch Shell (NYSE:RDSA) in order to encourage the oil major to develop resources in the state. While some have seen the move as promoting traditional rather than alternative forms of energy, the deal is expected to have a positive impact on the state’s economy, though the full impact of the long-term tax credits are still yet to be completely revealed.
5. Cheniere Energy
Cheniere Energy (AMEX:LNG) was the recipient of a combined $1.69 billion in property tax breaks, job credits, and other subsidies from the state of Louisiana in exchange for the building of the Sabine Pass natural gas liquefaction plant. Though the program faces some of the same critiques as Royal Dutch Shell’s in Pennsylvania, the plant has led to the creation of nearly 150 new jobs, according to an analysis conducted by Good Jobs First.
Intel (NASDAQ:INTC) was able to abate $2 billion in property taxes by expanding its computer chip production facilities in New Mexico. The company has a history of production facilities in the state, having built one of its major production centers in Rio Rancho back in the early ’90s. From there, the company expanded operations, all with the help of the state, though it did have to make cutbacks as the economy stumbled several years ago. It is fair to say that New Mexico has benefited from the plant, though, again, the costs have been tremendous to the state’s taxpayers.
Coming in at slightly over $2 billion, Nike’s (NYSE:NKE) tax breaks from the state of Oregon are good enough to make it the No. 3 finisher on our list. The company received a tax exemption especially designed for it from the state’s legislature last year, after Nike threatened to remove operations from the state. The company’s threats were most likely by no means hollow, but many have questioned why a company with revenues in the billions of dollars needs a tax break from Oregon that will cost the state $150 million for every new job the company is projected to add.
One of the biggest programs to date was executed by the state of Washington in 2003, in which $3.2 billion in tax breaks was offered to Boeing (NYSE:BA) over the course of 20 years to maintain and expand its operations in the state. Though the company is one of the state’s iconic industries, the price tag of the measure has been substantial, especially with further tax breaks planned in order to retain the company’s production of the 777X. And that’s not even mentioning that the subsidies given to the aerospace giant drew the eyes of the World Trade Organization over potentially violating international trade laws.
The biggest megadeal in recent years is between steel giant Alcoa (NYSE:AA) and the state of New York. Beginning in 2007, the agreement is projected to bear a cost of $5.6 billion in opportunity costs for the state, which has given the steel maker discounted electricity from the state’s power company that will ease the company’s costs by that sum. While the numbers presented consider only nominal value and not net present value (which would lower the cost of the megadeal by slightly less than 50 percent), the sum still provides testament to the idea that megadeals in the current economic climate have grown enormously large.
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