April 13, 2006

Questioning Corporate Subsidies
New report on tax breaks raises issue of public benefit

By CYDNEY GILLIS
Staff Reporter

If a struggling mother on welfare doesn’t get a job, Washington state cuts off her assistance. If the tax benefits given to billionaire Paul Allen, Microsoft, or the Seattle Sonics don’t pay off in promised jobs or tax revenue, the state does nothing.

Fair?

For corporations in their own state, some Minnesotans didn’t think so. So, back in 1994, when the nation was debating welfare reform, they argued companies should be held to account just like welfare recipients.

The result was a first-of-a-kind Economic Development Accountability Law that, in part, requires companies receiving tax subsidies to guarantee a certain number of living-wage jobs or other public benefits. If they don’t, they’re subject to “clawback” — paying back the subsidy.

It’s a model that Seattle’s League of Women Voters holds up for Washington state in a new report it has released on corporate tax subsidies. The report questions the public benefit of tax giveaways to Allen, Boeing, Microsoft, and others —a hot topic in Seattle at a time when the Sonics are demanding $220 million in taxes to remodel KeyArena again.

“ This is one big mess,” Seattle Chamber of Commerce president Steve Leahy said of the Sonics at a forum the league held last week on tax breaks. But, “It’s nobody’s fault. It’s the macroeconomics of major-league sports.”

Those economics, Leahy explained, involve expanding KeyArena to add eating areas, stores, and lounges that will encourage fans to stay longer and buy more in the facility — sales the Sonics would get a cut of to subsidize basketball player salaries, which now average $4 million a year in the NBA, said City Councilmember Peter Steinbrueck.

Paying for a KeyArena remodel, Steinbrueck said, would be an enormous tax subsidy, with most of the money going out to players who have little stake in this region.

Among other questionable tax breaks, he cited $19 million the city spent to build a flyover access road for a new Immunex campus that never opened, and benefits that Safeco Insurance got to stay in the University District before it decided to move downtown.

In its report, the league also raises questions about the $3.2 billion in tax breaks the state gave Boeing in 2003 to build its 787 jetliner here, the $37.7 million in tax credits that Microsoft and other high-tech companies get for research and development, and the $420 million to $1 billion the city may pay for infrastructure to benefit biotech and real estate interests in the South Lake Union area, including Paul Allen’s.

Despite projections of 16,000 biotech jobs coming to South Lake Union, the report notes the number is likely to be much lower, as biotech firms that get a drug approved generally don’t do their own manufacturing — they contract it out to larger companies.

“ Most biotechs,” the report states, “would be lucky to add as much as 100 employees in a single year.”

Kriss Sjoblom, an economist with the Washington Research Council, objected to calling tax breaks “subsidies” and said it’s not fair to suggest increasing company taxes in a state where the business share of all taxes paid is the ninth highest in the nation at 51 percent.

“ Even with exemptions, businesses pay an extra high share of taxes in this state,” Sjoblom said. “A jihad against tax exemptions will only make matters worse.”

Steinbrueck agreed that everyone benefits from a healthy economy and jobs, but “what does it take [to create] a healthy business climate and a healthy economy?” he asked. “Some of the states with the least taxes have the worst economies.”

While the legislature did pass a law this year to start auditing tax exemptions, Steinbrueck said there’s still no public policy for when tax breaks are justified and what they should accomplish. Nancy Eitreim, president of the Seattle League of Women Voters, said the league has yet to decide whether it will push in 2007 for a tax accountability law like Minnesota’s.

In the meantime, “I do think it’s really critical that we establish some kind of equation for public cost versus public benefit,” Steinbrueck said. “There’s something not quite right about corporate handouts when people are dying on the streets.” n