State lawmakers in December 2021 approved a new $1 billion corporate handout program called SOAR, or Strategic Outreach and Attraction Reserve. General Motors was quickly approved by the state’s “jobs” fund to receive the bulk of the fund’s first appropriation. All that’s left now to complete the deal is a final sign-off of the state’s appropriations committees. The members should reject this deal.
General Motors Corp. is just one among many corporate multinationals that seek and receive taxpayer subsidies. But the history of GM’s subsidy deals is not pretty. In addition, scholarly research shows that subsidizing large firms results in “starkly negative” employment impacts and often comes with massive price tags. These deals are also fundamentally unfair to all of us who are forced to underwrite profitable firms.
And profitable GM is. Just this week, days after the state authorized $666 million in SOAR-related subsidies for the conglomerate, the company announced record pretax profits of $14.3 billion. Excluding just announced figures, GM has made nearly $60 billion in net profits since it emerged from bankruptcy in 2010.
General Motors is well known for its receipt of fiscal favors from all levels of government. Most famously, it was part of an incentive deal in 1980 that saw some 1,500 homes and 16 churches in Detroit’s Poletown neighborhood razed through eminent domain. In addition, Bloomberg News reported that General Motors was provided with $300 million in federal and local incentives.
The corporate practice of seeking favors from government has long been known. Consider the words of automobile executive and icon Lee Iacocca in the book, “Poletown: Community Betrayed.”
Ford, when I was there, General Motors, Chrysler, all over the world, we would pit Ohio versus Michigan. We would pit Canada versus the U.S. We’d get outright grants and subsidies in Spain, in Mexico, in Brazil — all kinds of grants. With my former employer (Ford), one of the last things I did was, on the threat of losing 2,000 jobs in Windsor, I got $73 million outright to convert an engine plant. … I’ve had great experience in this.
In other words, corporations can intimidate states and local governments into giving away their taxpayer dollars. That doesn’t mean it is an effective move for the taxpayer, just for the windfall profits of corporations.
Despite the bad press GM still receives over Poletown, the corporation continues to pursue taxpayer subsidies. Good Jobs First, a subsidy watchdog out of Washington D.C., maintains a free database of incentive deals. They find that the General Motors parent company is the second biggest recipient of incentives in their database and has received 239 state and local deals worth more than $7 billion. The majority of deals have happened since 2008. They have also received federal grants.
The tracker reports that more than $3 billion of the total is just from Michigan-specific incentive deals, though that may be understated given the secrecy surrounding incentives provided to GM by the state.
Detroit activist David Sole is suing the Michigan Economic Development Corporation over the state’s refusal to report how much GM took in from its global job retention deal. State administrators refuse to disclose how much GM has collected from state taxpayers, and the state Supreme Court recently heard a case challenging their lack of transparency.
The Mackinac Center has filed an amicus brief in the case in favor of the plaintiff. This secrecy does not appear to be a one-off. State lawmakers who wanted to see details of the SOAR legislation were required to sign non-disclosure agreements. Lack of transparency is all too prevalent in deals involving taxpayer giveaways. While the Mackinac Center doesn’t blame corporations for taking what is offered, politicians shouldn’t be offering it, especially to firms with such a questionable history.
Are these incentive deals good for taxpayers or our state’s economy? Anecdotal and robust statistical evidence suggests they are not. Consider that the $666 million SOAR-related subsidies approved for GM were to facilitate a project to be partly located in the Lansing area. GM has been there before. It was heralded in 1999 over an incentive deal to create 1,500 jobs there, including additional spin-off jobs. Yet from that point automobile-related employment in the area plummeted from a little over 15,000 to just 8,000 in 2005, roughly where it stands today.
Scholarly research also demonstrates that corporate subsidies have been and will likely remain ineffective tools for job growth. In a 2018 Working Paper published by the Upjohn Institute, three scholars found a “starkly negative” employment outcome for large firms that had received subsidies. Small ones did better. The paper examined 2,400 subsidy deals across 35 states and also reported that firms that had received subsidies grew their employment 3.7% slower than similar firms that had not.
The Mackinac Center used a similar methodology for our 2020 economic development paper. We identified 2,300 Michigan-specific subsidy deals back to 1983 and found that the impact of these programs was zero to net negative. One of the “best” performers was the state’s Michigan Economic Growth Authority program, from which GM received 10 deals. We found the program added to payroll but at a cost of incentives per job equal to $125,000 per year.
Proponents of corporate handouts have not presented their own research suggesting the latest round of subsidies has scholarly support. They should, or the Lansing legislative committees tasked with finalizing the GM support package should reject it.
Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.
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