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Tips: investigate government subsidies to companies

September 28, 2011

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The Commercial Appeal found that the true cost of government incentives to lure 1,240 new Electrolux jobs to Memphis had not been reported. Photo by Flickr user stevendepolo.

Sometimes the allure of new jobs distracts people from tallying their actual cost. But Daniel Connolly and Amos Maki of The Commercial Appeal didn’t shy away from asking about the true costs of  bringing 1,240 Electrolux jobs to Memphis.

“Sometimes it’s very difficult to ask questions, especially when the community is down on its luck,” Daniel says. “There was some degree of surprise that someone would be looking at it.”

In exchange for bringing in the 1,240 jobs, the appliance maker received a government-incentive package totaling $153.6 million. But, as Daniel and Amos explored deeper, they found that the amount was greater. They write:

“That figure did not include the value of local property-tax breaks approved by the Memphis and Shelby County Industrial Development Board, which raised the total amount of support to $188.3 million, or about $152,000 per job.

That figure also excluded other pledges made to the company, based on a review by The Commercial Appeal of internal emails, contracts and other public documents.”

Those other pledges included exemption from requirements about hiring minorities and using minority vendors in exchange for local property-tax breaks, and an agreement to keep competing appliance businesses from locating near the factory, Daniel writes.

Daniel Connolly, reporter, The Commercial Appeal, Memphis
Daniel Connolly

Daniel says he attended the Investigative Reporters and Editors (IRE) Conference in June, which helped point him in the right direction. He offers these tips he learned and applied to this story.

  • Tip 1: Ask for written guidelines to see whether the same standards would be applied to other companies.
  • Tip 2: Calculate how much the company is receiving.
  • Tip 3: Check the company’s history. He says to look for political contributions, its track record with regulators and any subsidies received in the past.
  • Tip 4: Read every page of the company’s agreement. When Daniel read the Electrolux agreement, he says he found that the city and county wouldn’t receive a refund under any circumstances.
  • Tip 5: Check the economic-impact studies for inconsistencies. Daniel found that “the only due-diligence report Tennessee completed for the Electrolux project was a six-page document that celebrated the benefits and didn’t consider the costs of subsidies.” (If you’re interested in learning more about how to analyze local economic studies, sign up for the free Reynolds Center Webinar on Feb. 8-9: How Not to Be Bamboozled by Local Economic Studies.)
  • Tip 6: Use public record requests. Daniel requested emails and letters between the company and government to get additional details.

And here are some more tips from that IRE Conference that Daniel attended on tracking whether the incentives provided by governments have resulted in the number of jobs promised:

Goodjobsfirst.org is an advocacy organization, but it has a number of resources on its site, including a Subsidy Tracker. Other experts include reporter Jim Heaney of The Buffalo News and Professor Heywood T. Sanders at the University of Texas at San Antonio. | Tip sheet (PDF): Reporting on economic-development subsidies by Jim Heaney of The Buffalo News.


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