The following is an op ed piece I am submitting to our local newspaper, the Valley News. It is an updated version of an earlier post I wrote title Tax Racket.
When someone pays a government official to get a contract, it’s called “bribery”. When the government pays a business to maintain its existing operations or to help it relocate in it’s community, it’s called an “economic development”.
When an individual gets assistance from the government, its called “welfare”. When a business gets assistance from the government, its called “an incentive package”.
Several years ago I personally witnessed a case study that illustrates how this pro-business Newspeak permeates the reporting in the media to the detriment of public funded organizations. In 2002 I moved from Upstate New York where I worked for five years as superintendent of schools to the Burlington, Vermont area. The district I led in New York included East Fishkill, a town where IBM had a large manufacturing presence. In 1999, IBM announced that “in response to market conditions” they needed to modernize their facilities and eliminate jobs. AS a result they were either going to downsize or close their plant in Upstate New York and upgrade their operations to Essex Junction, Vermont, or downsize or close the plant in Essex Junction and upgrade their operations in Upstate New York. The governments in both states and the local town governments fell all over themselves to develop an “incentive package” that would expand IBM’s presence. New York’s Governor Pataki, citing the need to “invest in the future”, put together a sweeter package than Vermont’s Governor Dean. As a result, IBM upgraded its operations in Upstate New York and downsize its operations in Essex Junction.
The results were favorable for IBM and its shareholders. The incentive packages offered in both Vermont and New York reduced IBM’s State taxes, and both Essex Junction and East Fishkill lowered IBM’s local taxes. And, as they indicated from the outset, IBM’ experienced a net reduction in its workforce. As a result of these cuts in taxes and personnel, IBM’s profits increased. But the governments’ incentives included more than tax breaks. Both New York State and the town of East Fishkill paid to upgrade the highways and the infrastructure around the IBM plant. At the same time, the Governor of Vermont, in an effort to demonstrate his State’s commitment to IBM, made the completion of the Circumferential Highway that served IBM a priority and pledged to review the electrical rates charged to IBM. These were both investments in the future that were needed in “response to the market conditions”.
The results were not favorable for taxpayers in either New York or Vermont. The results were especially onerous for local taxpayers. The New York State incentive package provided IBM with $475 million in “tax benefits”. The $475 million “tax incentive” IBM received from New York State was, in effect, a $475 million cash gift from the state. It represented $475 million that could not be available to upgrade schools, to provide high speed internet to rural areas, or fix roads. The New York State package also included a PILOT (Payment In Lieu Of Taxes) agreement that reduced the assessed valuation of the IBM facilities in East Fishkill. This effectively shifted the local tax burden from the IBM plant in East Fishkill to small businesses and homeowners in that town. The downsizing of the IBM plant in Vermont had the same effect in Essex. It lowered IBM’s tax payments to state and local governments and shifted the local tax burden in Essex from the IBM plant to small businesses and local property owners.
This case study illustrates the lose-lose proposition State and local government officials face when a major local employer seeks “tax relief”. If, in their zeal to seek and retain businesses, our elected officials give corporations large sums of money, money that ultimately comes from taxpayers. If the elected officials fail to respond to the requests for relief or lose to a competing community, they are voted out of office.
This case study also illustrates how the media’s use of the euphemistic language obscures the burden taxpayers assume, because when elected officials say they are “business friendly” it means money is shifted from taxpayers to corporations. As a public school superintendent I would cringe whenever I read of that a corporation threatened to relocate because of “difficult economic conditions” or “over-regulation”. In my 29 years of experience as a Superintendent I cannot recall a time when the school districts I led didn’t face the same “difficult economic conditions” and the same “government regulations” as the private sector. Like the private sector over the past four decades, school districts faced spiraling health insurance costs, high energy and utility costs, increased costs for hiring, training, and retaining good employees, and a complicated array of local, State and federal regulations. Unlike businesses, however, school districts cannot threaten to leave town, cannot threaten to send their jobs overseas, or downsize. Indeed, the opposite is true. When the IBM PILOT agreement was struck the school board needed to make budget cuts to soften the impact to local taxpayers by deferring the acquisition of technology, increasing class sizes, and deferring some maintenance projects.
So when I read about the “incentive packages” Mr. Trump and Mr. Pence offered to Carrier, I realized that I helped pay for these incentives out of my own pocket and realized that the property taxpayers in Indianapolis paid an even higher price. So the next time you read about the high cost of welfare, recall that over a decade ago IBM received hundreds of millions in welfare from New York and asked Vermont to provide new roads and lower electrical rates,
And one last request: please alert me if you EVER hear of ANY State giving a school district a $475 million tax incentive to help upgrade their facilities.
An Open Letter to Governors-elect Sununu and Scott-
The following is my attempt at satire: a letter directed to two newly elected Governors in Vermont and New Hampshire. While I have no reason to think Governor-elect Scott could enact these proposals, it is entirely possible Governor-elect Sununu might! Here’s the letter:
As you begin your term of office you each have a golden opportunity to change the course of public education in your respective states. This is especially the case now that states have broader discretion on the use of federal funds for education thanks to the passage of Every Student Succeeds Act by Congress. And given President-elect Trump’s nominees for Secretary of Education and Attorney General you’ll probably get even more leeway in spending. And to provide even more opportunity for change, each of you each of you will be able to appoint new State Board members and the heads of your education departments. The stars are aligned for you to make some big changes in the direction of public schools in your states!
In an effort to help you capitalize on this opportunity, I am offering a modest proposal on actions you can take to replace stolid “government schools” managed by elected school boards with agile and efficient “free enterprise schools” managed by MBAs with a deep understanding of market fundamentals.
First, you need to replace your current chief education officers with business leaders or philanthropists. Anyone with a background in public education will be incapable of implementing the kind of market-based program needed to truly reform “government schools”. An educator will be reluctant to use technology to disrupt the traditional classroom instruction that requires human interaction and will be inclined to work with and listen to the unionized teachers. An entrepreneur or philanthropist will see the value of running schools like a business. If you really want to be bold, you might replace the entire State Board and state department with an education management company. They have worked effectively in Michigan and in several urban areas and there is no reason to think they couldn’t do an equally effective job managing a state department.
Second, you need introduce legislation that will give all parents choice when it comes to selecting their schools. Instead of requiring students to attend a “government school” in their community, give parents the flexibility to enroll their children in a virtual school, a religiously affiliated school, a non-profit school, or a private for-profit school of their choice. After all, you aren’t forced to buy your groceries at a single “government store” or eat at only one “government restaurant”. Why should the children in your state be compelled to attend a “government school” in their town that functions like a monopoly?
Third, you need to cap education spending. Everyone knows schools have plenty of money! By cutting the budget you will force the market-based “free enterprise schools” to respond by hiring lower wage employees and using technology to help students prepare for the standardized tests whose scores will help parents decide which school is best for their child. To help the “free enterprise schools” in their efforts to secure the low-wage help they need you’ll probably need to introduce right-to-work legislation to bring an end to the unions who drive up the costs of “government schools”.
Fourth, you need to enact legislation to eliminate school districts and superintendents. These elected boards and administrators exist solely to enforce government regulations. We don’t have elected boards or high-priced administrators overseeing or enforcing government regulations on private businesses. If consumers don’t like the service they get from a business, they stay away from it and eventually it closes. The same thing will happen with “free enterprise schools”. If a school doesn’t give the kind of services parents are seeking, they will eventually go out of business. And if the parents sue the failing “free enterprise school” for poor performance the CEO can follow our President-elect’s lead and settle with them for a small fraction of the potential award.
In looking at these recommendations you might be concerned about displacing employees in school districts and elected officials on school boards. There is no need for concern. The teachers in “government schools” will be happy to work for the “free enterprise schools” even if the wages and benefits are lower. And if they don’t want the jobs, there are thousands of recent graduates who would welcome the work. Those aspiring educators may not have college degrees or the teaching certificate issued by the government, but that is a small price to pay to create the kind of deregulated environment public education needs. As for the displaced elected board members, they can devote their free time and boundless energy volunteering in the “enterprise schools” or the many sectarian schools that will benefit from the voucher plans you enact.
In looking at these recommendations you might also be concerned about legal action if special education students are shortchanged or if funding inequities occur because some communities raise additional funds to augment the state vouchers so their residents can attend fancier schools. You have no need to worry! Jeff Sessions, Mr. Trump’s nominee for Attorney General, views special education as “…the single most irritating problem for teachers throughout America today” and as Alabama Attorney General he fought to retain a funding mechanism that the State Supreme Court deemed unconstitutional because it underfunded the poorest school districts in the state. Given his record, he is unlikely to block you if you move forward with any voucher plan and if Congress is so inclined he may even support legislation that would allow you to use special education funds to help reduce the need for additional taxes.
With deregulation, privatization, and free market ideas at the forefront in government today, the sky is the limit when it comes to making wholesale changes in public education. If you need any help drafting the laws needed to accomplish these ideas, the American Legislative Exchange Council (ALEC) has some off-the-shelf legislation that will enable you to take prompt action. My advice to you is to act quickly before the public catches on to the direction privatization and deregulation is leading us.
The newspapers the past two days have been full of news about the jobs Mr. Trump saved in Indiana by getting Carrier to pledge to keep one of its factories operating in Indiana. But an op ed piece by Christian Weller in today’s NYDaily News points out the wrongheaded approach Mr. Trump used to save these jobs.
Not all specifics are yet known, but the deal — the fulfillment of a crucial promise made by Trump during his presidential campaign — appears costly. Indiana state government, where Mike Pence is still governor, offered some tax incentives for Carrier to stay. These may well have been sweetened with additional, albeit vaguer, promises of future help from the federal government.
Tax giveaways are politically expedient, but they tend to be wasteful. Even though agreements often promise to put decent jobs first, there is nothing to force companies like Carrier to actually spend the money on jobs rather than on, say, bonuses for executives.
And even if Carrier made an ironclad pledge to keep all those rank-and-file jobs for now, governments have no mechanism to ensure such jobs will stay for a long period of time. This means that Carrier could choose to move the jobs to Mexico next year, and still keep its benefits. This would especially be the case if Trump cannot deliver on his promises of slashing taxes and rolling back regulations, for instance.
Mr. Weller didn’t delve into the “trickle down” effect of the tax incentives and tax cuts that made it possible to retain Carrier. As noted in one of my earlier posts, offering “tax relief” is a losing proposition. In their zeal to seek and retain Carrier’s jobs, Mr. Trump and Mr. Pence effectively gave their parent corporation a large sums of money, money that ultimately comes from taxpayers. Mr, Trump and Mr. Pence did this because if they failed to respond to the requests for relief or lost to Mexico in a race-to-the-bottom for wages they could be voted out of office.
Who loses in these “tax relief” efforts? The rank and file tax payers who must backfill the revenues lost when Carrier is given a break on its property taxes and pay for the “incentive package” that Carrier receives— an incentive package that is offered unconditionally. And if the taxpayers DON’T want to see their taxes raised or cannot raise their taxes any higher they are forced to limit public services like the maintenance of roads, the policing of their communities, and– yes– the operation of their public schools.
Mr. Weller explains the impact near the end of his op ed piece:
States already engage in plenty of this corporate welfare. Do we need more of it?
Spending more money on ineffective retention deals leaves less money to invest in good policy. Better uses of the funds would be improving infrastructure, beefing up access to fast broadband and lowering the costs of higher education.
Trump will claim he wants to do all those other things, too — but the public purse is limited. To govern is to choose. America needs more infrastructure spending for good jobs in the future. The Carrier deal and others likely coming down the pike could tie the new administration’s hands.
The business community is watching this scenario VERY carefully…. and if this de facto extortion works for Carrier it will be attempted frequently in the coming months. Here’s hoping Mr. Trump makes better choices on how to spend scarce taxpayer funds in the future.