Corporate Handouts Are Leverage

Photo credit: formulanone / flickr

Last month, Pennsylvania Gov. Tom Wolf, as part of an ongoing fight he has with the Republican-controlled state legislature over the minimum wage, released an executive order requiring corporations that receive tax incentives or grants from the state to pay the same minimum wage that state contractors must pay ($13.50 an hour, increasing to $15 in 2024) and to provide their workers with paid sick leave.

“With Pennsylvanians renowned for our work ethic, this is an opportunity to improve jobs in the state, which will attract and retain hardworking people to live here and bring new industries to the commonwealth that want a talented, skilled and dedicated workforce,” Wolf said.

My reading is not that Wolf cares all that much about corporate incentives such as they are, but saw them as leverage to get what he really wants: More workers receiving a higher minimum wage in a state that still sticks by the federal minimum of $7.25 an hour.

And that’s fine! In fact, more locales should be attaching far more strings to their corporate handouts programs that would benefit workers, even if their chief concern is not incentive reform for the sake of incentive reform.

Now, to be clear, my first preference is for eliminating corporate incentive programs altogether, because they achieve none of their stated aims and are bad for democracy. My second preference, if repeal isn’t on the table, is to redirect all the funding to small businesses, giving local firms and entrepreneurs help competing against entrenched incumbents, rather than the typical practice of subsidizing already dominant corporations in order to help them build monopolies.

But barring those, sticking loads of conditions onto these deals is a good backup option.

These conditions can come about in a couple of ways: One is that the public body overseeing the programs implements them, as is the case in Pennsylvania now, or when the various levels of economic development agencies and boards in certain states require certain things from corporations (though they often go to great lengths not to enforce those agreements).

A second avenue is to require what are known as community benefits agreements between the corporation and the municipality or local groups (such as labor unions or non-profit organizations) within the area where the corporation will be located. For instance, New Jersey’s big incentive reauthorization this year, while awful in many ways, does require any project where the total cost will be more than $10 million to include a community benefits agreement with the local municipality. 

The process allows residents and officials to demand various things, such as wage levels, residency requirements for employees, investments in transit or housing, or whatever else, in return for public money. No agreement by the corporation, no funds.

The community benefits agreement approach was pioneered in Los Angeles in 2001, around what to do regarding development near the Staples Center, errr, Crypto.com Arena. It was also used to good effect more recently by activists in Nashville who secured an agreement in an incentive deal for a publicly-funded professional soccer stadium.

Here’s a state level bill authorizing community benefits agreements in corporate incentive deals. To make it a requirement, all an enterprising state lawmaker would need to do is replace “may” in the first subsection with “must.”

What local folks should most definitely not do is follow the example set this week by Knoxville, Tennessee. The city council there voted to gift Randy Boyd—a local rich dude who owns the Tennessee Smokies minor league baseball team and is the president of the University of Tennessee System—$65 million in public funds for a new stadium. 

Local labor leaders and some members of the council wanted Boyd to sign an agreement about worker pay and other matters. Boyd said no, with the following justification:

Another reason he declined to sign an agreement, Boyd has said, is that unlike out-of-town investors who may not have the interest of the community in mind, he and his family have a philanthropic history that proves his dedication is sound.

That’s to be clear, exactly why you need binding written agreements: So the benevolence of the folks benefitting from corporate subsidies isn’t all that holds standards to a certain level. 

Again, barring a realistic chance to abolish incentive programs, attaching high and hard standards and ensuring community input is the next best thing. Pennsylvania got it right and Knoxville got it very very wrong.

Pat Garofalo is the author of The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs the Boondoggle newsletter, and the director of state and local policy at the American Economic Liberties Project. This post originally appeared on Boondoggle on November 18, 2021.