Editorial

Corporate Schoolyard Bullies

Call Marriott the latest in a long line of corporate schoolyard bullies.

The hotel chain in March exacted an enormous tax and road improvement subsidy from the state of Maryland and Maryland's Montgomery County, in exchange for a promise to do... nothing.

Actually, the company promised to proceed with existing plans to hire 700 new workers at the headquarters and not to move its headquarters out of Montgomery County (north of Washington, D.C.) and across the border into Virginia.

If the company chooses to expand its current HQ site, the value of the Maryland package will be $31.68 million over 19 years. If the company builds a new headquarters, the value of the Maryland gift will rise to up to $44.17 million.

Maryland offered Marriott the giveaway for one reason: it feared the company would jump to low-tax haven Virginia -- an impression stoked both by Virginia and the hotel company. Current Governor James Gilmore III and former Virginia Governor George Allen both tried to seduce company chair Bill Marriott to border hop.

Faced with Virginia's enticements, and with Marriott playing coy about its final decision, Maryland progressively elevated its offer to the hotel company.

When Marriott announced that it would stay in Maryland, state officials celebrated their victory over their neighbor. "Our team is red hot, Virginia's team is all shot," Maryland House Speaker Casper Taylor, a Democrat, told the Washington Post.

But in the bidding war that Marriott forced between Maryland and Virginia -- and, because of the cultivated uncertainty surrounding Marriott's intentions, between Maryland and itself -- there was only one true winner: Marriott.

The state and county subsidies that Marriott extracted from Maryland constitute one of the worst and most indefensible kinds of corporate welfare.

Because such a high percentage of state and local property taxes are allocated to schools, tax abatements of the sort showered on Marriott frequently come at the expense of school funding. Some states wall off school funding from tax abatements -- meaning the burden is instead shifted directly to other taxpayers to make up the lost income.

And there is not even the pretense that Maryland-style giveaways create or preserve jobs. Based on company growth, profitability and needs, for example, Marriott had determined to expand its headquarters, irrespective of whether it will receive tax breaks from the HQ's home state.

Not even proponents of the giveaway deal can rationalize the subsidy on the grounds that it created jobs that would not otherwise have been created -- the best they can argue is that they are in Maryland, rather than somewhere else. While Maryland officials can therefore attempt to justify the tax abatements on the grounds that they preserved Maryland jobs, from a broader social point of view it is clear this kind of giveaway is a direct transfer from taxpayers or schools to the company with no reciprocal benefits.

Unfortunately, Marriott's corporate blackmail of Maryland is now the norm in corporate location decisions. These threats are "rampant" and "business as usual," says Greg LeRoy of Good Jobs First, an advocacy group working to promote accountability among corporations receiving job subsidies.

In many cities and states, virtually no major building is built, no large corporate headquarters lease renewed, no Fortune 500 factory opened without a slew of tax breaks and related subsidies. The most outrageous example, says LeRoy, is the New York City gift to the New York Stock Exchange -- a $900 million subsidy to keep the Exchange from jumping across the Hudson River to New Jersey. And each giveaway sets the stage for additional subsidy demands from other large employers.

Similar largesse is rarely bestowed on small business owners or home owners, raising the question of why the Big Boys can't pay their fair share, as the little guys do.

Frequently, company threats to move are a bluff. Decisions on where to locate major facilities are generally made based on transportation costs, company history, access to suppliers and other factors that override state and local tax costs. But often enough the threats are real, especially if the choice is between nearby locations.

And it is very difficult for cities and states to know when companies' threats are empty. "It is easy to create a credible appearance" of an intent to move, says LeRoy, and plenty of consultants are ready to present analyses to the public on how a company can save money by locating elsewhere.

The plausibility of the threat notwithstanding, local and state officials that have the backbone to stand up to corporate bullies can often win. If they are going to back down and offer subsidies, LeRoy advises at least demanding contractual guarantees that promised jobs will be created and retained.

An ultimate solution to the problem of corporate mobility will require aggressive national action. Representative David Minge, D-Minnesota, has proposed a federal excise tax on companies receiving state and local tax breaks -- a good first step to take back some of the lunch money that the corporate schoolyard bullies steal from intimidated states, counties and towns.