Alabama's corporate welfare fund is drying up

From yesterday's Birmingham News:

MONTGOMERY - Top Alabama officials say they are bumping up against the $750 million cap that limits the amount of money a commission, chaired by Gov. Bob Riley, can borrow for industry recruitment.

Alabama voters on June 5 agreed to rewrite the state constitution to raise the amount the five-member commission can borrow from $350 million to $750 million.

The commission, which voters created in 2000 by amending the constitution, already has borrowed $610 million, leaving $140 million in borrowing capacity. But almost all of that has been pledged to three economic-development projects, said state Finance Director Jim Main, who sits on the commission.

It's not surprising that the state has managed to find a number of large corporations that are willing to take its money. What should be surprising, but alas isn't, is that the state has so eagerly handed out its millions to those who are quite capable of raising it themselves.

Here's the list of how this money will be spent, again from the Birmingham News:

$220 million for ThyssenKrupp. Its steel plant is expected to employ about 2,700 people.

$40 million for National Alabama Corp., to help it build a railcar plant expected to employ about 1,800 people in Colbert County.

$20 million for Goodyear, to help it renovate its tire plant in Gadsden and keep about 1,400 people employed there.

$15 million for Hyundai, to help it build a $270 million engine plant at its assembly plant in Montgomery.

In addition, Main said three additional spending promises could eat up virtually all the commission's remaining $140 million in borrowing capacity:

About $72 million pledged to help build an aircraft assembly plant in Mobile if EADS, the European Aeronautic Defence and Space Co., and Northrop Grumman Corp. win a $40 billion contract to build refueling tankers for the Air Force. If EADS and Northrop lose the contract to Boeing, that $72 million in borrowing capacity could be used for other projects.

About $35 million in additional incentives promised to National Alabama Corp. That commitment could be reduced to about $15 million, Main said, if Congress amends a law to let the company borrow money at lower interest rates by selling tax-exempt bonds.

About $30 million more promised to ThyssenKrupp.

Note that the vast majority of this funding is not directed towards building new roads, or providing police and fire protection, or extending utility service, or providing other services that one would generally expect government to provide for businesses as part of its normal duties. Instead, the money will be used primarily for building and upgrading production facilities - functions that are directly related to the conduct of business operations and that directly contribute to a company's bottom line.

Such an intimate partnership between state government and big business is troublesome for several reasons:

1) It is unjust. The funding is not accessible to all Alabama companies. Unlike broad tax incentives tailored to benefit everyone who does business in the state, the handouts funded by the "Thyssenkrupp Amendment" passed last June are available only to a select few - namely, those who the Governor and the other members of the commission created by that amendment deem worthy to receive them. When government favors certain companies over others, it puts competitors and potential competitors at an unfair disadvantage.

2) It invites corruption. While it may be the case that Governor Riley runs a clean administration, that can't necessarily be said of past and future Governors. When a few state officials have $750 million at their disposal to lure businesses to the state, its not inconceivable that they might use those funds to enhance their own fortunes. In a representative democracy, a certain amount of public corruption is to be expected, but why maximize the opportunities by creating an unnecessary conflict of interest that is so potentially lucrative ?

3) It unnecessarily and unwisely interferes with the natural operation of free markets. Politicians and bureaucrats are notoriously incompetent when it comes to picking winners and losers in the marketplace. It's not that they're stupid (although some of them undoubtedly are); it's just that they are so far removed from the actual nuts and bolts of the economy that they can't possibly know how best to direct taxpayer resources into the private sector. Markets are the most effective deciders of business success, and those who successfully navigate them will prosper. If government wants to contribute to job creation and economic growth, the best thing it can do is to know its place and limit its role.

4) It undermines liberty. What the government gives, it can take away. Would we be more free if the government provided us all with "free" health insurance? Or if it provided us with a retirement fund? Or if it sent us a welfare check every month? What is true for individuals is true for businesses. When government is our principal benefactor, we become subject to its ever-increasing, never-satisfied appetite for power.

5) The "Thyssenkrupp Amendment" and others like it set bad constitutional precedent. One of the virtues of the Alabama Constitution of 1901, in my opinion, is that it expressly forbids the state from being interested in any private or corporate enterprise, or from lending money or credit to any individual, association, or corporation. It's unfortunate that we have now made a habit of amending that provision piecemeal in order to benefit certain favored corporations. There should be no more Thyssenkrupp Amendments. If we now believe that providing "industrial incentives" is a legitimate function of state government, then we should pass a constitutional amendment saying so, rather than continuing the current practice of providing for exceptions to the rule.

I would vote against such an amendment.

Hat tip: Dan at Daily Dixie, who also has some thoughts on the matter.