News: CJ Exclusives

On Milking A State’s “Cash Cow”

Ernst & Young advises businesses on how maximize subsidies from state governments

A workshop conducted in late March, led by experts in getting economic development incentives from state and local governments, shows that large companies are now banding together to learn how to extract as much public money as possible from elected officials.

The seminar, presented during a portion of the annual three-day meeting of the State Government Affairs Council, taught dozens of corporate government-relations executives how to “Turn Your State Government Relations Department from a Money Pit into a Cash Cow.” Michael Press, national director of Ernst & Young’s Business Incentives Practice, and Robin Stone, former vice president of state and local government relations for The Boeing Company, delivered the Microsoft PowerPoint-supported presentation March 26 in Savannah, Ga.

(Readers can examine the presentation directly by visiting here and clicking on either the PDF or PowerPoint version of “cost_savannah.”)

“Cash cow? You got that right,” said N.C. Rep. Paul Stam, an Apex Republican who serves on the General Assembly’s Joint Committee on Economic Growth. “They look at [government] as just turning on the spigots.”

Comments drawn from the PowerPoint document, which Carolina Journal shared with people interviewed for this article, reveal a cynical attitude and a willingness to “milk the system,” say two lawmakers, including Stam, who were appalled by the government-relations presentation.

Press told CJ in a phone interview that the purpose of the presentation was to show participants that businesses need not view their government-relations departments as a necessary administrative cost center, “but rather as a source of value.”

“This group [SGAC] gets together to discuss business that they have in common and the issues they confront,” Press said. The workshop on incentives constituted about one-third of the meeting, he said.

Press said he did not create the title of the “Cash Cow” seminar, and he wasn’t sure who did.

“That title was not my choice,” he said. “It was part of a joint presentation.”

Asked who he thought the cash cow represented in reality, Press said, “…the corporation that’s providing jobs to the community — much the way the feedstock and the farmer provide an important commodity.

“It’s kind of a partnership arrangement and incentives are part of that partnership,” Press said. “There’s a lot the public gets out of it.”

Two legislators from opposite ends of the political spectrum viewed the cash-cow terminology differently. Stam considered the cash cow to be the state Treasury, and ultimately, taxpayers. “They play state legislators like violins,” he said. “They’re treating us like a scam.”

Stam rejected the idea that business “partners” with government.

“There is no partnership,” he said. “A partnership is two different entities that share in some risk, rewards, and control. There is no sharing here at all. The government is providing the money, and the business is getting it.”

State Rep. Paul Luebke, a Durham Democrat, also was troubled by the PowerPoint document.

“I think referring to government as a cash cow is a very cynical way to look at the 50 state governments,” Luebke said. “Many, if not all of them, are acting in good faith with the corporate sector.

“It doesn’t surprise me that [businesses] would come together to trade notes. But it does strike me as cynical that the hard-earned and reluctantly paid taxes are there for the pickin.’”

At the same time, Stam said businesses weren’t doing anything illegal. “They’re doing what’s completely normal and natural,” he said. “They see a big pool of money and they’re advising their clients how to get it. It’s proving to the taxpayers how ridiculous these (incentives) programs are.”

The PowerPoint document obtained by CJ outlined several principles for pursuing government incentives. Press implied that much of the presentation was composed by Stone, who is now director of legislative affairs for Republican Gov. Bob Riley of Alabama. Stone did not respond to telephone messages or an electronic mail inquiry seeking comment.

The PowerPoint document began with examples of large corporations that in recent years were “provide(d) significant saving opportunities” with government incentives. The companies listed were Ernst & Young, Boeing, IBM, Fidelity, and Mercedes.

Stone undoubtedly had his extensive experience with Boeing to draw from. He wrapped up his 18-year career with the aerospace giant last year after playing a key role in the company’s headquarters relocation to Chicago. Boeing was established in Seattle in 1916, but in early 2001 announced it would move and publicly said it would choose Dallas, Denver, or Chicago. After a swift seven-week, secretive evaluation of the cities, Chicago (and the state of Illinois) won the company’s heart with a reported $63 million in incentives. News articles pegged Dallas’s offer at $14 million, and Denver’s between $13 million and $18 million.

Ernst & Young officials negotiated tax incentives and evaluated proposals from the three cities for Boeing. (Ernst & Young has also played a significant role on both sides of economic-incentive programs, advising both the state of North Carolina and incentive recipients.)

Stone had left Boeing before the much-publicized effort made by North Carolina to lure the airline manufacturer to build its new 7E7 jetliner at the Global TransPark in Kinston.

The cash-cow workshop advised government relations executives from some of the largest U.S. corporations, including Wal-Mart, Proctor & Gamble, Bank of America, and Microsoft, to “provide government with justification: (a) quid pro quo” for granting incentives.

Under a PowerPoint slide headlined “What is in it for Government?,” Stone and Press told SGAC attendees that the “public doesn’t like corporate welfare” and that lawmakers are “caretakers of the state’s economy, not your business.” Therefore, they advised, corporate government-relations people should make “a strong business case” by “identify(ing) public benefits of the project (economic and fiscal impacts);” make the case for a “unique opportunity to partner with government;” but also that the company communicate a “but for threat.” Such a threat means that a company won’t relocate to a state unless it provides adequate financial incentives.

“I’m trying to give the folks I’m speaking to government’s perspective,” Press said. “What I’m saying is that you want to be successful. You’re not going to be successful by going to government without identifying benefits. Don’t expect it to be a one-way street.”

Press denied that he and Stone were trying to portray “corporate welfare” in a more favorable light, and called the term “a misnomer.”

“[The public] do[es]n’t like something for nothing,” he said. “I’m saying, ‘don’t kid yourself here.’ Make sure you have appropriately assessed what government is going to wind up with.”

Press gave a business perspective of the but-for threat, saying it is important for a company to communicate what it needs in order to “make its investment in the community.” He said that businesses evaluate offers from states and communities, compare them, then tell economic developers what they need in order to persuade the business to come to their state. “It’s important that that be expressed,” he said.

The cash-cow presentation had two principle themes: control the message and get the attention of the right people, i.e., politicians with power.

Among Press’s and Stone’s “best practices” advice were communications-related bulletpoints: “Company has to speak for itself,” “make a strong business case,” and “control publicity.”

Luebke said the message delivered by government-relations professionals to lawmakers has to be carefully crafted. “For a government and a legislature to go along with this,” he said, “you have to have the right language.”

Perri Morgan, North Carolina state director for the National Federation of Independent Business, opposes government incentives (which she called “corporate welfare”) targeted for specific businesses. “The fact that it’s bad enough that we have to make excuses for it means that we shouldn’t be doing it,” she said.

Press and Stone also told SGAC attendees to “avoid legislation if possible,” meaning that businesses should try to get incentives that don’t require the passage of a special law.

The N.C. General Assembly did so last autumn when it convened a special session in order to create targeted incentives for pharmaceutical company Merck & Co., and for cigarette manufacturers R.J. Reynolds Tobacco Co. and Philip Morris USA.

Stam and Luebke had similar interpretations on that point. Stam said businesses probably believe it is best not to seek a special law to create incentives, because it draws more attention to the special treatment it is getting from government.

“It seems to be suggesting that a side deal is better than a bill,” Luebke said.

But Press and Stone seemed to contradict their “avoid legislation” message by telling businesses to “identify the REAL incentives…don’t settle for off the shelf, but don’t be greedy.” If a business sought more incentives than are provided for in existing state law (“off the shelf”), special legislation would seem necessary. That bothered both Stam and Luebke.

“We’ve got a number of laws written, and then corporations come in and ask for a special deal,” Luebke said. “This seminar is telling them to cook up special deals.”

“[‘Off the shelf’] wasn’t good enough for Merck,” Stam said. “They wanted land bought for them. [Business] will never be satisfied because there will be more companies who want what the last company got.”

Other advice about the process suggested that businesses develop support from the general public. Press and Stone said SGAC members should “use local sub[contractor]s and vendors whenever possible and brag about it;” “communicate progress to the elected officials and their constituents;” and “update your messages and stay on them.”

Other recommendations by Press and Stone perhaps bely businesses’ stated motives to provide a “public benefit” in exchange for economic incentives. The two told SGAC participants to “involve elected officials in press announcements;” to “thank everybody a zillion times;” and to “be mindful of the election and legislative cycle.”

“That just shows how politically motivated it is,” Stam said. “When there are 100 jobs [announced] you can cut a ribbon, but when it’s one by one, you can’t do that.”

“Government is much more likely to give up tax credits if you let (politicians) shine in (businesses’) press announcements,” Luebke said. “A zillion times? That’s cynical.

“It’s hard to look at this and say after this retreat that any corporation is really playing it straight with the state of North Carolina”

Paul Chesser is associate editor of Carolina Journal.