In 1997, the state of Maine and the city of Bath gave Bath Iron Works $198 million in three separate tax packages (spread out over 20-25 years) to facilitate a plant renovation of $307 million.
BIW is, and has been, a wholly owned subsidiary of General Dynamics Corp. In 1996, General Dynamics earned $271 million in profits; in the first six months of 1997 its profits were $151 million; it ranked 375th in Fortune magazine’s listing of the 500 largest corporations in the nation. General Dynamics and BIW could easily have borne the costs of any plant expansion or renovation it wanted.
Instead, using veiled threats of plant closure, relocation, and job losses, they extorted – from the taxpayers of Maine – an unprecedented corporate subsidy.
In 2013, General Dynamics is 98th in Fortune’s listing of the top 500 U.S. corporations. In 2012 its full-year earnings from operations were $2.3 billion – that’s “B” for billions – and a similar level of profitability was realized in each of the preceding four years. The company’s cash and short-term investments at the end of 2012 totaled $3.3 billion.
Now General Dynamics and BIW have proposed the construction of an Outfitting Hall on existing BIW property in Bath. The costs are estimated to be $32 million. To offset a portion of these costs, they want to amend existing tax increment financing agreements with the city to capture $6.25 million, or 50 percent of the property tax revenues this expansion would create over the next 25 years.
Clearly, General Dynamics and BIW could afford to finance this relatively minor plant expansion from annual earnings and/or from existing cash on hand.
But again, with veiled threats of job loss, a proffered job stability, and citing the history of subsidies by Maine and Bath for capital investments – and the fact that other shipyards (primarily Ingall’s Shipbuilding in Mississippi) are receiving similar state and local subsidies – GD/BIW has put this new, $6.25 million subsidy proposal on the table.
But what Maine and Bath did in the past, and what other states are doing in granting corporate subsidies, are irrelevant to the current proposal. We can’t change the past or the absurd behavior of others. In the present, however, it is irrational to believe that BIW is going to pick up and leave town if this subsidy is not granted.
More cynical, however, is the implied threat that the Outfitting Hall project may not be undertaken unless a TIF subsidy is provided.
Obviously, if the hall is not built there will be no new subsidy for BIW, and no increased city tax revenues. But the idea that it won’t be built is rubbish; some would call BIW’s implied threat little more than gamesmanship or extortion.
If the Outfitting Hall, like the plant renovation in 1997, didn’t make good business sense, we wouldn’t be talking about it at all. Bear in mind, they put the whole project proposal (including the subsidy) on the table.
The 1997 renovation substituted plant mechanization for employees; it allowed employment to drop from nearly 7,700 in 1999 to little more than 5,000 today, while maintaining the level, and quality, of plant output. Common sense tells us the new hall would not have been proposed if it didn’t give rise to similar improvements in plant competitiveness and efficiencies.
Finally, the failure and idiosyncrasies of Maine law allows BIW to argue before the Bath City Council that a large portion of any subsidy to the corporation may be sheltered, that is, not paid for by municipal dollars. Maine law, designed to encourage TIFs, absurdly and unfairly allows the increase in assessed property tax valuations (occasioned by building private commercial facilities such as the Outfitting Hall) to be excluded from the state’s annual distribution of school aid monies, and the county’s assessment to each municipality to fund annual county budgets.
This gerrymandering of Maine’s equalized assessed property valuations results in TIF-granting cities such as Bath getting more state school aid than they should, and paying less towards the county budget than they should. Why non-TIF granting municipalities in Sagadahoc county (or any other county where TIFs are widely used) and their school districts, are not up in arms over this unfairness is inexplicable.
The absurdities of Maine law should not become a justification for municipalities in Bath’s position to grant a subsidy that is not needed, that they do not deserve, and that economically harms a large number of neighboring municipalities and school districts.
For its part, BIW wants the subsidy simply because it can squeeze it out of fearful local officials, and thereby fatten the profit margins of an already wealthy parent corporation. It is part of the corporate greed we live with today.
Orlando Delogu of Portland is emeritus professor of law at the University of Maine School of Law and a longtime public policy consultant to federal, state, and local government agencies and officials. He can be reached at email@example.com.