The Journal Gazette
Thursday, April 08, 2021 1:00 am

A waste of money

Subsidies, such as for Project Mastodon, ineffective in corporate machinations

Michael Farren and Joseph Johns

A recent report by the U.S. Public Interest Research Group Education Fund and Frontier Group gave Indiana a D+ when it comes to providing adequate information about its corporate handouts.

One example comes from Fort Wayne, where City Council members just approved a $16 million subsidy for “Project Mastodon” – a warehouse whose operator refused to be publicly identified.

City leaders, including Mayor Tom Henry, rejected requests to divulge the recipient of the corporate handout, citing their signing of nondisclosure agreements. Even some City Council members who hadn't signed refused to divulge the company to voters.

And now the project, confirmed through construction documents to be an Amazon fulfillment center, will receive another $3.5 million from the Fort Wayne Redevelopment Commission. A third trip to the public trough is coming, with the council considering even more subsidies.

Fort Wayne is far from alone. Such shenanigans are unfortunately commonplace across Indiana and the country.

But there are a few tools to wrest power back from subsidy-hungry corporations.

Amazon and other corporations commonly require nondisclosure agreements with new projects. While this may protect proprietary information, the secrecy helps twist state and local officials' arms into providing ever-increasing subsidies, often by playing one government against another.

Local officials are sometimes complicit, which is why we still don't know how much cash Indianapolis offered Amazon for its “HQ2.”

The jobs companies promise to create – often based on sketchy analysis and wishful thinking – are subject to a similar lack of accountability.

In short, the obscurity surrounding subsidies is intentional. The public rarely discovers that subsidies don't promote economic growth.

Worse, subsidies have little effect on corporations' decisions over where to locate or expand. Leading economic development scholar Timothy Bartik found that the average granted subsidy only swayed one in eight such decisions.

In other words, the vast majority of public funds spent on subsidies is wasted.

Fort Wayne's $16 million fits this mold. The city is the air, rail and road hub for northeast Indiana and its surrounding region. It's an obvious choice to locate a distribution center, subsidy or not.

But when companies know that cities will offer a sweetener, they'll ask for it.

Similar deals have been inked in surrounding states, with Illinois providing a particularly spendthrift example. Its governments have combined to provide more than $741 million for Amazon facilities in and around Chicago.

How can state and local policymakers escape this rat race of useless subsidies? Requiring transparency would be a good start.

In Illinois, a bill by Democratic state Rep. Mike Halpin would prohibit local officials from signing nondisclosure agreements. His colleague from across the aisle, Republican Joe Sosnowski, proposes banning local governments from poaching jobs from other Illinois cities. Michigan and Ohio are also pushing forward with legislation that would mandate greater transparency at the state and local levels.

This problem is not unique to the Midwest. The best estimate suggests that subsidies cost U.S. state and local governments around $95 billion every year. This has spurred leaders from more than a dozen states to develop an interstate compact that would phase out corporate giveaways.

This idea could end what has become an interstate arms race of cross-border job poaching, as Indiana and Illinois know all too well.

There are worse offenses than Fort Wayne's $16 million subsidy. But waste has to stop somewhere, especially when it's hidden behind closed doors.

Recently, journalists celebrated Sunshine Week, dedicated to promoting the value of open government policies and freedom of information. Too bad that warmth couldn't thaw Project Mastodon. 

Michael Farren, left, a research fellow with the Mercatus Center at George Mason University, recently testified before City Council on Project Mastodon. Brownsburg native and Taylor University graduate Joseph Johns is a Mercatus master of arts fellow.

Subscribe to our newsletters

* indicates required