US: Towns Hand Out Tax Breaks, Then Cry Foul as Jobs Leave
Galesburg, Illinois, People in this big-shouldered town, birthplace of the poet Carl Sandburg, say Maytag broke their hearts. After a decade of tax breaks and union concessions to keep the company in a place that has been making refrigerators for more than 50 years, Maytag closed its factory last month, terminating 1,600 jobs.
Maytag may be done with Galesburg, but Galesburg is not done with Maytag.
District Attorney Paul L. Mangieri wants to sue Maytag to recoup what he says were excess tax breaks in a broad package of incentives to keep the company here. Much of the money, he said, came from a purse that would have gone to schools in this economically fragile community.
"We gave Maytag these incentives, and they accepted them," said Mr. Mangieri, a Navy veteran who grew up in a small town not far from here in western Illinois. "We did it based on faith and trust. If we don't do anything now, it sends a message that we lack the resolve to treat the rich and privileged the same as everybody else."
Maytag says it honored its agreement and took just the breaks to which it was entitled.
There are echoes of Mr. Mangieri's argument in Putnam County, Fla., which gave $4.5 million in cash and tax breaks to attract a call center owned by Sykes Enterprises, only to have it pull up stakes this month after less than five years in Palatka.
"We ought to sue them," said Timothy Keyser, a Putnam County lawyer who opposed the tax breaks from the start. "They sold the county a bill of goods."
Galesburg and Putnam are losers in the increasingly cutthroat game of using tax breaks to keep or attract jobs. Across the country, communities are competing with one another to offer the most lucrative incentives to lure good payrolls, from the giant assembly jobs at Boeing to small centers for processing credit cards, despite some studies that question the effectiveness of such tactics.
Most communities that lose business afterward lick their wounds and walk away, as Putnam County plans to do. But in Galesburg, some people have decided to take a stand, and it has split this community, showing the challenges of fighting back against a corporation.
After initially cheering their prosecutor for trying to regain some of the money used to keep Maytag, some people say they are afraid that they may scare off future employers. They question whether suing to reclaim tax breaks will hurt the community even more, adding that they have to pay companies to compete and that it is the cost of doing business in a vulnerable town.
"Maytag's leaving town has devastated our community," said Jeff Klinck, a car dealer and the former chairman of the economic development office here. "But I don't think any good comes from revenge. We want to move forward, not move back."
The final decision on whether to sue will be made by November, Mr. Mangieri said. Galesburg, site of a ferocious debate between Abraham Lincoln and Stephen Douglas in 1858, has a fighting spirit. Residents say the current civic gut check may determine whether the town becomes another casualty of the force that has devastated communities throughout much of Middle America.
Next door in Iowa, officials are keeping one eye on the fight while trying to determine whether they should try to recoup up to $25 million in public money given to business partnerships that have not lived up to their agreements to increase employment.
In New York, State Comptroller Alan G. Hevesi said in an audit this year that a program that gives millions of dollars in tax breaks to businesses that promise to create work ended up rewarding some businesses that lost jobs. Other state officials disputed those findings.
"We're all in the same boat: we're hungry for business and we need the tax and job base," said Nancy S. Harris, a Putnam County commissioner. "But in the future, I think we have to do better background checks and tie tax breaks to length of stay and number of jobs."
Executives at Maytag and Sykes said they had lived up to their agreements in accepting the tax breaks. In return for cash and reduced taxes, the companies created payrolls that more than made up for the inducements from local governments, they said.
"We did not in any way break an agreement," Lynne Dragomier, a spokeswoman for Maytag at its headquarters in Newton, Iowa, said. "We believe we have paid our fair share of taxes in Galesburg."
The legal question in Galesburg centers on whether Maytag received excess property-tax breaks. Under Mr. Mangieri's interpretation of the original deal, Maytag was entitled to $1 million in reduced property taxes. That amount grew to $2.1 million without protest from the county because the company was staying, county officials said.
Though the dollar amount is relatively small, the company and Galesburg residents cite a larger principle.
Over the years, Maytag benefited from state and local tax abatements, as well as money raised when people agreed to increase the sales tax. According to Mr. Mangieri, Galesburg raised $2.8 million in sales tax revenue to retrofit the refrigerator plant here, the State of Illinois came through with $5.8 million in aid, and Maytag was given 10 years of property tax abatements. Those breaks ended in 1999 and were not to exceed $1 million, Mr. Mangieri said.
Ms. Dragomier said Maytag, which is moving most of the work from Galesburg to a new plant in Mexico, had always been honest in its dealings with Galesburg, population 33,000.
"It's very difficult to close a plant like this, and we understand the pain it causes," she said.
The company has 11 manufacturing plants in the United Stares, Ms. Dragomier said, and prides itself on its American workforce. But, she said, it is under "competitive pressure" to make some refrigerators at cheaper locations.
At a Labor Day rally here, union leaders decried tax breaks for companies that do not agree to keep their jobs in the United States. They backed a proposal for "patriot corporations" that some lawmakers are circulating. Under that program, a company would receive a tax advantage if it kept production and a high percentage of sales in the United States.
"Maytag betrayed us; everybody knows that," said Dave Bevard, a leader of the International Association of Machinists and Aerospace Workers local here. "What our district attorney wants to do is not a vindictive act. It's an issue of fairness."
In Florida, Putnam County spent more money to lure Sykes, which operates call centers that provide customer service for other companies, than on any other economic development project, county officials said. In addition to the cash, Sykes was given a five-year break from local property taxes. The company opened its center in 2000.
In barely four years, the payroll more than made up for the public cash, said Andrea Burnett, a spokeswoman for the company, which is based in Tampa.
"Yes, they gave us $4.5 million, but in return they got a $120 million payroll," Ms. Burnett said. "That's a good return on their investment."
The company is closing some of its American call centers while adding jobs to cheaper overseas centers, company executives have said.
Smaller businesses say there is also a fundamental issue of fairness. Why not give a tax break to the reliable little company that holds a piece of Main Street real estate and never threatens to leave town?
"We let the other taxpayers down if we don't go after Maytag," said Robin Davis, the county treasurer here in Galesburg, who favors a lawsuit to recover taxes from Maytag. "My sense is if people don't want to work here and pay taxes, we don't want them."
There are six taxing entities that gave incentives to Maytag, and several have decided not to pursue the company, arguing that it sends the wrong message at a time the town is desperate to attract new jobs.
"When I first heard Paul Mangieri talk about suing Maytag, I cheered," Mr. Klinck, the car dealer, said. "But on further reflection, I thought this would negate our message."
Galesburg never tied its tax breaks and cash grants to a long-term stability, but the State of Illinois has since written certain requirements into its laws on enterprise zones.
The city has passed a bond issue to build a logistical center that it hopes will attract railroad jobs.
In Putnam County, Mr. Keyser was so incensed at Sykes's receiving cash and tax breaks that he sent a mock bill to county officials asking for a tax break of $25,000 for the one new employee he hired at his law firm.
"It's universal blackmail out there," Mr. Keyser said, "with corporations all playing the same game."