13 INVESTIGATES: Business Tax Incentives - Alabamas13.com WVTM-TV Birmingham, AL

13 INVESTIGATES: Business Tax Incentives

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TUSCALOOSA, AL - Attracting new jobs to Alabama can be an incredibly expensive proposition. A considerable amount of wheeling-and-dealing between government leaders and businesses has wheels rolling out of three auto making plants in our state.

Tax incentives help bring industries and a lot of jobs to the state. But, the price-tag of those incentives is in the hundreds of millions of dollars. And, some people question if those deals are worth the price.

Is it revving up the economy, or taking the state in the wrong direction?

"I believe I've seen other communities go too far. And I call it 'trying to win the press conference' - where you so desperately want that business, you're willing to give up so much that you'll never get that return on investment," Tuscaloosa Mayor Walt Maddox said.  "Here in the city of Tuscaloosa, we're willing to provide incentives, as long as those incentives - at the end of the day - will bring a return of investment for the taxpayers in our community."

The mayor's also president of the Alabama League of Municipalities, and said across the nation, states are putting the pedal to the metal to recruit industry.

"For us in Alabama, it is mostly the automobile industry. And the nice thing about the automobile industry is you bring the main manufacturer in and then all the suppliers come with it. And you don't have to give them any tax incentives," said UAB's Dr. Andreas Rauterkus.

That's the upside --  the downside is that incentives may make political sense, but not necessarily economic sense.

"How far do you compete and how much do you give? In Economics, we call it 'Race to the Bottom' where you basically give so many tax incentives that at some point it's really not in the best interest of the state anymore in terms of tax revenue," he said. "They're competing with all the other states. And that's always been the issue with tax incentives."

Mississippi, Georgia, Tennessee and many other competitors are trying to move into the fast lane and pass Alabama to attract these manufacturers.

Tuscaloosa's maddox says the economic race pays off. In September, Tuscaloosa landed Bolta. It's a recruiting success Maddox is proud to put in the win column. The Mercedes supplier will hire 350 workers and pay them well, according to Maddox.

"Our competition was Tupelo, Miss. And if we didn't put together a competitive package -- which, by the way, did not exceed Tupelo's package -- but, it was competitive enough so that we could take advantage of our other geographical advantages, we wouldn't have received Bolta here in Tuscaloosa. That's a fact."

One fact is undeniable -- Alabama has become a leader in automobile manufacturing, attracting the likes of Honda, Hyundai, Toyota and the international pace-setter, Mercedes-Benz. The first-ever M-Class rolled off  the assembly line here in 1997.

"We wouldn't have Mercedes if we hadn't have put together a competitive package when they were looking at other states. That's a fact," Maddox said.

Another fact: This 3-pointed star has made Alabama the star of auto makers. In the same way a Mercedes in your driveway might increase your stature,  the Mercedes-Benz plant has increased  Alabama's industrial prestige. It all started with a quarter-billion dollars in incentives.

"Well on the industrial side, we would not have Mercedes Benz and the 4,000 jobs that will be there by 2015," Maddox said.

In the next two years, Mercedes will add two new models made in Alabama: A new C-Class for 2015, and something Mercedes coyly describes as an "entirely new product."

The plant has come a long way since the early 90's when Gov. Jim Folsom Jr. courted Mercedes. Alabama won the plant. But, the state had a tough time living up to its end of the financial bargain, failing to come up with money for one of the first payments it owed Mercedes.

Alabama had to borrow the $43 million from the state retirement fund. The fallout from this may have cost Folsom the governor's mansion.

Still, the Mercedes incentives package became a template that today, many consider a success.

"We would not have an additional 4,000 jobs and suppliers without those incentives," Maddox explained.

Those incentives also paved the way for future deals: $158 million for Honda, $252.8 million for Hyundai, and those don't stop with automakers. Airbus got a $158.5 million deal, and steel maker ThyssenKrupp's incentive package topped $1 billion.

The high dollar deals have their critics.

"It's a two-edged sword. And we need great businesses in Alabama. But, we cannot continue to starve children's programs to bring businesses into Alabama," said Vi Parramore, president of the Jefferson County American Federation of Teachers.

Parramore says students continue to lose funding, while corporations cash in on the state's incentives.

"It's time to support our children instead of giving away all of our money to out-of-state corporations who reap benefits from our land -- they use our electricity, they use our power, they use our water, they use our sewage system -- and they pay no taxes to the Education Trust Fund. And that should never be allowed to happen in a state like Alabama," Parramore said.

"I think to draw lines in the sand is the wrong  policy statement," Tuscaloosa Mayor Walt Maddox said. "Incentives in and of themselves can be a plus for your local economy and for tax revenues. But, I think you have to take each one on a case-by-case basis."

Maddox points out sometimes you have to pass on deals that simply don't add up for taxpayers. Tuscaloosa was not able to green-light the incentives package to lure Magneti Marelli automotive lighting. The Italian auto supplier built its plant in Pulaski, Tenn.

Gov. Robert Bentley is now pushing incentives for existing businesses. The governor calls it a priority of his legislative agenda.

Alabama would follow Tuscaloosa's lead. The city helped ZF Industries with a $14.6 million expansion that brought at least 85 new jobs and kept ZF from losing a Mercedes contract to an out-of-state competitor.

But what happens when a company fails to live up to its end of the bargain? The Governor's office is quick to point to what it calls 'Clawback Provisions.' Basically, if a company fails to deliver on its promises or decides to move out of Alabama, it'll have to pay back the state.
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