Wouldn’t you love to sell something for $50 million and only be required to pay back $5 million if you failed to deliver? What a deal.
That’s the deal Yokohama Tire negotiated with the state of Mississippi. It’s the standard “clawback” provision in Mississippi mega-deal industrial recruitment packages.
State grants for the West Point Yokohama plant totaled about $50 million. As it stands now, the Yokohama plant has 411 employees, 18 percent short of their promised 500.
Using the clawback formula, the amount of money that has to be returned is multiplied by .1, which means the clawback money is $430,000 rather than $4.3 million, shorting the state $4 million.
When the deal was announced, the promoters touted 2,000 jobs after “Phase Two” but don’t count on it. The company loses none of its grants or subsidies by failing to implement Phase Two. The software industry calls such promises “vaporware.” Yokohama Phase Two is a vapor plant.
This has been a great deal for Yokohama but a terrible deal for Mississippi taxpayers.
You would never in a million years see a bank or private financing entity agree to such a clawback provision. Only a governmental entity could negotiate such an absurd provision.
The introductory “Recital” portion of the Yokohama MOU, states: “The initial phase is expected to result in the employment of at least 500 new full-time jobs and is expected to require an initial capital investment by the company and its affiliates of at least $300 million.”
I call this the PR portion of the agreement. This is what the MDA and governor use in their press conferences touting the plant.
But when you look at the actual formula, it’s 450 jobs used in the formula, not the 500 claimed in the recital. Not a big difference, but the question is why? It’s just one more way of weakening the clawback provision and reducing accountability.
Yokohama is required by the agreement to spend $300 million, but the enforcement section only requires Yokohama to spend $70 million on the “Project” including “land, buildings and depreciable fixed assets.” Confusing, to say the least.
And if there is any dispute, Yokohama only has to pay one percent interest on the disputed money until it is resolved.
Even worse, there is no mandatory audit of Yokohama to ensure they are meeting their required investment and job creation. Instead, any audit of Yokohama is optional.
This is the state equivalent of “don’t ask, don’t tell.” Yokohama is not required to submit a performance audit, rather it is up to various governmental entities to “request” the information. That’s fraught with political overtones. A few well-placed political contributions could make sure no such request was ever made.
The contract language seems to favor the company over taxpayers every step along the way.
The meat of the favoritism comes in the tax exemption section. In a nutshell, Yokohama gets a free pass on just about every local and state tax imaginable: income taxes, franchise taxes, sales taxes, use taxes, withholding taxes, property taxes, inventory taxes, accelerated depreciation … you name it.
My back-of-the-envelope estimates of the tax savings per year is $2.1 million in property tax savings, $750,000 in franchise tax savings, $600,000 in state income tax savings and $9 million a year in sales tax savings and probably another million a year in a variety of other tax savings. That amounts to $269 million in tax breaks over 20 years plus the $50 million in state grants for a grand total of $319 million subsidy of the Yokohama tire plant in West Point.
Three years after the deal was signed, the plant has 411 employees. If you divide the $319 million in subsidies by 411, that’s $776,155 per job. On an annual basis, the state of Mississippi is losing $38,807 in tax revenue each year per Yokohama job.
If this is our state government’s plan to boost our state economy, it would be more efficient to just hold a free lottery, randomly choose 411 lucky winners and then just pay them $38,807 a year for the next 20 years.
The problem here is politicians spending other people’s money. Gov. Bryant would never have signed this deal if it was his personal money. No bank or private company would have agreed to this deal with Yokohama.
This type of corporate welfare makes the governor and the MDA look like they are doing a great service to our state when in fact they are damaging our economy. The subsidized companies are able to outbid taxpaying companies for a limited supply of skilled labor.
After a decade of these mega-deal giveaways, Mississippi is suffering its lowest growth in 50 years. Giving a handful of companies $750,000 per job is not only unfair to all the other employers in the state, it’s a failure as a jobs growth policy.
Each year like clockwork a megadeal such as Yokohama goes down for about $300 million a pop. Is it any wonder our state is running out of money and cannot maintain our schools and roads?
Instead of these unfair sweetheart megadeals, we need a pro-business state tax code that favors all job growth equally for companies both big and small, foreign and homegrown.
Wyatt Emmerich is the editor and publisher of The Northside Sun, a weekly newspaper in Jackson. He can be reached by e-mail at [email protected].
The Dispatch Editorial Board is made up of publisher Peter Imes, columnist Slim Smith, managing editor Zack Plair and senior newsroom staff.
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