Corporations Often Secretly Renegotiate Their Tax Incentives, Study Finds

A woman walks down a sidewalk in Arlington's Crystal City neighborhood, which was chosen by Amazon for their HQ2 campus. (AP Photo/Cliff Owen)

Tax breaks to corporations in exchange for jobs are often modified — in secret — after the fact, a new study finds.

Governing magazine reports that the University of Texas at Austin studied 165 awards given out by the Texas Enterprise Fund, which manages such corporate incentives for the state. In 46 of those cases — about a quarter — the fund changed contracts after they had been finalized. In most cases, the changes were favorable to the company, lowering the number of jobs required to get the tax breaks, or changing the schedule for meeting those requirements. And many times, Governing says, the changes happened right before a company would be subject to provisions requiring it to pay back the incentives it received for not creating those jobs.

There might be more amended deals than included in the study, as many companies challenged UT Austin’s public-records requests during its research. “This finding, from a single state, is troubling,” Nathan Jensen, the study’s co-author, told Governing. “If companies can not only secretly renegotiate the rules, they can also make sure that public records laws shield them from revealing these renegotiations.”

The study authors ultimately got a list of the names of companies that had amendments to their contracts. They also obtained full contracts for 63 companies, and they’re waiting for the rest of the records, including for 42 companies that submitted formal legal challenges to their records request.

In one example of contract renegotiation, Comerica received $3.5 million in tax breaks in 2007 to relocate from Detroit to Dallas and create 200 jobs paying an average wage target. Five years later, the contract was amended to allow Comerica to include 15 of its existing executives, including the CEO, toward its job and wage target.

In another example, SpaceX received $2.3 million to create 300 jobs at a new facility in Texas. In 2017, the company renegotiated the deal to create 150 jobs in exchange for $1.15 million. However, no jobs have actually been created yet and no funds have been paid out.

The authors also found that companies that had renegotiated their contracts were almost twice as likely to have challenged the authors’ records requests.

“This pattern is consistent with companies using public records laws to hide their non-compliance with their job creation promises,” they wrote for The Conversation.

The study only looked at Texas incentives, but the problem doesn’t seem to be confined to Texas.

A 2017 audit of New Jersey’s Economic Development Authority (which has a new focus on existing small businesses in the state) found “lax oversight” of the tax breaks it issued, finding four of seven businesses studied hadn’t created the jobs they promised, but still received their full awards. A more recent audit said that it couldn’t actually find 2,993 jobs that had been reported as being created or retained.

In New York, a 2016 audit of the state’s Excelsior Jobs Program found that staff “regularly lowered the number of jobs required in contracts when companies were about to fall short of meeting those targets,” Governing wrote.

Incentives just might not do that much at all. As Next City has reported, in a study published last year, Mary Donegan, T. William Lester and Nichola Lowe found that companies that receive tax incentives don’t seem to create more jobs than the companies that don’t.

The findings have implications for high-profile incentive deals such as the Amazon HQ2 search. In Northern Virginia, Arlington County proposed giving Amazon $23 million in incentives, in addition to the $750-million package approved by the state. For Arlington’s $23 million to kick in, it must fill a certain amount of office space. Activists argued that they had wanted the company to pay union-level construction wages, donate to affordable housing funds and end its partnership with ICE, and instead the proposed deal amounts to the company “just show[ing] up.”

Rachel Kaufman is Next City's senior editor, responsible for our daily journalism. She was a longtime Next City freelance writer and editor before coming on staff full-time. She has covered transportation, sustainability, science and tech. Her writing has appeared in Inc., National Geographic News, Scientific American and other outlets.

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Tags: jobswashington, d.c.taxescorporate welfare