Trump Role in Carrier Deal, State Tax Comments Raise Concerns

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By Che Odom

Dec. 13 — President-elect Donald Trump’s involvement in keeping Carrier Corp. jobs in Indiana and his support for competition among states may inject some uncertainty into local economic development.

Some state officials have questioned the need for Trump to express his favor of states battling to bring jobs to their communities. Conversely, some companies and business advisers are concerned states, as well as companies, may seek Trump’s help gaining leverage in negotiations.

“The Carrier deal raises a lot of red flags,” said a fiscal director of a Midwestern state attending a Dec. 8 meeting in Washington of the National Conference of State Legislatures (NCSL). The person didn’t want to be identified, out of desire to remain politically impartial.

The president-elect announced earlier this month that he and Vice President-elect Mike Pence had brokered a deal that would keep roughly 800 jobs at a Carrier plant in Indiana from moving to Mexico. In exchange, Carrier would receive $7 million in state incentives over 10 years.

In his Dec. 1 announcement, Trump said companies can “leave from state to state and they can negotiate good deals with the different states and all of that, but leaving the country is going to be very, very difficult.”

That statement has caused concern among state lawmakers, including those and their staffers attending the NCSL meeting, who said they would like less fighting among states and little involvement by the White House on such matters. However, state officials contacted by Bloomberg BNA didn’t want to speak on the record about the implications of the Carrier deal.

Ultimately, it’s unclear whether the federal government’s involvement in the state tax-centric Carrier deal is an anomaly or will become more of a norm during the Trump administration.

Cost of Tax Breaks

Cities and states increasingly are offering tax breaks to companies in a fight over industry and jobs. Good Jobs First identified 240 “megadeals,” or subsidy awards with a total state and local cost of $75 million or more each. The cumulative cost of these deals is more than $64 billion.

Since 2008, the average frequency of megadeals per year has doubled compared with the previous decade, and their aggregate annual cost has roughly doubled as well, averaging about $5 billion, according to Good Jobs First.

“This can be a very costly competition for states,” Norton Francis, a tax policy researcher from the Urban Institute, told Bloomberg BNA Dec. 7.

Incentives and tax breaks also present challenges to the bottom line for cities and states, which hope for an increase in tax base through income, sales and other taxes to make up the difference. It doesn’t always pan out, according to the state fiscal director.

“Companies will push for whatever they can get, threatening to move to the state next door,” he said. “Now we have the president-elect encouraging this, and stepping into the controversy in Indiana,” which will do nothing to slow the race among states, he added.

Cooperation

Every so often, the idea of cooperation among states is raised, but it never gains traction, Greg LeRoy, Good Jobs First executive director, told Bloomberg BNA Dec. 6. “I think for states, the question is, ‘How do we unilaterally disarm?’ And they can’t,” he said.

The new president could take steps to encourage a higher degree of cooperation and cost control among states; instead, Trump’s brand of nationalism “may lead to a war among states,” LeRoy said.

“Under our federalist structure, Uncle Sam has practiced laissez-faire on interstate competition for jobs, but we’ve never to my knowledge had a president who endorsed companies whipsawing states against each other,” he said.

Representatives of a number of governors either refused to comment for this story or didn’t respond to requests.

Negotiator-in-Chief

Trump lacks a record on public policy, so Indiana’s deal with Carrier offers a rare glimpse at how he may view his role in local issues, Francis said. In Indiana, Trump demonstrated that he will weigh in on areas where he thinks he can make a difference, he said.

“It’s virtually impossible for him to weigh in on all” deals between companies and local governments, he said.

With Carrier, “you had the president-elect picking a deal that was personal to him,” because he mentioned it in the campaign and his running mate is Indiana’s governor, Francis said.

However, the incident shows Trump isn’t shy about getting involved, says the vice president and general counsel of a furniture manufacturing company, who spoke to Bloomberg BNA Dec. 9 on the condition of anonymity out of concern that Trump not be rankled.

“I wouldn’t expect the White House to get involved in medium-sized or even large company looking to change locations,” he said. “But we have a new kind of president, and the normal rules don’t appear to apply.”

To contact the reporter on this story: Che Odom at COdom@bna.com

To contact the editor responsible for this story: Ryan C. Tuck at rtuck@bna.com

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