Praise, and criticism, for an NYT series on corporate welfare

The paper's sources challenge some of its findings while praising attention to the issue

Many of the most important stories develop for years before they get covered because no one makes an official announcement, there is no central point where events occur, and the facts are scattered, subtle, and sometimes buried. Gene Roberts, the legendary executive editor of The Philadelphia Inquirer, often said these are stories that “ooze.”

In a widely applauded three-part series last month, The New York Times took a long, deep look at an important story that has oozed for decades: state and local subsidies to businesses.

Reporter Louise Story wrote in the first installment that the Times “analyzed more than 150,000 awards and created a searchable database of incentive spending.” The paper pegged the annual cost to taxpayers of the programs it identified at more than $80 billion, though it added that “the cost of the awards is certainly far higher.”

The series drew immediate and profuse praise. Neal Peirce, a state government specialist whose column is syndicated by The Washington Post Writers Group, called the series “a landmark in U.S. investigative journalism.” A column by Anna Codrea-Rado here at CJR stated that by augmenting the articles with an online database, Story “presided over the perfect marriage of big data and public service journalism.” And Matt Purdy, investigations editor at the Times, told me via email that the paper had “heard from scholars at the Federal Reserve and universities like Duke and Stanford who are grateful for the resource and plan to use Louise’s data in their research.”

I was among those who were thrilled to see so much front-page real estate devoted to a topic I had written about in my 2007 book on corporate subsidies, Free Lunch.

The series, on a vital but under-covered public issue, deserves much of this acclaim. The package compellingly portrays the power imbalance between corporations and local governments in negotiations over incentives, as well as the uncertain, and often unmeasured, benefits of these subsidies to the states and communities that bestow them.

But within days of publication the series also began to draw measured criticism not from the companies it exposed for taking taxpayer money, but from several of its own sources as well as noted authorities on the subsidy issues. These critiques—which amount to worries that the Times may have simultaneously understated and overstated the scale, and misstated the nature, of subsidies to business—were joined to praise for the effort. But with the Times package drawing mention in local coverage of these issues around the country, it is worth taking a closer look back at the criticisms now, because the series will continue to influence work by other news organizations—especially as state legislatures convene for a new year and budget debates move to the top of the news agenda.

Should sales tax exemptions count?

Perhaps the single largest critique focused on the Times’s choice to include sales tax exemptions for businesses in its accounting of subsidies. That decision was not a minor one. As Story wrote in the first article of the series, sales tax relief accounts for “around $52 billion of the overall $80 billion in incentives.”

According to economist Timothy J. Bartik—the first person quoted in the series, and a critic of many incentive programs—it was a questionable decision. In a blog post focused on his home state of Michigan, Bartik noted that of the $6.65 billion in business incentives the Times identified, the majority—about $4.80 billion—came in the form of sales tax exemptions for business services and manufacturing inputs. But lumping these policies in with handouts and special deals to companies is a mistake, Bartik writes:

Most public finance economists would agree that the sales tax should NOT be applied to business purchase of inputs, whether they are goods or services. Why? If we apply the sales tax to business purchase of inputs, this discriminates in favor of vertically integrated firms, and against firm’s contracting out to have some of their needed inputs be produced by other firms. A firm that purchases inputs from some supplier, which may in turn purchase inputs from other suppliers, will find that the sales tax pyramids with each level of additional purchase. A firm can reduce its sales tax bill by acquiring its supplier, that is by “vertically integrating.” There is no public policy rationale for encouraging such vertical integration.

Bartik elaborated on the theme here. A similar point was made by Tax Analysts executive editor David Brunori, who called the inclusion of sales tax exemptions a “serious flaw” in an otherwise “terrific set of articles.” (Disclosure: I am a columnist for Tax Analysts.)

And more praise and criticism came from Professor Kenneth Thomas, an author of two books on corporate subsidies, who was interviewed (but not quoted) by the Times. In a pair of blog posts, Thomas praised the series for creating “substantial buzz about the issue of economic development subsidies,” and lauded the paper “for compiling a great database of programs all in one place.”

But, Thomas added, tax exemptions for business services should be thought of as “methods to avoid tax cascading… and not a subsidy at all.” And the Times’s “interpretation of the sales tax breaks, which are 5/8 of the national total but largely not subsidies, confuses the issue of total impact on state and local budgets and makes statistical analysis premature.” (For a more particular complaint about the paper’s characterization of the impact of a subsidy on a local budget, which the Times disputes, see here.)

As these commentators acknowledged, people can disagree about what counts as a “subsidy.” And the Times does have some support for its decision. Purdy wrote to me via email that “Michigan’s in-house tax expert, who is also a professor, advised Louise to include sales tax figures that he said reflected subsidies to businesses.” Also, after the Times series kicked off a debate on this very question in West Virginia, a policy analyst at a left-leaning think tank there weighed the issue and concluded, “the [sales tax] exemption meets all the definition of a tax incentive.”

Still, the Times’s decision to include the sales tax exemptions was at odds with leading authorities on this subject—and worse, lay readers and most journalists would come away from the series not even knowing of the debate. A news organization does not have to report in conformance with orthodoxy. But journalists should be aware of orthodoxy, be ready to explain it, and also explain the reasons a different perspective adds valuable insights.

$100 million, and more

The paper emphasized in the series itself and in communication with me that its numbers were not comprehensive. Journalists who hope to build off the paper’s work should take that disclaimer seriously.

This point can be seen most clearly in the user-friendly database accompanying the series, which was compiled by blending the Times’s original reporting with several existing data sources. (The online Subsidy Tracker from Good Jobs First accounted for some 98 percent of the individual company awards, and a smaller share of the money awarded, in the Times’s database.) One feature of the database is the “$100 Million Club”—the 48 companies the Times identified that received at least $100 million in state grants since 2007.

The listed subsidies add up to $1.76 billion. But even given the Times’s acknowledgment that its data was not comprehensive, it was striking that the list left out major projects which dwarfed those that were included. Phil Mattera of Good Jobs First made this point in a blog post:

For example, the Times lists a total of $338 million for Boeing, including $218 [million] from South Carolina. Yet it has been estimated that the package Boeing got by locating a new Dreamliner assembly line in the Charleston area could be worth some $900 million.

Apple is said to have received a total of $119 million, yet the Times fails to include more than $60 million in subsidies the company got for a data center in North Carolina.

The Times $100 Million Club also misses some major recipients entirely, including Volkswagen, which got more than $500 million in connection with an assembly plant in Tennessee, and ThyssenKrupp, which got more than $1 billion in subsidies for a steel mill in Alabama.

And these only include deals dating back to 2007, which is the period the Times used in compiling its $100 Million Club. The larger Times database seriously understates the size of major deals that took place earlier. For example, it lists only $19.3 million for GlobalFoundries in New York State, even though the company took over a $1.2 billion deal originally offered to Advanced Micro Devices (which isn’t listed at all).

For various reasons, most of these awards aren’t yet in the Good Jobs First database, either. (Purdy of the Times wrote via email that the Subsidy Tracker “data only made up 44.1 percent of the dollar value in the $100 Million Club.”) And accounting for these subsidies would not have changed the Times’s $80 billion annual figure, which was derived from state government program costs and not company-specific incentives.

Still, there’s a clear take-away for other reporters coming to this beat: as you’re getting up to speed, don’t rely solely on the Times database (or any other single source). Other useful resources include both the Subsidy Tracker and state databases where they exist—like New York’s Public Authorities Information Reporting System, known as PARIS, which was not used by the Times. Then, of course, there are clip searches on Google and Nexis, and the accumulated knowledge of people and institutions who have been on this story for years.

Despite these objections, the Times package represents welcome attention to an often-overlooked problem. The series, and its thoughtful critics, should be read widely by journalists—many of whom, we hope, will tackle these subtle issues in their own markets.

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David Cay Johnston covers fiscal and budget matters for CJR’s United States Project. He is a reporter with 46 years of experience, including 13 at The New York Times; a columnist for Tax Analysts; teaches tax and regulatory law at Syracuse University Law School; and is president of Investigative Reporters & Editors (IRE). Follow him on Twitter @DavidCayJ. Tags: