the audit

A Big Corporate Welfare Story Gets Short Shrift

Reuters's Johnston and Times Union spotlight news almost everyone else ignores
December 8, 2011

Here’s a story that’s calling out for more attention and isn’t getting it.

Reuters’s David Cay Johnston wrote last week about a ruling in the New York Court of Appeals in favor of the state’s corporate welfare largesse.

The court used some creative reading to get around the state constitution’s explicit prohibition of state loans and gifts to private companies and individuals. Here’s Johnston:

The New York ruling makes future challenges of corporate gifts virtually impossible. The court decided that before having any opportunity to compel testimony or disclosure of documents, plaintiffs must prove a gift is unconstitutional using the standard of proof in criminal cases: beyond reasonable doubt.

Any gift to the sheikh’s company seems clearly at odds with Article VII, Section 8 of the state constitution, which states that “the money of the state shall not be given or loaned to or in aid of any private corporation or association, or private undertaking; nor shall the credit of the state be given or loaned to or in aid of any individual, or public or private corporation or association, or private undertaking”…

They ruled that while the state “may not lend its credit to a public corporation,” nothing “prohibits the State from adopting appropriations directed to” intermediaries who can then give the money, or credit, to private corporations.

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These “public expenditures designed in the public interest,” in the majority’s words, give $1.4 billion to a company controlled by Abu Dhabi’s autocrat Sheikh Khalifa bin Zayed Al Nahyan, a billionaire twenty-three times over. That giveaway, to build a $4.6 billion computer-chip factory in Malta, New York, north of Albany, comes close to about $900,000 per job promised.

If you think Johnston is being harsh here, don’t. The cockamamie court ruling he reports on is just the beginning.

That $1.4 billion gift isn’t enough for GlobalFoundries. The AlbanyTimes Union reported last month that GlobalFoundries “says it will not expand in Malta without more financial assistance from New York beyond its current $1.4 billion package.” The state has already rejected another billion-dollar request from the firm.

New York is giving the company $665 million in cash to build its new factory. It’s giving another $700 million in tax credits to it to offset future profits. But the Times Union reported last month that GlobalFoundries asked the state to trade those tax credits for $165 million in cash. That’s a bad sign:

Although the proposition was rejected by the state, people familiar with the situation say it raised concerns that the company is either having financial issues or its officials figured it would be difficult to realize the profits needed to cash in on the future tax credits.

The company’s flack says this sounds “logical” and adds:

Whether or not we build out the site will be a business decision based on various considerations, including customer needs and the state’s ability to continue to partner with us.

What about that $665 million in taxpayers’ cash? Almost all of it—$600 million—has already been spent.

And a Times-Union investigation in October found that the massive project, which it says is the third-biggest giveaway in U.S. history, used taxpayer money to buy thousands of dollars of t-shirts, HDTVs, and. The paper had to sue the state’s development arm, Empire State Development Corporation, to get the documents.

Meantime, The New York Times has completely ignored this story in the last couple of years, as have the Associated Press, Bloomberg, and The Wall Street Journal (except for a brief mention in a positive column about subsidies helping bring manufacturing to the U.S.). The last time the Times mentioned the Malta plant was in passing at the bottom of a May story, and it misled readers on who was paying for it:

Near Albany, in Malta, N.Y., GlobalFoundries is investing $4.6 billion in a factory that will produce 28-nanometer chips for a wide variety of customers. The 1.5 million-square-foot plant will be at full production in 2013.

The last time the NYT really wrote about the deal was this gushing piece two and a half years ago. The AP hasn’t written about it in more than two years. Almost no one besides Johnston has covered the Court of Appeals ruling. This Daily News editorial and Times Union news story are the exceptions.

Surely one of the biggest corporate giveaways in history deserves more scrutiny than this, as does the questionable court ruling justifying it.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR’s business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.