For the last month on my morning drive-time radio show on AM760, we have been discussing the Frontier Airlines situation, and how it serves as an important microcosm of all the debates about jobs, the economy, public policy, and corporate welfare inherent in Greg LeRoy's terrific book called The Great American Jobs Scam -- a scam that afflicts almost every community across the country.
The basics of the story are this: Frontier declared bankruptcy on April 10, 2008, ultimately got bought by Republic Airways in August of 2009, and has been reporting operating profit for 10 straight months (probably a big reason that Republic bought it, and Southwest tried to).
In recent weeks, however, Republic Airways has been threatening to slash Frontier jobs in Denver (the airline's hometown) unless Denver and Colorado governments hand the company a series of special tax breaks. This is exactly what the Great American Jobs Scam is: a corporation using a threat to extract special giveaways.
This particularly ugly threat comes, of course, just as the city and state's massive budget deficits are causing huge cuts to the most basic social services for the most vulnerable populations (the homeless, the indigent, the mentally ill, etc.). The question we've been discussing on the radio is whether Denver and Colorado should give in or not?
Clearly, Republic is effectively trying to get in on the Great American Jobs scam by holding a gun to our elected officials' heads: Either hand over the taxpayer cash, the airline is saying to the pols, or we'll slash jobs in a high-profile way, hurt your economy, and embarrass you. The standard reaction from politicians in this situation is to do what Denver and Colorado officials initially did by seeming to promise capitulation. What usually happens is that after a period of "deliberation," these officials do exactly as they are told, selling the capitulation to the taxpayers as a way to supposedly preserve tax revenue (if we keep the jobs, we keep the income, which is taxed, which preserves our tax base...).
Of course, it rarely works out that way - what most often ends up happening is that the capitulation destroys tax revenue (see this latest example here in Colorado) and -- worst of all -- the jobs that the tax breaks were chasing end up leaving anyway.
This is how corporate welfare works in America -- and it speaks to why we need federal tax/regulatory reforms to prevent this kind of situation whereby a corporation effectively plays different states off against each other with a game of economic Russian roulette.
Short of that federal reform, though, communities can themselves try to change the paradigm -- which is exactly what Denver seems to be trying to do. In a surprise announcement that counters what seemed to be that initial move toward total capitulation, the Denver Business Journal reports:
The incentive package offered by Denver and Colorado leaders to keep Frontier Airlines jobs from leaving town is applicable only if its parent company adds jobs in the area, not if it just maintains the current number here, officials said Wednesday.
Members of the Denver City Council's Economic Development Committee received details for the first time Wednesday of the package that was offered two weeks ago to Denver-based Frontier's new owner, Republic Airways Holdings Inc.
Though officials from the city's Office of Economic Development and the Metro Denver Economic Development Corp. would not release the specific tax and financial breaks offered up, they did speak in general about the proposal...
The package that was offered stipulates that the incentives are only valid if the Denver area sees a net gain in jobs. Officials are playing this card as a way of trying to convince Republic leaders that Denver is the right place for long-term expansion of the business.
This is an important benchmark in stating that, especially during a budget crisis, if we're going to give away blatant corporate welfare -- if we're going to manipulate the tax code to giveaway largesse to one company that others do not get -- then we the taxpayers should at least be guaranteed the return in jobs that the corporation is promising.
It's commonsense and it's absolutely necessary. If the company is bargaining in good faith and is serious about fulfilling its promise to keep jobs here, then it should jump at the incentives, regardless of the strings attached; if the company isn't bargaining in good faith and was planning to take taxpayer money and cut the jobs anyway, then it will walk away from the strings-attached incentives, and taxpayers will save money that would have been wasted. In that sense, nobody can honestly argue that attaching the strings scuttled a deal -- all the strings do is protect taxpayers, and if a corporation cites the strings attached as the reason it turns down the offer and cuts jobs, then we can know it was already planning to walk away, cut jobs and nonetheless try to pocket the money in the first place.
The real question on issues of corporate welfare is simple: Don't taxpayers have a right to be treated like a business party in a normal contract negotiation? I mean, in what business transaction other than one with city/state government is one party allowed to simply renege on a deal and still get all the benefits of that deal? There are none and that's why the Great American Jobs Scam has been so devastating.
Stands like the one Denver is taking are difficult -- it's easier for the politicians to simply give away the money and hope nobody notices. But stands like this are exactly how to start ending the Great American Jobs Scam. And so whether it is officials in Denver or officials in other states, those who are fighting this fight ought to be applauded for doing so -- let's hope they continue to stand strong.
Start your workday the right way with the news that matters most. Learn more