BusinessTN

A decade ago, Tennessee underwent welfare reform, overhauling the failing welfare bureaucracy and resulting in widespread job creation and a reduced taxpayer burden. Today, business leaders and taxpayers should encourage the state to reform a different kind of welfare: corporate welfare.

This year, the Tennessee Department of Economic and Community Development (ECD), the state’s administrator of corporate welfare, will cost Tennessee’s taxpayers over $100 million. What began as a well-intentioned program to encourage business growth has become a scheme that allows bureaucrats, rather than consumers and market forces, to determine the winners and losers in business. The result is a program that forces businesses to subsidize their competitors through taxes. Worse, it fails to benefit the businesses it claims to help.

For the better part of 90 years, Athens-based Mayfield Dairy Farms has been among Southeast Tennessee’s largest employers, as well as one of the largest agricultural employers in the state.

The rise of Mayfield is the quintessential American success story. The family, which settled in McMinn County in 1820, began selling milk before the First World War. In 1923, the Mayfields expanded their dairy operation by purchasing an ice cream freezer. Eight decades later, the company’s ubiquitous yellow milk jugs are a staple in supermarkets across the Volunteer State, and their ice cream is a Tennessee summertime tradition. Throughout its growth, the company took no public money and paid full fare in taxes.

As one of the most successful regional ice cream makers in America, Mayfield and its employees pay millions in tax revenue to the state. With a disturbing disregard for both capitalism and fairness, bureaucrats in Nashville recently chose to use some of those same tax dollars to subsidize one of Mayfield’s leading competitors in the ice cream business.

In 2005, the makers of Blue Bell ice cream, a Texas-based newcomer to Tennessee’s freezer cases, were awarded a $216,000 taxpayer-funded state grant to offset infrastructure costs related to its new distribution facility in Nolensville. This grant allowed Blue Bell to build part of its facility at a tremendous cost advantage compared with most other ice cream manufacturers in the state—including Mayfield—who pay for their facilities out of their companies’ bottom lines.

Through ECD, taxpayers, including the Mayfield family, are forced to help subsidize a Texas corporation that will compete directly with Mayfield. The scenario seems unthinkable—even laughable—yet it happens dozens of times every year as a result of Tennessee’s economic development bureaucracy.

Given the ECD’s system, whereby businesses subsidize their competitors, the question remains: Does economic development spending actually develop the economy? Despite a nine-figure budget and a staff of more than 200 bureaucrats, the answer, according to the state’s own internal audit, is “no.”

Two grant programs consume the lion’s share of state corporate welfare funding. The FastTrack Infrastructure Development Program entices private sector businesses to locate or expand by subsidizing infrastructure improvements, while the FastTrack Job Training Assistance Program bankrolls the planning, development and implementation of a customized training program for recipient companies.

State taxpayers paid $40.6 million to fund the FastTrack Infrastructure Development Program in 2005, including the grant to Blue Bell. Despite this hefty expense, a 2005 audit of ECD by the Tennessee Comptroller of the Treasury chided the program, saying, “It is unclear whether the program has been successful in encouraging job creation and retention, or encouraging businesses to locate or expand in the state.”

The FastTrack Job Training Assistance Program fared even worse in the same audit, which found that there does not “appear to be a connection between the amount of assistance given to a company and the number of jobs created or the wage level” of those jobs. Of the 10 contracts reviewed in the audit, FastTrack Job Training Assistance Program grant-recipients guaranteed 835 new hires resulting from grants. Combined, those same companies reported only 407 hires—fewer than half the promised number.

It is exasperating that the state spends $100 million of taxpayers’ money to administer an economic development scheme that forces Tennessee businesses to subsidize their competition. That this spending results in a very poor return on taxpayers’ investment makes the continuation of the ECD untenable.

State legislators who are truly interested in economic development have an opportunity to help all businesses by shuttering the failed department and returning the $100 million the bureaucracy devours every year to private enterprise by reducing the state business tax. A lower tax burden means that business owners can invest more of their money in growing their businesses, resulting in job creation and true, market-based economic development.

This plan allows the state government to get out of the business of determining the winners and losers in the private sector economy, and allows the state to focus on the only role it should rightfully assume in the realm of economic development: ensuring a universally favorable business climate, free from high taxes and regulatory burdens.