Lowe's is a $31 billion corporation. Yet the New Orleans City Council last year gave the giant home-improvement retailer $3.6 million in public funds to build a store near the French Quarter.
Target is a $48 billion corporation. But the Pennsylvania governor's office two years ago gave the company $5.8 million to build a distribution center in Chambersburg.
Even Wal-Mart — the world's largest company, with revenues of $258 billion in 2003 — caught a subsidy break. Birmingham, Ala., last year offered the giant retailer $10 million to build a store on the east side of town. And that's not all. According to a recent study, Wal-Mart — which last year made nearly $9 billion in profits — received at least $1 billion in various types of state and local government subsidies.
“The actual total is certainly far higher,” said the study by the Washington, D.C.-based Good Jobs First, a subsidy watchdog group. “But the records are scattered in thousands of places, and many subsidies are undisclosed.”
To encourage new development, state and local governments often offer businesses various subsidies and tax exemptions on the premise that the jobs and future tax revenues they generate will outweigh the subsidy costs.
But critics say cities should not subsidize big-box stores, because studies show that the added financial burdens created by the huge stores — such as additional police services, employees' dependence on subsidized health care and other social benefits — far outweigh the jobs and tax revenues generated by the stores — even when they're not getting tax exemptions.
Moreover, says Jeff Milchen, executive director of the American Independent Business Alliance in Bozeman, Mont., when big-box stores receive subsidies, it unfairly disadvantages competitors who do not receive them. “Subsidies create a completely uneven, uncompetitive playing field,” he says. “I have serious doubts as to whether Wal-Mart, Home Depot and other big-box retailers could succeed without the massive public subsidies they receive and use to support the operations of their stores.”
The subsidies range from free or reduced-price land and infrastructure improvements to exemptions or rebates on sales, property and corporate income taxes; reduced utility rates, low-interest financing, subsidies to train and recruit workers, tax-exempt bond financing and outright grants.
For example, according to the Good Jobs First study, North Platte, Neb., gave Wal-Mart more than $15.2 million in subsidies to build a distribution center in 2003, including up to $9.45 million in tax abatements, $3.2 million for a racking system, $1 million in special financing for the city to purchase land that was then granted to Wal-Mart, $1 million in federal Community Development Block Grant funds, $170,000 in waived city fees, $400,000 in job training funds and infrastructure improvements worth an unknown amount.
Some subsidies are structured as tax abatements, which allow retailers to keep — usually for a limited time — some or all of the taxes they would normally pay. Birmingham's deal with Wal-Mart, for example, requires the city to refund 90 percent of the sales taxes the store collects — expected to top $2.2 million a year — until the $10 million mark is reached.
Some subsidies generate little opposition. Others spawn firestorms of protest, such as Denver's efforts to revitalize Alameda Square, a run-down strip mall housing an Asian grocery store, a nail parlor and a martial-arts center. The city declared the area “blighted” in 1991 and offered special subsidized financing to any company that would buy and redevelop the site. Wal-Mart proposed building a 209,000-square-foot supercenter on the site that would generate up to $12.2 million in tax revenues annually.
City officials were ecstatic, but many Denverites were outraged at plans to subsidize the world's richest company. Publicly, the city said it was giving Wal-Mart about $10 million in special funding to take on the project, but documents obtained by the Front Range Economic Strategy Center, a group opposed to the deal, indicated the subsidy could balloon to $25 million over several years.
“It was pretty horrific,” says Chris Nevitt, the group's executive director. “A lot of people got worked up about it. It was not a popular deal, to say the least.”
City officials defended the deal, arguing that Wal-Mart could revitalize the site in a way that a smaller company could not. But even a company of Wal-Mart's size would balk at paying for all the infrastructure improvements needed at a site as dilapidated as Alameda Square, said Tracy Huggins, executive director of the Denver Urban Renewal Authority.
“There's a belief that because [Wal-Mart is] a large company, they could pay for those costs,” Huggins said. “And they're right; they could. But will they? If it doesn't make sense for them from a financial standpoint, they can't do it.”
Wal-Mart backed out of the deal in April, unable to come to terms with the property owners. While some Denverites were upset by the development, others cheered.
“There's no reason taxpayers should be subsidizing the world's largest corporation,” says Al Norman, a well-known anti-big-box activist from Greenfield, Mass. “It's corporate welfare.”