Yokohama plant costs Mississippi $776,155 per job
Wouldn’t you love to sell something for $50 million and only be required to pay back $5 million if you failed to deliver? What a deal!
That’s the deal Yokohama Tire negotiated with the state of Mississippi. It’s the standard “clawback” provision in Mississippi mega-deal industrial recruitment packages.
The clawback formula from the Yokohama Memorandum of Understanding (MOU) signed by our governor is as follows: a - (1 - b/450) x .1.
Most people just ignore math formulas. Perhaps the experts at the Mississippi Development Authority (MDA) ignored this one. I wonder if our governor understands the formula.
But the .1 is very crucial. It means, if Yokohama fails to meet their employment goals, they only have to give 10 percent of the state money back.
State grants for the Starkville Yokohama plant totaled about $50 million. As it stands now, the Yokohama plant has 411 employees, 18 percent short of their promised 500.
When the deal was announced, the promoters touted 2,000 jobs after “Phase Two” but don’t count on it. The company loses none of its grants or subsidies by failing to implement Phase Two. The software industry calls such promises “vaporware.” Yokohama Phase Two is a vapor plant.
One would imagine a clawback provision would be dollar for dollar. That is, if they missed their employment goal by 18 percent, Yokohama would have to return 18 percent of the state grant money. That would be $9 million returned to the state of Mississippi.
That’s where the “.1” comes in. Using the clawback formula, the amount of money that has to be returned is multiplied by .1, which means the clawback money is $430,000 rather than $4.3 million, shorting the state $4 million dollars.
That’s a great deal for Yokohama but a terrible deal for Mississippi taxpayers.
The question to ask: What is the point of adding the .1 multiplier to the clawback equation?
That’s not a real clawback. That’s a 10 percent clawback.
You would never in a million years see a bank or private financing entity agree to such a clawback provision. Only a governmental entity could negotiate such an absurd provision.
The introductory “Recital” portion of the Yokohama MOU, states: “The initial phase is expected to result in the employment of at least 500 new full-time jobs and is expected to require an initial capital investment by the company and its affiliates of at least three hundred million dollars ($300,000,000.)”
I call this the PR portion of the agreement. This is what the MDA and governor use in their press conferences touting the plant.
But when you look at the actual formula, it’s 450 jobs used in the formula, not the 500 claimed in the recital. Not a big difference, but the question is why? It’s just one more way of weakening the clawback provision and reducing accountability.
Notice the recital says “full-time jobs.” But the MOU defines a full-time job as 35 hours a week, not the customary 40 hours. Yet another deception in favor of Yokohama.
Yokohama is required by the agreement to spend $300 million, but the enforcement section only requires Yokohama to spend $70 million on the “Project” including “land, buildings and depreciable fixed assets.” Confusing, to say the least.
And if there is any dispute, Yokohama only has to pay one percent interest on the disputed money until it is resolved.
Even worse, there is no mandatory audit of Yokohama to ensure they are meeting their required investment and job creation. Instead, any audit of Yokohama is optional.
The MOU states: “Within thirty days following written request of the State, Office of State Auditor, the City or County (but not more frequently than once a year), the Company will provide reasonable verification of its compliance with the Initial Jobs Creation Commitment, the Initial Jobs Maintenance Committent and the Initial Investment Committent.”
This is the state equivalent of “don’t ask, don’t tell.” Yokohama is not required to submit a performance audit, rather it is up to various governmental entities to “request” the information. That’s fraught with political overtones. A few well-placed political contributions could make sure no such request was ever made.
The contract language seems to favor the company over taxpayers every step along the way.
The meat of the favoritism comes in the tax exemption section. In a nutshell, Yokohama gets a free pass on just about every local and state tax imaginable: income taxes, franchise taxes, sales taxes, use taxes, withholding taxes, property taxes, inventory taxes, accelerated depreciation . . . you name it!
My back-of-the-envelope estimates of the tax savings per year is $2.1 million in property tax savings, $750,000 in franchise tax savings, $600,000 in state income tax savings and $9 million a year in sales tax savings and probably another million a year in a variety of other tax savings. That amounts to $269 million in tax breaks over 20 years plus the $50 million in state grants for a grand total of $319 million dollar subsidy of the Yokohama tire plant in West Point.
Three years after the deal was signed, the plant has 411 employees. If you divide the $319 million in subsidies by 411, that’s $776,155 per job. On an annual basis, the state of Mississippi is losing $38,807 in tax revenue each year per Yokohama job.
If this is our state government’s plan to boost our state economy, it would be more efficient to just hold a free lottery, randomly choose 411 lucky winners and then just pay them $38,807 a year for the next 20 years.
The problem here is politicians spending other people’s money. Gov. Bryant would never have signed this deal if it was his personal money. No bank or private company would have agreed to this deal with Yokohama.
This type of corporate welfare makes the governor and the MDA look like they are doing a great service to our state when in fact they are damaging our economy. The subsidized companies are able to outbid taxpaying companies for a limited supply of skilled labor.
After a decade of these mega-deal giveaways, Mississippi is suffering its lowest growth in 50 years. Giving a handful of companies $750,000 per job is not only unfair to all the other employers in the state, it’s a failure as a jobs growth policy.
Each year like clockwork a megadeal such as Yokohama goes down for about $300 million a pop. Is it any wonder our state is running out of money and cannot maintain our schools and roads?
Instead of these unfair sweetheart megadeals, we need a pro business state tax code that favors all job growth equally for companies both big and small, foreign and homegrown.