West Virginia’s Crony Capitalism Costs State Millions
How Democrat Control of Economic Development Hurts the Mountain State
When it comes to crony capitalism, West Virginia does it better than anyone else. But the state’s sweetheart deals for some businesses are not transparent and could cost the state millions more than it makes on the deals.
To see crony capitalism at work, go back in time a few weeks when Governor Earl Ray Tomblin signed legislation giving Greenbrier Resort owner Jim Justice up to $25 million in tax credits for a sports medicine institute and for the creation of a ski area. It was done with great fanfare and under the guise of bringing the New Orleans Saints to the Greenbrier to create a summer practice facility.
The lobbyist for the Greenbrier is Larry Puccio, the chairman of the state Democratic Party, a former chief of staff to then-Governor Joe Manchin, and a man who has been under federal investigation at least once. The tax credit was pushed through in the final days of the 2014 legislative session and passed with little questioning; next to no transparency. And at the same press conference for the bill signing, even Saints Head Coach Sean Payton admitted that the tax break wasn’t a factor in the Saints coming to West Virginia.
Take the recent news about retailer Coldwater Creek as another example of crony capitalism. The maker of women’s apparel filed chapter 11 bankruptcy a few weeks ago. Coldwater Creek maintains a major warehouse and call center outside of Parkersburg, W.Va. It remains to be seen if the facility, the size of more than two football fields, will close. If it does, the state will lose hundreds of jobs, plus the thousands of jobs Coldwater Creek provides during the holiday seasons.
Coldwater Creek doesn’t stand to lose much if they do close the Wood County facility and much to gain. You see, they don’t actually own the building that was built exclusively for them. According to Charleston Daily Mail Business Editor Jared Hunt, two governmental economic development organizations own the building.
“The West Virginia Economic Development Authority, Wood County Development Authority and United Bank will have millions of dollars on the line in the looming bankruptcy proceedings for soon-to-be defunct retailer Coldwater Creek.”
Hunt says Coldwater Creek owes the state Economic Development Authority $8 million. United Bank is owed $15 million for fund the construction as well. Coldwater Creek leases the facility from the Wood County Development Authority for approximately $344,000 per month.
“United and the state development authority originally provided $18 million in loans to the Wood County Development Authority to finance the original construction. United provided $11.35 million in financing while the state provided $6.65 million to the Wood County authority.
(Original reports about the loan package in 1998 said the state would lend the company $10 million on a 15-year loan to build the facility. Warner said that amount was not accurate; the loan that closed in May 1999 was for $6.65 million.)
The state Economic Development Authority’s original loan still has an outstanding balance of nearly $2.5 million.”
That’s just the tip of the iceberg, as Hunt’s story goes on to chronicle more loans made to help Coldwater Creek expand that facility a few years ago. Millions of dollars spent, millions of dollars owed, and the state will be left with a major debt and an enormous empty warehouse.
It’s a pretty good example of the types of loans and leases West Virginia enters into in the hopes of luring businesses to the state. Similar deals were made with Macy’s in the eastern panhandle, Amazon in Huntington’s tri-state, Cabela’s outside of Wheeling in the northern panhandle.
These deals made with the state are sometimes quite foggy, some of it open for public inspection and some hidden from public view. In a rare move, the liberal West Virginia Center on Budget and Policy and the conservative Center for a Brighter Future came together to denounce these kinds of sweetheart deals.
“The fact is that tax credits and other economic development tax expenditures are virtually the same as direct spending in the state budget. This is because they result in the loss of revenue that would otherwise be collected. Every dollar that was spent in tax credits is money that could have been invested in our children, infrastructure or to lower everyone’s taxes, not just for those rich enough to hire the most well connected lobbyists.
While proponents of this “back door” spending say that they are “free” because companies would have not expanded without the subsidy, there is no evidence that this is the case. For most of these businesses, it is just a way to get free money.”
Bill Maloney and Ted Boettner write that the state will spend $209 million this year on tax incentives, and that’s not including the millions upon millions for tax abatements similar to the Coldwater Creek deal. These leaders call for greater transparency of these tax incentives and deals. They also call for greater government oversight of these deals, something that does not exist currently.
Some might ask what the solution to bringing business to West Virginia is. It’s simple really: a fair tax code, low taxes and an end to these tax loopholes. Not every business has the money for teams of lobbyists to encourage lawmakers to pass sweetheart deals. A fair tax system levels the playing ground for everyone and allows competition which lowers prices for everyone.
Crony capitalism continues to keep West Virginia behind, discourages reputable businesses from setting up shop here, and gives ammunition to liberals who decry the evils of capitalism. And things won’t change until Democrats are booted from control of West Virginia’s economic development.