Tennessee will provide an estimated $58,141 in tax breaks and government assistance for each of the jobs that the Volkswagen plant in Chattanooga is expected to bring to the Volunteer State, according to a new state study.
Staff Photo by Tim Barber Tennessee Commissioner of Economic and Community Development Matt Kisber, right, talks about incentives used to bring Volkswagen to Chattanooga at a noon press conference at the Development Resource Center here on Friday, Aug. 29, 2008. UT Center for Business and Economic Research chief Dr. Bill Fox, left, and Hamilton County Mayor Claude Ramsey listen to the statements.
State and local officials who recruited Volkswagen to Chattanooga said Friday the incentives are a good investment. A University of Tennessee study projects that over the next three decades Volkswagen and its suppliers should return more than twice as much in tax collections and more than 20 times more in personal income growth than the $577.4 million governments will spend or give up in tax breaks used to lure VW.
“That’s a prudent investment by the state of Tennessee, Hamilton County and the city of Chattanooga,” said Matt Kisber, Tennessee’s commissioner for Economic and Community Development.
Critics of such incentives denounced the tax breaks and government assistance as unfair to other taxpayers and counterproductive in producing more jobs or tax revenue.
“This is the biggest subsidy package ever for an auto plant, and coming right now when there is already too much capacity in the automotive industry you have to wonder if this is just a crutch to shift part of the risk of this investment to the taxpayers,” said Greg LeRoy, executive director of Good Jobs First, a Washington, D.C.-based research group that often questions corporate incentives. “Volkswagen had a troubled experience when it first came to the United States and, even if they succeed this time, it’s likely to come at the expense of other U.S. auto plants.”
Volkswagen is preparing to build a $1 billion automobile assembly plant in Chattanooga that will employ 2,000 workers by the end of 2010. Over time, local officials said, they hope that VW will expand its operation as American consumers shift toward the more fuel-efficient cars produced by VW. Future expansions would generate even more benefits than what the UT economic study found.
“We were very conservative in our projections,” said Dr. William Fox, director of the Center for Business and Economic Research at the University of Tennessee that conducted the study.
For the next 30 years, Chattanooga has agreed to give up any property tax collections and forgo normal building permit fees for the $1 billion plant. Hamilton County government will collect only the educational portion of its property tax levy.
Volkswagen will pay about $4.7 million a year in property taxes for local schools, and the economic and business spin-offs expected from the VW plant are projected to generate $28 million a year in extra state tax collections and $27.7 million in additional local tax revenues.
Hamilton County Mayor Claude Ramsey said local officials expect businesses that locate in the county will pay for the public schools that help educate their workers.
“As businesses need and require an educated work force, we think it’s fair that they pay that property tax portion to support our schools, and we haven’t had one company back away from that,” he said. “Volkswagen was very willing to do that, and we commend them for being willing to do that.”
Other critics of the VW incentives insisted it is unfair for other businesses that won’t get the tax breaks provided to Volkswagen.
“They are slapping small businesses in the face by giving tax breaks to a foreign company while we have to subsidize their development,” said Tim Price, owner of JAT Systems and a member of a local anti-tax group known as Back on Track. “I’m afraid our property taxes are going to have to go up in the future because of Volkswagen.”
Ben Cunningham of Tennessee Tax Revolt accused state and local officials of “bribing Volkswagen” to come to the state with incentives.
“It would be fairer and generate a lot more jobs to take that money and give a tax break to small businesses which create most of jobs,” he said. “This is an insult to Tennessee taxpayers.”
Dr. Fox said no other business generates as much economic activity and spin-offs as an automobile assembly plant. The 2,000-employee Volkswagen plant at Enterprise South Industrial Park is projected to generate another 7,582 jobs in Tennessee and another 1,895 jobs in neighboring states, including Georgia and Alabama.
To recruit auto companies, states increasingly are bidding up their incentives, officials said.
Kevin Deravi, an Auburn University economist who advises Alabama on its incentive packages, said incentives must be offered to be considered by major business prospects.
“This is the rule book that everyone follows now,” he said.
Alabama was criticized for offering nearly $300 million in incentives to recruit Mercedes Benz in 1993. But Dr. Deravi said subsequent studies show that the plant more than paid for itself and “put Alabama on the map” to recruit other auto companies and foreign investments.
Neal Wade, director of the Alabama Development Office, said in the competition between Chattanooga and Huntsville for Volkswagen that Tennessee outbid Alabama, which offered about $400 million in incentives.
“Each state has to decide what makes sense for each deal, and it looks like that’s what Tennessee did in this case,” he said.
Mr. Wade said most business deals aren’t decided by state or local incentives, but tax breaks and assistance is required to compete for major industry and can help close some deals.
Staff writers Mike Pare and Andy Sher contributed to this story.
Economic impact of VW <p><a href="http://media.timesfreepress.com/docs/2008/08/VW_Economic_Impact_Study.pdf">PDF: VW Economic Impact Study</a></p> <p><a href="http://media.timesfreepress.com/docs/2008/08/CBER_Analysis_Press_Release_FINAL_82908.doc">DOC: CBER Analysis Press Release</a></p>