Wednesday, July 16, 2008

Volkswagen Deal or No Deal?

Politicians and media outlets were in a heady romance yesterday as they cheered the announcement that the European auto manufacturer Volkswagen had selected Chattanooga for an estimated one billion dollar facility.

Jobs! Prestige!

Well, I am not convinced.

As Michael Silence pointed out today on his blog, questions about just what kind of deal was struck with the company remain unknown.

Were tax incentives offered? How much and for how long? Typically, companies can get years or even decades of property and other taxes waived for new facilities. And for a 1 billion dollar plant and an estimated 2,000 employees, vast amounts of cash will have to flow to create the infrastructure of roads and water and sewer and other utility needs. Who will pay for that?

Other major needs will arise - housing development, school expansions and more. All of that will certainly add some action to the economy, but much of the funds will come from taxpayers already living in the area. Given our state's sales-tax-based system, all those who are lucky enough to get a job at this plant will be paying their taxes out of their earnings.

And let's be honest here - Volkswagen does not make magic. They are certainly a major company, yes. But they make cars - and we live in a time when the car brings a certain economic burden. Perhaps the firm plans for this plant to build hybrid or alternative-fueled cars only. And that too is a major source of economic concern as well.

In the press reports yesterday from Chattanooga, the company said the "surging Euro" has hit record highs against the dollar, making it too expensive to import their cars from Germany to the U.S. That's not exactly good economic news for the U.S.

And millions upon millions have been spent already on the site - $15 million in federal funds to clean up the site and in 2000, the city and county spent $25 million for 940 acres of the site. Calculating the costs of clean-up, purchases, preparation and future infrastructure needs plus any tax incentives created for the project is no easy task.

One of the more popular forms of government financing is freezing property taxes, known as Tax Increment Financing (TIF) - and studies show such programs bring their own problems and may just shift the tax burden to others:

invested $1.6 billion in TIFs, even though $1.3 billion in economic development would have occurred anyway. So the bottom line is that the city invested $1.6 billion for $300 million in revenue growth."

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