“I originally supported the $25 million offer to Northrop Grumman, but I have since had second thoughts. With the city facing a $200-300 million deficit, I see no reason to subsidize a multi-billion-dollar war machine.”
--DC City Councilman Marion Barry, March 10 in a telephone interview
A major struggle is brewing in the nation’s capitol about the city’s
proposal to offer of $25 million in subsidies and grants to the mammoth
defense contractor Northrop Grumman. The legislation was originally
sponsored by seven of the City Council’s 13 members and supported by
Mayor Adrian Fenty, but now that the DC community is mobilizing against
the corporate giveaway, council members are having second thoughts.
On January 4 newly-hired CEO Wesley Bush announced that Northrop Grumman would move its headquarters from the Century City area of Los Angeles to the Washington metropolitan area by 2011. Bush wants his executives closer to lawmakers on Capitol Hill and to officials in the military and intelligence communities that make up the vast majority of Northrop's business. The company has already has been buying influence in Washington through an army of lobbyists, outspending its larger rivals Lockheed Martin and Boeing by more than $25 million between 1998 and 2008, according to the Center for Responsive Politics. The move will only increase its ability to land lucrative defense contracts.
Washington D.C., Maryland and Virginia have all been wooing the company. DC officials pitched the city's proximity to Capitol Hill power brokers; Maryland promoted its highly-educated workforce; and Virginia touted a business-friendly environment that includes a 6 percent corporate tax rate, compared with 8.25 percent in Maryland and 9.97 percent in the District (Forbes has ranked Virginia as the best state for business four years in a row).
But that wasn’t enough. This company with $34 billion in revenue and $2.5 billion in profits—most of it coming from government contracts--wanted a government handout. Company spokesperson Randy Belote said it is looking not only for the most suitable site with an abundance of amenities but also the best financial incentive.
That set off a bidding war. DC was the first to come up with a corporate welfare package of $25 million--$19.5 million in real estate tax breaks and up to $5.5 million in grants to pay for relocation costs, including build-out, furniture, equipment, technological upgrades and construction.
Championed by Councilmember Jack Evans, the offer did not come with any analysis of the benefits for the city, nor any comparison of what the funds invested elsewhere could generate. It requires that the company employ a minimum of 250 people, leaving the city paying a whooping $100,000 per job, but does not even stipulate that the jobs be given to DC residents. Evans admits that most jobs will be filled by executives and staff relocating from Los Angeles, with only about 100 new jobs created, and the new employees may well live outside the city.
The taxpayer giveaway has incensed small businesses, watchdog groups and peace activists, who formed a new coalition called CENTS—Coalition to End Needless Tax Subsidies. They have been meeting with the mayor and councilmembers, testifying at hearings, holding press conferences and educating the public.
Key to the new coalition is the owner of the bustling restaurants Busboys and Poets, Andy Shallal, who employs as many people—250—as the Northrop headquarters is projected to employ. Shallal is angry that scarce taxdollars are being offered to a Fortune 100 company. “Let’s face it: $25 million for a $34 billion company is chump change. But small businesses, the engine of our city’s economy, are struggling to pay their taxes and secure loans—and many are going out of business,” says Shallal. “The city should be giving support to small businesses, not to huge corporations that don’t need the help.”
Think Local First DC, an organization that represents 160 DC small and local businesses, called on the city to reject the proposal. “The proposed incentives to Northrop Grumman highlights a growing trend of providing large tax abatements with little accountability while neglecting investments that could be made in small businesses,” said Director Trisha Clauson. “With unemployment at crisis levels of over 12 percent citywide, the city needs jobs. Small businesses can generate more jobs and support a locally-driven economy where money stays in the community.”
Think Local First has been pushing the city to pass the "Exemptions and Abatements Information Requirements Act”, which would require a financial analysis of all proposed tax abatements and would require businesses to specify the benefits they would bring. This legislation has languished in the Committee on Finance and Revenue.
D.C. Councilmember Jack Evans, who chairs the Committee on Finance and Revenue, doesn’t think such reviews are necessary. At a March 8 hearing on the Northrop Grumman package, Evans stated that the city didn’t need a cost-benefits analysis. “I know this stuff—I’ve been doing it for 19 years and I know what works,” he scoffed, insisting the company would attract subcontractors and would contribute to the arts as it has done in Los Angeles—claims he is unable to substantiate.
Washington Post business writer Steven Pearlstein, in an article entitled “A wrongheaded race for Northrop Grumman’s headquarters,” takes Evans to task. “Every credible study finds that using taxpayer subsidies to chase after corporate locations rarely pays off,” he wrote. “For the District, which is looking at a $200 million budget shortfall next year, getting into this bidding war is particularly loony.”
Opposition to the Northrop Grumman deal is also coming from the city’s peace community. The third largest U.S. military contractor behind Lockheed Martin and Boeing, Northrop Grumman is best known as the producer of the hugely expensive B-2 Stealth bomber, fighter jets such as the F-14 Tomcat, and nuclear-powered submarines and aircraft carriers. Most recently, Northrop Grumman has been specializing in unmanned aerial vehicles, which are the drones that have killed so many civilians in Afghanistan and Pakistan. According to CODEPINK testimony at a DC Council hearing, the company specializes in “making weapons we don’t need for wars we shouldn’t be in.”
Charlie Cray of the Center for Corporate Policy told the Council that DC should not stand for Defense Contractors and submitted to the Council a litany of the company’s abuses of public funds, including grossly overbilling the government, violating the Arms Export Control Act, knowingly installing defective parts and releasing hazardous waste. “Northrop Grumman has had to pay over $820 million in fines since 1995,” said Cray. “It would be scandalous to give DC tax dollars to a company with such a long record of waste, fraud and abuse.”
The efforts of the Coalition to End Needless Tax Subsidies are starting to pay off. Councilwoman Mary Cheh, a cosponsor of the legislation, is wavering, as is Kwame Brown. Cosponsor Marion Barry now says he’ll vote against the deal. The vote is likely to take place in the next month.
The coalition is also reaching out to like-minded groups and elected officials in Virginia and Maryland, encouraging them to oppose the corporate giveaway in their states as well. Surely all three regions can come up with better uses of scarce tax dollars than, as Councilman Barry put it, “subsidizing a multi-billion dollar war machine.”
For more information and ways to participate in the Northrop campaign, see http://www.facebook.com/group.php?gid=342167038431&ref=ts.