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Drinking the Hemlock Kool-Aid

Are corporate giveaways legitimate inducements or lethal elixirs?

It’s a snapshot moment that today seems reminiscent of the iconic Chicago Tribune “Dewey Defeats Truman” headline.

The December 2008 photo shows then-Gov. Phil Bredesen grinning, standing with then-Economic and Community Development Commissioner Matt Kisber and the CEO of the new company that would take Clarksville – and Tennessee – into a new era of green energy economic development: Hemlock Semiconductor.

Bredesen is holding high the local paper, the Leaf-Chronicle, featuring the sort of blaring headline normally reserved for announcing commencement of war hostilities, reporting natural disasters or heralding a home-team championship sporting victory.

WE DID IT!” the headline screams.

Just a few years later, though, taxpayers could be forgiven the nagging suspicion that perhaps we may not have done it after all. Earlier this year Clarksville-based Hemlock announced it will lay off nearly 300 workers, and now there is a real possibility that the company designed to produce key components for solar panels will never open.

Workers are no doubt feeling anxiety. Taxpayers ought to be sweating, too:

  • Hemlock has pocketed $90 million free and clear in Tennessee taxpayer money for the construction of its plant;
  • The company still has a chance to write off up to $280 million in taxes, and;
  • Hemlock still has another potential $150 million in state monies waiting in the wings that Tennessee took out bonds to pay for.

It’s unlikely taxpayers will get back a dime of the state money that has already flowed to the beleaguered solar energy company. And it’s unknown how much the company will write off at taxpayer cost or if Tennessee officials will hand over the $150 million.

That’s in part because the deal written under Bredesen apparently did not include any “clawback” provisions requiring Hemlock to return any of the public monies it was awarded should the company for whatever reason fail to live up to its promises.

“If a company is receiving an incentive from the state, there has to be some measure to compensate the state and give back the taxpayer money,” said Middle Tennessee State University Professor Murat Arik, who co-authored a definitive 2011 study on the economic impact of Tennessee’s green investments.

No effort from GOP to get taxpayers’ cash back

And there seems to be little desire from current Gov. Bill Haslam, a Republican, to see if taxpayer money can be saved at this point. “We’re not giving up” on Hemlock, Haslam said earlier this month. “I actually think there’s a decent chance, I really do, that at some point in time they’re going to come back into production there. They’ve told us that.”

Haslam and company officials have blamed a market downturn and Chinese competition for the company’s failings.

One of the reasons Haslam said he believes that Hemlock has a fighting chance is that the company put plenty of its own money into the project – upwards of $1 billion. Hemlock is owned by Dow Corning Corp. and two minority Japanese partners.

But taxpayers have put plenty of money into the project, too – and not just state tax dollars.

Millions more in local and federal tax dollars were earmarked to Hemlock. It received a payment-in-lieu-of-taxes agreement with Montgomery County worth $77.8 million. The county also committed to $20.6 million in other incentives, and the Tennessee Valley Authority said it would provide Hemlock a $60.5 million grant.

An analysis from Tennessee’s free-market think tank, the Beacon Center, shows nearly $300 million in direct taxpayer-subsidized incentives either given to or offered to Hemlock.

A spokeswoman from Hemlock did not respond to phone calls or an email request for an interview by TNReport.

Top Republican leaders, including Lt. Gov. Ron Ramsey, have long called for clawback provisions, and the Department of Economic and Community Development put plans in place in the fall to attach such language to each of the grants for economic development and job training that it doles out.

“The clawbacks we use are written into our grant contracts with companies,” ECD spokesman Clint Brewer told TNReport. “We are able to do this at the department level without any additional legislation.”

Indeed, Ramsey told TNReport he has confidence in ECD chief Bill Hagerty’s fixes when it comes to clawback measures.

“It is very disappointing that effective safeguards for taxpayers were not included in Bredesen-era deals like Hemlock,” Ramsey said in a statement. “Fortunately, Governor Haslam and Commissioner Hagerty have vastly improved the management of tax dollars by including effective clawback measures and safeguards in projects under their watch. I am confident that taxpayer dollars will be protected going forward.”

Clawbacks could have helped — is legislation needed?

This isn’t the first time “clawbacks” may have helped. Wacker Chemie AG, for example, announced last year that its plant, which produces a key raw material for solar cells, will not open as promised. Officials now say the plant will open mid-2015, about 18 months later than the prior schedule. The operation has received millions of dollars in taxpayer-funded subsidies.

But even if Haslam and Hagerty commit to clawbacks, because those clawbacks are inserted into contracts at the departmental level, could a future governor waltz into the governor’s mansion and start doling out the sweetheart deals once again?

“That’s a very good question,” Rep. Cameron Sexton, R-Crossville, told TNReport. “It’s something we need to talk about and take a look at.”

Sexton suggested that an analysis of incentives going back several administrations could serve to show if clawback legislation was needed.

“Let’s see how big an issue it is,” he said.

Sexton has legislation before the House this year that will provide a more down-home incentive, instead of waving the red cape of big bucks before untested industries.

His plan is to reduce the excise tax on businesses already in the state. Under Sexton’s plan, small business would be the chief beneficiary, with 17,000 businesses in the state paying no excise tax at all if his bill becomes law.

That would, he said, allow small businesses in Tennessee to use their money to grow.

Sexton says he’s not opposed to incentives, but “we give a lot of incentives to new businesses coming into Tennessee. Why can’t we give a little bit of help to small businesses who have been here so many years helping the Tennessee economy grow?”

The big problem: corporate welfare

But beyond incentives and beyond clawbacks, the Beacon Center’s Trey Moore said the problem is simply corporate welfare.

“One of our biggest complaints with the corporate welfare game is not simply ponying up on the front end to land a deal, but that then companies have even more bargaining power to hold local communities hostage,” he said. “We support clawback provisions insofar as they aim to mitigate the risk for taxpayers. But ‘clawbacks’ merely treat the symptoms, not the underlying disease.

“And too often the damage is already done. How much money was the federal government able to claw back from Solyndra?”

MTSU’s Arik says it will be extremely difficult to end state subsidies to attract business. In some cases, those subsidies work. He pointed to the Nissan energy efficiency plant in Smyrna, built, in part, with subsidies.

In a perfect world, he said, there should be no taxpayer-funded subsidies. But states across the country are hungry to attract jobs and are willing to use taxpayer cash as a lure for many industries — and if they aren’t, a neighboring state is.

“Many states are playing this game,” Arik said. “It may not be politically viable not to do it. It’s hard to escape.”

Trent Seibert can be reached at trent@tnreport.com, on Twitter(@trentseibert) or at 615-669-9501

2 replies on “Drinking the Hemlock Kool-Aid”

You do understand that Tennessee doesn’t use clawbacks because incentives are reimbursement based? They create 100 jobs, they get credit for 100, they create 2000, they get credit for 2000. No one put cash in their hand, it is all reimbursement based.

James, you are WRONG! Hemlock was given $93+ million in Cash from TN taxpayer G.O. Bond Debt, with ‘no strings attached’ and walked away. Zero -0- jobs after $377 million invested by TN and Local Gov’t.
See also the ‘sister’ 2006 mega proposed at Stanton, TN 38069 (pop. 452)- A proposed mega$ite conversion of empty farmland without any apparent Workforce. NO $ewer, NO water, NO electricity, NO other utilities in-place (in 2016 after 10 years STALE!)
– ncrafton(at)bellsouth(dot)net

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