The Perils of Corporate Welfare

According to yesterday’s Lewiston Tribune, Isothermal Systems Research has closed its Pullman office, laying off 13 workers. This is part of a “downsizing” action announced back in March that has cut 52 employees company wide.

I saw this move coming months ago when I noticed the logo had been removed from the ISR building in the Port of Whitman County Industrial Park and read about the layoffs. But when I checked with official sources, I was told that nothing was amiss and that the “ISR” logo was simply being replaced with a “SprayCool” logo (the name of the company’s product line.)

This story illustrates the perils of “corporate welfare,” the practice of government's bestowal of money grants, tax breaks, and/or other favorable treatment on corporations.

The original ISR building opened in the Port of Whitman County Industrial Park back in February 2005 at a cost of $1.7 million largely derived from public funds. ISR officials stated at the time that locating in Pullman would not have been possible without this money. In September of 2005, the Washington state Community Economic Revitalization Board (CERB) approved more than $1 million of public money to create an expansion to the ISR building. This consisted of $600,000 grant/loan from Whitman County “.08 sales tax fund“ and a $400,000 grant . In addition, the Port of Whitman County and Whitman County contributed more than $2 million towards total building expansion costs. Ostensibly, this expansion was to lead to 31 new jobs within three years. After the expenditure of over $3 million in public funds, ALL the jobs have now disappeared.

My daily walk takes me past the ISR building. I watched the new addition rise up from the foundations last summer to completion in the fall. The new addition was never occupied. Now the Port of Whitman County is stuck with a big crimson and gray colored building that is sitting empty. Hopefully, a new tenant will be found soon, but the majority of the public’s money is currently being wasted, not generating any jobs or tax revenue. That money would have been much better spent on county infrastructure projects versus a corporate handout.

The following is an excerpt from the Board of County Commissioners meeting minutes from September 12, 2005:

Commissioner Finch moved and Commissioner Partch seconded the motion to sign a letter to the Port of Whitman County to fund $600,000 from .08 money for the Isothermal Systems Research (ISR) expansion.

Commissioner Finch indicated the important thing to remember is that this action is premised on approval by the Community Economic Revitalization Board (CERB).

Chairman Partch said the purpose of .08 funding is to finance infrastructure that creates jobs and this is exactly what this project will do. It is similar to a Walla Walla County’s airport and industrial park project that has been very successful. The Port is doing as much as they can by using up their bonding authority and requesting state funding. Therefore, he was very much in favor of this proposal. Economic Development is one of the issues Commissioner Finch and he ran on. If taxes can’t be raised, the economic base must be expanded and this is the way to do that. He will be attending the CERB meeting this Thursday to support the Port’s application.

Commissioners Finch and Partch voted aye; Commissioner Wigen voted nay.

A letter was sent to the Community Economic Revitalization Board endorsing

I laud Commissioner Finch’s and Partch’s sentiments about economic development. No one supports growth and development in Whitman County more than me. But this is not the way to do it. Government grants and “seed money” are seductive ways to attract new businesses and tax revenues. However, government’s only role in economic development is to provide the basic infrastructure, clear the regulatory decks, and then get the hell out of the way. Investing in the development of one company has been a huge waste of money. The goverment cannot, and should not, get involved in taking sides in the private sector, either for or against a particular business.

As usual, former County Commissioner Les Wigen foresaw all this with his usual common sense in a Daily News interview in October 2005:

”I just feel were sacrificing projects in Whitman County for a business thats already established,” said Commissioner Les Wigen.

[…]

If Wigen had the choice, he would rather the .08 money that will go toward expansion of the ISR facility in Pullman be used to remodel the county courthouse and build grandstands at the county fairgrounds.

“To me, whether its .08 money, grant money or bonds, its all Whitman County taxpayers money,” Wigen said. He fears the money will not benefit a broader spectrum of county taxpayers.

And indeed, that money is not benefitting any county taxpayers. ISR has $10 million in fresh venture capital funding, and Whitman County has millions tied up in a single building that could be better used somewhere else.

Hopefully, this will be a valuable, and very expensive, lesson for the future.