Corporate Welfare Queen Gerdau Ameristeel Back for Another Handout

During his 1976 presidential campaign, candidate Ronald Reagan delighted his supporters and outraged others by telling the story of a Chicago woman who allegedly collected excessive welfare payments through fraud and manipulation.  The controversial term he used to describe the woman – “welfare queen” – became an enduring part of the American vocabulary and a political tool used by anti-welfare advocates for years to come.  With all due respect to the late President, recent events leave no doubt that corporations can be just as adept at extracting government handouts as the most skilled welfare cheat.

One such corporation is Gerdau Ameristeel (“Ameristeel”), a large seller of steel products manufactured by their network of “mini-mills” located throughout the United States and Canada.  The company’s Jacksonville facility, located in Baldwin, currently employs slightly over 300 workers.  According to Ordinance 2009-940 recently introduced to the Jacksonville City Council, the company is requesting a 5-year exemption from the public service tax on electricity, a tax break it claims is necessary to make the Baldwin plant more competitive with the company’s other mills which would enable more work to be shifted to Jacksonville.  This request might seem reasonable if it didn’t follow other significant incentives provided to Ameristeel in recent years through the Jacksonville Economic Development Commission, including a $3 million grant in 2005 (after the company threatened to close the plant) and the issuance of $25 million in Industrial Development Bonds in 2006 that provided Ameristeel with a low-cost source of funds for facility improvements.

The wording of the proposed ordinance also raises doubts, since it lays out the company’s case in such strong terms that it makes me question whether the document was written at City Hall or at Ameristeel’s Tampa headquarters.  The bill’s hodgepodge of “facts and figures” (few of which are substantiated) left me feeling like the victim of an Enron-style investment pitch.  At minimum, the company’s assertion that JEA rates are out of line with rates charged by electric companies in other parts of the country should be confirmed with hard data.  If true, it means the city is operating with a clear competitive disadvantage in attracting any business that would consume significant amounts of electricity, a problem of far greater significance than appeasing a single company requesting a tax break.

My doubts about the information presented in the ordinance quickly turned into alarm when I began researching Ameristeel.  I found considerable evidence that the tactics used in Jacksonville are part of a normal set of business practices employed by the company throughout North America to extract financial incentives from state and local governments and weaken labor unions at its plants.  A review of Ameristeel’s dealings with workers and community leaders in Sand Springs, Oklahoma (a suburb of Tulsa) illustrates the company’s approach.

• June 2006 – Ameristeel purchases Sheffield Steel Corp. for $188 million
• Oct. 2007 – Forges new 4-year labor agreement with workers
• Dec. 2008 – Announces layoffs of roughly 40% of workers
• June 2009 – Begins talks with union heads about shutting down plant
• July 2009 – Seeks rescue package from state before making final decision on shutdown
• Aug. 2009 – Announces mass layoffs – requires workers to forfeit recall rights in order to receive severance payments
• Oct. 2009 – Shuts down plant
• Nov. 2009 – Begins talks with state and local officials on reopening plant, contingent on amount of financial incentives available

In another example, Ameristeel received $1.25 million in city and county grants in 2006 for its Charlotte plant less than one year after receiving a $300,000 grant from the state of North Carolina.

And if Ameristeel is in dire financial straits, you wouldn’t know it from the information presented at the Goldman Sachs Global Steel Conference earlier this month.  The presentation paints a clear picture of a strong company that has weathered the financial crisis and is well-positioned for future growth.  The company appears particularly eager to cash in on infrastructure projects associated with the American Recovery and Reinvestment Act, noting that “America’s infrastructure is in desperate need of investment.”

Regardless of one’s feelings about Ameristeel’s actions or economic development incentives in general, it is obvious that many companies view these programs as negotiable items that are part of their ongoing operations, rather than need-based incentives pursued infrequently and accepted with good faith intentions of maintaining long-term commitments to workers and local communities.  They also appear to be comfortable with promoting “bidding wars” between state and local governments, a harmful practice that weakens America’s economic stability.  It is time for elected officials and other government leaders to acknowledge this new reality by establishing clear guidelines and building the necessary skills and alliances required to negotiate these agreements from a position of strength.  If individual citizens are expected to view government assistance as “a hand up, not a handout” – corporations should be held to the same standard.  Most important, government officials and corporations alike must understand that taxpaying citizens will increasingly demand significant and verifiable returns on these incentives along with transparency into processes in order to hold all parties accountable for performance.

This entry was posted on Tuesday, December 29th, 2009 at 9:54 PM and is filed under Miscellaneous. You can follow any responses to this entry through the RSS 2.0 feed.