Fighting Corporate Welfare

Corporate Welfare: Projects advertised as benefiting the general welfare that offer a disproportionate amount of value to large corporations, and often in uncompetitive or anti-competitive ways.

If the goal of public policy is to optimize the role of government, corporate welfare must be identified and curbed wherever possible. Corporate welfare wastes the limited resources of governments, at the same time as it reduces the efficiency of the private sector by using subsidies and other incentives to undermine healthy competition.

The alternative to participating in a race to the bottom to attract, for example, multinational corporations to locate in your city or county, is to create a healthy regulatory environment that attracts all businesses. Instead of your city having to compete with other cities business through tax incentives and subsidies, businesses will be competing with each other to do business with you.

California state law supports any local resolution to minimize if not eliminate tax incentives and subsidies. Article 16 Sec. 6 of the California Constitution – the “gift clause” – declares that “public officials “shall have no power to give or to lend, or to authorize the giving or lending, of the credit of the State, or of any county, city and county, city, township or other political corporation or subdivision of the State now existing, or that may be hereafter established, in aid of or to any person, association, or corporation, whether municipal or otherwise, or to pledge the credit thereof, in any manner whatever, for the payment of the liabilities of any individual, association, municipal or other corporation whatever; nor shall it have power to make any gift or authorize the making of any gift, of any public money or thing of value to any individual, municipal or other corporation whatever.”

At the local level, an example of an ordinance pursuant to the “gift clause” in the California Constitution would read as follows:

“Government shall not expend, loan, or allow the use of public resources, nor use its taxing power, in aid of any individual, association, corporation, or other private party, unless such expenditure, loan, or use is for a public purpose, supported by consideration, and over which the public entity exercises continuing control.”

A more detailed local government resolution pursuant to the California “gift clause” would affirm that the responsibilities of local government in economic incentives are:

  • low taxes
  • sustainable, transparent public finance
  • limited regulation
  • first-world infrastructure
  • and top-quality K-12 education

GIFT CLAUSE ORDINANCE – SAMPLE LANGUAGE

Section 1. This resolution may be referred to as the “Taxpayer Protection Resolution.”

Section 2. {Definitions}.

(A) “Public entity” shall be broadly construed to include the state, all agencies and units of state government, and any county, city, town, municipality, school district, or other subdivision of the state.

(B) “Public resources” shall be broadly construed to include all revenue, real property, and other assets owned and controlled by a public entity.

(C) “Public purpose” means an activity that is directly related to a function of government and for which the primary beneficiary is the public as a whole and not a private entity. Public purpose does not include providing aid by subsidy, grant, loan, or otherwise, to private businesses, individuals, or entities for purposes of economic development.

(D) “Consideration” means an exchange of goods, services, or money that is proportional, direct, ascertainable, and contractually obligatory. Consideration does not include indirect benefits that are speculative or anticipatory.

(E) “Control” means that the public entity maintains strict and continuing authority over a public expenditure, loan or use of public resources public loans or expenditures to ensure that the public purpose of the expenditure, loan, or use of public resources is accomplished.

Section 4. {Limitation on Public Entity Expenditures.} No public entity shall expend, loan, or allow the use of public resources, nor use its taxing power, in aid of any individual, association, corporation, or other private party, unless such expenditure, loan, or use is for a public purpose, supported by consideration, and over which the public entity exercises continuing control.

Section 5. {Enforcement.}

(A) Either the Attorney General or a taxpayer in this state may file an action in a Court of general jurisdiction to challenge an expenditure, loan, or use of public resources.

(B) With respect to the challenge of an expenditure, loan, or use of public resources, the plaintiff(s) shall prevail if the Court finds by a preponderance of evidence that the challenged expenditure, loan, or use of public resources does not:

(1) Advance a public purpose;

(2) Is not supported by consideration; or

(3) A public entity has failed to maintain control over the expenditure, loan, or use of public resources.

(C) Upon a finding for the plaintiff(s), the Court shall enjoin further enforcement of the challenged expenditure, loan, or use of the public resources, and shall award reasonable attorney fees and costs to the plaintiff(s).

 *   *   *