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Apple supplier fiasco is the latest failed subsidy scheme

GT Advanced TechArizona taxpayers are lucky to have escaped the latest failed corporate subsidy scheme with their wallets intact.

Less than a year ago, Arizona politicians were back-slapping themselves for what media described as a “coup” in landing an Apple plant in Mesa that would bring 1,300 construction and 700 high-tech jobs. But it wasn’t exactly Apple itself: The company bought the plant but leased it to GT Advanced Technologies, which would make sapphire glass for Apple products.

Clint Bolick

Clint Bolick

For prudent investors risking their own funds, the fact that GT lost $45 million in 2013 would have rung alarm bells. But for the Arizona Commerce Authority (ACA) and the City of Mesa, the fact that the company was associated with Apple was enough to open the public coffers. Mesa paved the way with infrastructure bonds and tax breaks, while the ACA pledged a $10 million grant.

Even worse, the deal took place under cover of darkness. Mesa signed a non-disclosure agreement, while the ACA would not reveal details until after the deal was made. If taxpayers had concerns, they could not voice them until it was too late.

Fast forward to October 2014 when GT goes belly-up. Unless Apple decides to take over the plant itself, the politicians’ grandiose promises will never materialize. Already, 700 workers have received pink slips.

Fortunately, the bankruptcy apparently came before the ACA paid the $10 million grant. Had it occurred later, the taxpayers would have to get in line at bankruptcy court to recover pennies on the dollar.

Most failed subsidies are far more costly. Ironically, the very building that Apple purchased previously belonged to First Solar, which was promised $50 million in government subsidies to build solar components. No solar components were ever produced before First Solar unloaded the plant to Apple. Now it looks like no sapphire glass will be produced there either. So much for the promised jobs and the boost to the economy.

Likewise, the City of Goodyear gave Chinese firm Suntech $500,000 for job training at a facility that opened in 2010 with $3.6 million in state and federal tax breaks. The company shuttered the plant in 2013, with the 43 remaining workers losing their jobs.

How many subsidy failures do we need before we conclude that government officials do a terrible job in predicting economic winners and losers? Even when they pick a winner, the effects are negligible. The vast majority of jobs in our economy are created by small businesses, which bear the financial burden of the subsidies given to larger companies.

All of which attests to the wisdom of the Arizona Constitution’s framers in forbidding taxpayer subsidies to private individuals, corporations, and associations. But instead of constructing an economic and regulatory climate hospitable to all enterprises, too many Arizona politicians try to evade constitutional constraints any time a big company blows into town looking for a handout.

Transparency is the best antidote to taxpayer giveaways, and Arizona law guarantees broad access to most public records. But when the ACA was created, so too was an exception to public records obligations that allows it to dodge disclosure whenever it concludes “the information could potentially harm” the company’s or state’s “competitive position relating to potential business development opportunities and strategies.”

This exception to public records access should be abolished. It is bad enough that deals involving taxpayer money are negotiated behind closed doors; it is even worse when the details of those deals can be hidden from public view.

In the private sector, those who make bad investments bear the financial consequences. In the public sector, taxpayers do. We cannot afford to have public officials gambling with our tax dollars; and when they feel the need to do so, we should be allowed to watch, very closely.

– Clint Bolick is director of the Scharf-Norton Center for Constitutional Litigation at the Goldwater Institute.

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