Aug. 30 (Bloomberg) -- Republican governors in at least six states are being criticized by lawmakers, including some in their own party, over incentives for companies that went bankrupt, faced bribery charges or made political donations before obtaining government funds.
In Florida, Democrats and Tea Party leaders are faulting tax breaks that Governor Rick Scott, 60, gave to the business of a convicted cocaine trafficker that went bankrupt this year. In Ohio and Wisconsin, lawmakers asked auditors to probe jobs recruitment agencies over allegations of corruption.
The tax breaks, cash grants and loans designed to lure businesses or help them expand are becoming campaign issues ahead of elections in the next year and a half. Democrats are trying to co-opt a strategy Republicans used against President Barack Obama, who faced negative ads over Solyndra LLC, the solar-panel maker that received a $535 million federal loan guarantee before going bankrupt in 2011.
“We expect to talk about these incentives in all of these races,” said Danny Kanner, a spokesman for the Democratic Governors Association, pointing to Wisconsin, South Carolina, Florida and other states that could have competitive gubernatorial elections next year. Kanner said it’s part of a broader message about governors “rewarding the wealthy and the well-connected at the expense of the middle class.”
Governors from both parties have increased the use of incentives since the 18-month recession ended in June 2009, said Kenneth Thomas, a political science professor at University of Missouri-St. Louis. The practice has been more prevalent and controversial among Republicans after companies failed and ethical issues arose.
The nation’s 30 Republican governors are pushing pro-growth policies and recruiting companies from states with Democratic leadership and higher taxes, said Louisiana Governor Bobby Jindal in an Aug. 14 statement from the Republican Governors Association. Texas Republican Governor Rick Perry yesterday went to Missouri, a state led by a Democrat, to lure businesses.
“Republican governors are driving America’s comeback by balancing budgets, creating jobs, improving education, and pursuing free-market solutions to the challenges facing our states,” said Jindal, chairman of the association.
Jindal, 42, himself backed $257 million in incentives this month to help South African energy company Sasol Ltd. build a fuel plant. Lawmakers from both parties raised objections. Tea Party Republicans tried unsuccessfully to cut Jindal’s tax-incentive budget this year.
Such incentives gained widespread attention in Florida. Scott, elected with Tea Party support in 2010, has been faulted by supporters and critics after awarding government funds to companies that later failed.
After the chief executive of health-care technology firm Blueware, Inc. was arrested this month and charged with government bribery, Democrats dug up a 15-month-old news release in which Scott celebrated the company’s decision to move to Florida. The announcement called Blueware’s relocation from Michigan a “great win” and said $1.3 million in taxpayer funds would be given to the company. Blueware’s contract was canceled before the money was paid.
In another case, Banah International Group Inc., a sugar company based near Miami, filed for bankruptcy protection in February, a year after Florida approved $430,700 in incentives. Scott’s jobs agency said it was unaware that Banah’s chairman served four years in prison for cocaine trafficking.
“Both Democrats and Republicans, liberals and conservatives, are bringing this up and saying ‘Hey, wait a minute,’” said Slade O’Brien, Florida director for Americans for Prosperity, a small-government group funded by billionaire industrialists David and Charles Koch. “I don’t think state government should be picking winners and losers. It creates a culture of cronyism and gets the lobbyists and special interests too involved.”
Florida’s Republican-led legislature has cracked down on the jobs-recruitment program. Lawmakers rejected Scott’s call to almost triple funding for incentives this year, instead cutting the funds by half and requiring more reporting and transparency.
Scott has said the incentives have safeguards to protect taxpayers if companies go bankrupt.
He said his approach has helped reduce Florida’s unemployment rate to 7.1 percent in July from 10.9 percent when he took office in January 2011. His jobs-recruitment agency says that incentives have helped create more than 100,000 high-paying positions since 1995, recently drawing companies such as Verizon Communications Inc. and Hertz Global Holdings Inc. to Florida.
In Texas, a state fund has awarded more than $500 million to companies relocating or expanding since 2003. Perry’s administration says that the incentives helped create more than 69,000 jobs.
A December report by the enterprise fund listed several companies that received cash payments and failed to create the required number of jobs. The money was returned in most cases, though not always in full. Watchdog groups found that many awards went to companies that contributed to Perry or the Republican Governors Association.
Republicans have begun to distance themselves from Perry’s job-recruitment policies. The Republican-controlled Legislature approved a bill calling for an audit of Perry’s recruitment programs this year.
Perry, a 63-year-old who ran unsuccessfully for president, isn’t seeking re-election.
Texas Attorney General Greg Abbott, a 55-year-old Republican seeking to replace Perry, told supporters at a recent campaign stop near San Antonio that government “needs to get out of the business of picking winners and losers.”
Candidates opposing the incentives are trying to appeal to Tea Party voters, said JoAnn Fleming, director of the Texas Legislature’s Tea Party Caucus Advisory Committee.
“You have lots of politicians who run around bashing President Obama and the federal government for handing out federal subsidies to companies like Solyndra,” she said. “But we do the same thing here in Texas. I think it will be an issue in this race.”
Perry defends the grants by pointing to a growing economy.
“These funds are an important part of our state’s status as a national economic leader, bringing tens of thousands of jobs, billions of dollars in economic investment and innovative, life-saving technologies,” said Josh Havens, a Perry spokesman, in an e-mail.
In Ohio, Republican Governor John Kasich has faced attacks over JobsOhio, the private entity he created in 2011 to spur growth by using bond proceeds backed by liquor profits. Democratic lawmakers sued the agency, challenging its constitutionality, and complained it supported tax incentives for companies with financial ties to board members and Kasich.
Ed FitzGerald, a 45-year-old Democrat seeking Kasich’s seat in 2014, used words like “cronyism,” “self-dealing” and “unethical” in a recent statement.
Kasich, 61, calls the criticism “mudslinging.”
“This is politics,” Kasich told reporters in Columbus on Aug. 15. “Whether it’s a friend, or whether it’s a foe, if they’re going to create jobs -- and the incentives that are necessary to encourage them are within the bounds of reason and reflect the proper return on investment -- we want to do it.’
Governor Scott Walker of Wisconsin faced bipartisan backlash after audits found his job-creation agency loaned millions of dollars to ineligible companies and failed to adequately track the funds.
Republicans and Democrats have criticized the agency, which Walker, 45, created in 2011 to help create 250,000 jobs. Democrats plan to highlight the audits and the unfulfilled job promise, said Kanner of the Democratic Governors Association.
Tom Evenson, a spokesman for Walker, said most of the issues at the agency have been addressed and jobs are being created.
Democrats also have been criticized. Before his 2012 re-election, Delaware Governor Jack Markell faced attacks over a multimillion-dollar incentive for electric carmaker Fisker Automotive Inc., which ceased production last year. Markell, 52, won the election.
Terry McAuliffe, a Democrat running for governor of Virginia this year, has been faulted as former chairman of GreenTech Automotive Inc., a battery-powered carmaker, for accepting grants from Mississippi and failing to create promised jobs.
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