Chevron Has Received $2.6 Billion in Tax-Free Bonds Since 2003
Qualified private activity bonds are low-interest, tax-exempt loans that the government issues on behalf of companies initiating projects with a "public purpose." It's roughly the same process that cities and states use to fund things like roads, parks, and schools. Except these benefit for-profit organizations.
Yesterday, the New York Times reported that the government has doled out more than $65 billion worth of these bonds to corporations since 2003. The biggest beneficiary: they Bay Area's own Chevron, which has received $2.6 billion.
This massive use of private activity bonds is controversial for obvious reasons: our cash-strapped governments are giving free money to wealthy companies with more than enough resources to build projects on their own, or take out loans from banks at normal rates like the rest of us. Chevron, for instance, generated $26 billion in profits last year. The money it saved through the tax-exempt interest payments is money it did not have to pay Uncle Sam.
The tax-exempt bonds have come under scrutiny before. While the theoretical purpose of the bonds was to encourage projects that benefit the public at-large, this was not always the case. In 1986, after decades of companies "using the federal subsidies to build Kmarts, McDonald's restaurants, private golf courses, and tennis clubs," Congress passed legislation capping the amount of bonds states could give out each year.
But the policy was more hurdle than stopgap. The Times found that "this valuable perk ... has not only endured, it has grown, in what amounts to a stealth subsidy for private enterprise."
For instance, Chevron, the paper reported, "used most of its federally tax-free borrowings to expand a refinery in Pascagoula." They are not the only ones taking advantage of the system.
A winery in North Carolina, a golf resort in Puerto Rico and a Corvette museum in Kentucky, as well as the Barclays Center in Brooklyn and the offices of the Goldman Sachs Group and the Bank of America Tower in New York -- all of these projects, and many more, have been built using the tax-exempt bonds....
Archer Daniels Midland, the agribusiness giant, used about $180 million in tax-exempt bonds to improve its grain-processing facilities in Indiana and Iowa. Alcoa raised $250 million to renovate an aluminum plant in Iowa.
Of course, you can't really blame business executives for taking free money. Likewise, it's hard to fault the leaders handing it out. In the rat race among states, the bonds are an easy way to allure companies and the jobs they bring. Often it becomes a bidding war, as local officials seek to offer a business the most tempting package. After all, most voters won't remember how much in bonds a governor or mayor doled out as much as they'll remember which businesses he won over, how much "growth" he spurred, how many jobs he brought over.
The consequence is a sizable chunk of lost public revenue. According to one estimate, from the Bipartisan Policy Center, cited by the Times, ending the tax-free loans for corporations would save the federal government $50 billion over 10 years.