The county has done business with each of the top 10 recipients of local and state subsidies in California, records show.

Tesla received $20 million in tax breaks and other subsidies to locate a plant in California

The practice is common, although hardly in violation of any rules. But across the state, groups that have received breaks are getting deals to do business, with taxpayers effectively signing two sets of checks to some of the largest, well-capitalized companies in the world.

Oracle received a contract in 2011 for project management software to monitor L.A. County’s $40 million transit and highway expansion project. Oracle has also received $7.5 million in tax breaks and subsidies in the state since 1996.

In the city of San Diego, subsidized vendors included Time Warner, which had a cable internet contract in 2014, as well as software maker Oracle and defense behemoth Northrop Grumman Systems, which had contracts in 2012.

Northrop Grumman has cleaned up there; the $593,388 in city contracts over the past three years came as the company has received $429 million in subsidies statewide.

CalWatchdog compared local government vendor data to the numbers gathered by the subsidy watchdog group Good Jobs First. By the group’s tally, state and local subsidies in California topped $2 billion in recent years, with information focused on the period since 2012 plus some awards back to the mid-‘90s.

The state subsidies list is dominated by heavyweights: Walt Disney, Comcast, Anschutz Company, Viacom, Time Warner, Virgin, Lockheed Martin, Samsung, Northrop Grumman and Oracle.

Most of the top 10 can be found among the Fortune 500, a ranking based on revenues. California taxpayers helped get them there, through breaks, allowances, training allotments and delays on taxation. (Voice of San Diego did a good assessment of California’s many subsidy programs last fall.)

In exchange, the body giving the break, be it the state or a municipality, hopes for employment and tax revenue that will put it ahead of the game. Job creation mandates are sometimes part of the deal — that is, upon the creation of a number of jobs, the subsidy is given. Major corporations have teams that work full-time on such equations.

California ranks lower than most with regard to size and scope on a statewide basis.

“Although California has often been on the losing end of interstate job piracy, the state generally does not offer major state subsidy packages to individual companies,” according to a report by Good Jobs First. “And contrary to the norm, it has only a few programs of any significance.”

Often found near the bottom of rankings for business climate, the state has had a mixed experience with subsidies.

Subsidy programs in Tennessee and Texas were used to woo Nissan and Toyota, once a major part of the state’s proud auto company portfolio, away from California. Those were the highest-profile moves among a number of corporate headquarters defections from California in the past 10 years.

The state recently passed legislation to give $330 million worth of inducements to get the entertainment industry back, after losing business to the growing number of states with film incentive programs.

Even by handing over government contracts to the already-subsidized companies, incentives are a gamble.

The state’s glaring example of unintended consequences has been with Tesla, which in 2010 received a package of incentives worth $20 million when the company took over part of the empty NUMMI auto manufacturing plant in Fremont.

An article at the time by the San Francisco Business Times noted, “Gov. Arnold Schwarzenegger said the deal for NUMMI was made possible by tax incentives and credited Treasurer Bill Lockyer for finding available incentives.”

The party was disrupted in May, when it was revealed that Tesla was benefitting from $4.9 billion in government subsidies across the U.S., including those from California. It is considered by many an outsized allotment for an industry – electric vehicles – that has no solid base at this point.

At the same time, there have been winners.

The California Valley Solar Ranch developed by NRG Energy was granted a property tax break by San Luis Obispo County worth $14 million, and is now performing above expectations, generating up to 4 percent more than the 600,000 kilowatt hours a year that were projected.

Steve Miller can be reached at 517-775-9952 and avalanche50@hotmail.com. His website is www.Avalanche50.com

If that wasn’t controversial enough, now word has surfaced that the bill also included a hidden perk for electric auto maker Tesla Motors Inc.

According to a report by Juliet Williams of the Associated Press, an overlooked section of the bill included language to provide tax breaks to companies that manufacture batteries:

“The word ‘battery’ never appears in the bill’s language, but is referenced in an analysis prepared by the Senate Appropriations Committee dated July 3, the last legislative business day before the summer break and the same day lawmakers voted on it. The analysis said tax relief would be available to companies that fall under federal NAICS manufacturing code 3359, which includes ‘battery manufacturing’.”

That perk, signed into law on the 157th birthday of the company’s namesake, Nikola Tesla, is designed to persuade the company to build a new $5 billion manufacturing plant in California.

Reducing assessed value by $125 million

Under that neglected section of the bill, battery manufacturers would be eligible for a reduction in the assessed value of a qualified manufacturing facility.

“This bill would, until July 1, 2015, reduce the assessed value threshold for calculating the capital investment incentive amount from $150,000,000 to $25,000,000 and would define ‘qualified manufacturing facility’ to include, among others, facilities operated by certain businesses described in specified provisions of the North American Industry Classification System Manual,” the final version of the bill stated.

That language apparently baffled the bill’s author as well as Senate committee staff, who were unaware of its purpose.

“This tax credit is exactly what the aerospace industry needs to remain competitive for the next decade,” Assemblyman Steve Fox, D-Palmdale, author of Assembly Bill 2389, said of the bill’s purpose. He never acknowledged a second benefit provided to battery manufacturers.

The legislative process was described by one state senator as a “jam job.” State lawmakers weren’t given any information about the project, all while being told they needed to pass the bill before the summer recess. Only one committee analysis made reference to the obscure federal manufacturing code.

“The publicly stated intent of the bill is to support the aerospace industry; consequently, it is unclear why NAICS 3359 is also included,” that Senate Appropriations Committee analysis uncovered by the Associated Press found.

$420 million corporate tax break for defense contractors

Prior to the AP’s report, the debate about Assembly Bill 2389 focused on a special $420 million corporate subsidy to a joint partnership between Lockheed Martin and Boeing. The companies are working to obtain a federal contract to build a fleet of next-generation stealth bombers.

Drafted at the governor’s behest, the tax break is available exclusively to “a major first-tier subcontractor awarded a subcontract to manufacture property for ultimate use in or as a component of a new advanced strategic aircraft for the United States Air Force.”

It’s written so narrowly that even other aerospace companies wouldn’t qualify. If Boeing and Lockheed Martin land the project, it could lead to thousands of quality jobs in California.

“This is a big roll-of-the-dice in a state that has been looking for ways to trim minor expenses to fund its many spending priorities,” wrote UT San Diego columnist Steven Greenhut.

Double benefit: tax credit and deduction

Not only does the bill offer special perks to favored companies, it also contains an unprecedented double counting of tax benefits. Those businesses will be able to receive a tax credit and deduction for the same qualifying act.

“This bill would allow a qualified taxpayer a double benefit: first, a deduction, and then a credit calculated based on the same wages paid by a qualified taxpayer for qualified full-time employees,” according to the Assembly floor analysis of the bill. “Generally, a credit is allowed in lieu of a deduction in order to eliminate multiple tax benefits for the same item or expense.”

As CalWatchdog.com’s Joseph Perkins has previously written, AB2389 is nothing more than government picking winners and losers.

“Lawmakers can debate the prudence of bestowing as much as $840 million in tax subsidies to two of the nation’s largest aerospace companies to bid on an Air Force contract,” Perkins wrote earlier this week. “But all can agree that, if the state is going to award tax credits, it should not pick winners and losers among competing companies.”

In the State Assembly, Democrats Mike Gatto and Mark Stone opposed the bill. In the State Senate, six Democrats — Noreen Evans, Cathleen Galgiani, Loni Hancock, Ben Hueso, Mark Leno and Bill Monning — withstood intense pressure from corporate lobbyists.

It passed anyway.

Jan. 18, 2013

By Chris Reed

That California is extraordinarily hostile to business is accepted as a given by just about everyone who is an executive, manager or small-business owner in the state.  But Democrats and some in the media routinely challenge this assumption, and some genuinely seem to believe it’s nothing but a talking point used by business interests to gain undeserved favor.

I once saw a labor official even suggest there was something sinister or rigged about the CEO survey that comes out every year and always ranks the Golden State last in business-friendliness, as if there was a national conspiracy to put California down.

To a degree, Gov. Jerry Brown seems to believe that the business community’s gripes have some merit. So he’s taken to criticizing excessive regulation and to urging bureaucrats to help, not hinder, job creation.

Brown now faces an acid test for his alleged interest in helping the private sector: an insanely capricious and destructive decision by the state’s Franchise Tax Board to impose four years of retroactive taxes on hundreds of businesses because it lost a court fight with one business. It was a fight that started in 2008 over whether the company qualified for a tax break that encourages entrepreneurs — a partial state income tax exclusion on sales of stock of a “Qualified Small Business.”

Tax decree

At xconomy.com, victimized businessman Brian Overstreet shares his horrific story of facing a huge ex post facto tax decree, and explains its genesis:

“The company at issue in that lawsuit did not meet one of the QSB requirements—that it maintain 80 percent of its employees and assets in California. In August of 2012, the California Court of Appeals sided with the plaintiff, ruling that denying him the QSB exclusion based on the ’80 percent requirement’ was an unconstitutional violation of the interstate commerce clause.

“Since the FTB lost the case, you might think that they would strike the unconstitutional requirement and keep the rest of QSB statute intact. Not a chance.

“What the FTB did instead was to take their ball and go home. They decided that since they could not impose the 80 percent requirement, no one would be entitled to the QSB exclusion. They put out an announcement terminating the Qualified Small Business exclusion and retroactively disqualifying all exclusions and deferrals going all the way back to 2008.”

This is bonkers. You don’t get much more anti-business than punishing business owners out of pique over losing a lawsuit that those business owners had nothing to do with.

Overstreet’s takeaway from this assault on sanity:

“1. If you are a business founder or early investor who sold stock since 2008 and took the QSB exclusion: Surprise! You are going to get a bill from the FTB for the 50 percent of the taxes you excluded plus interest plus possible penalties.

“2. If you are a business founder or early investor and have not yet sold stock: Rethink your business and tax planning strategies. Consider whether it’s fiscally prudent to stay in California.

“3. If you a contemplating starting or investing in a California business: Think long and hard. Consider out-of-state alternatives.”

The governor should clean house, right? Well …

If Jerry Brown really means what he says about wanting to help grow jobs in California, here’s what he should do: Clean house at the Franchise Tax Board.

FTB Executive Director Selvi Stanislaus? He should be gone, for starters. And so should everyone at FTB who thought this made sense.

But there’s a little problem with the let’s-clean-house theory. According to the FTB’s website, who are the three members of the agency’s governing board?

1) Ana Matosantos. As in Jerry Brown’s director of finance.

Evidently word of the governor’s desire to help the private sector hasn’t reached his Cabinet.

2) Jerome Horton. As in the former Democratic lawmaker from Inglewood appointed by Brown to the FTB oversight post.

Evidently word of the governor’s desire to help the private sector hasn’t been shared with his board appointees.

3) John Chiang. As in the state controller, elected by the voters.

Evidently breaking trust with job-creating entrepreneurs in such grotesque and extreme fashion isn’t a big deal to the veteran Democrat who fancies himself as governor material.

I look forward to watching this story play out. Most mainstream media in California have little sympathy for business complaints. But everyone can relate to the story of people hit with four years of dubious back taxes because of childishness and stupidity from tax bureaucrats. And their bosses.

Your move, Gov. Brown. Yo, Jerry: Do you think this is fair? Tolerable? Honorable?

We shall see.