Friday, July 09, 2010

Emmer's Corporate Welfare, Delta Airlines, and Broken Promises

Buried deep in the business section headlines last week was this news - "Delta Airlines sells Mesaba Airlines to Pinnacle Airlines." In isolation, this was a minor transaction where Delta shed direct financial responsibility for a regional subsidiary and sold it to another former regional subsidiary. In the context of the shameful history of the State of Minnesota's profligate corporate welfare to Northwest Airlines, this represents yet another humiliating broken promise to the people of Minnesota by Northwest/Delta.

First, a quick history of the ridiculous amounts of money the State of Minnesota gave to Northwest in the name of job creation is in order. In 1991, Governor Arne Carlson and legislators negotiated an $838 million package of subsidies for Northwest Airlines, including a $270 million dollar loan and construction financing for an aircraft maintenance facility in Duluth and an engine maintenance facility in Hibbing. Later, the amount of this package was reduced slightly (to $761 million), and then the string of broken promises began:
- The Duluth facility was built on the public dime, but was never fully staffed, and eventually closed in 2005. Now the City of Duluth is struggling to find tenants, and the one they did find (Cirrus) hasn't paid their rent on time for a while now.
- The Hibbing facility was never built after a 1997 decision to outsource engine maintenance to a French company.
- In 2002, the Metropolitan Airports Commission (MAC) renegotiated the terms of the 1991 loan.
- In 2005, Northwest enters Chapter 11 bankruptcy and uses the opportunity to force concessions from labor, exit lease agreements on the Duluth facility, and leverage even more concessions from MAC and the State of Minnesota.
- In May 2007, the MAC gave an additional $239 million in aid, allowing Northwest to exit bankruptcy later that month.
And then, the big one - less than a year later in April 2008, Northwest and Delta announced their plan to merge.

You might recall that during the Delta purchase, a lot of politicians made a lot of noise about keeping jobs in Minnesota. Some of that noise was made by those who favored using the stick of default on state bonds to force Delta to keep headquarters jobs in Minnesota. Since Northwest still owed $245 million on the original $270 million issued back in 1991 (!), this was a pretty big stick.

But others preferred the carrot of tax incentives, BIG tax incentives. Tom Emmer was number one on the list of pandering politicians wielding tax breaks, subsidies, and corporate welfare to persuade poor Delta to move their headquarters to Minnesota.

He blamed Democrats and taxes for driving the Delta headquarters from Atlanta, Georgia, to, well, Atlanta, Georgia:
The Democrats misguided economic policy, which includes labeling major tax and spend bills as "jobs" bills, is effectively working to drive private business from our state. If you take a look at the likely merger between Northwest Airlines and Delta, you will see the cost of doing business is much less in Georgia. It doesn't take a rocket scientist to figure out the location of the new headquarters and the thousands of jobs that go with it if this merger takes place.
Yes, that's right - one of the most heavily subsidized corporations in Minnesota history is being driven out of the state. It's cohones like this that endear Tom Emmer to his base.

And then, on April 15th, 2008, a day now reserved for Tea Party rallies, Emmer and the House GOP proposed a massive set of tax breaks for Delta if only they would move their headquarters to Minnesota.
"House Republicans said it's too soon to kiss Northwest goodbye. They proposed a package of tax breaks designed to persuade Delta to move its main offices to Minnesota and will attempt to suspend normal rules on Wednesday to force a vote on the House floor.

"Why are we all just assuming or taking for granted that if Northwest and Delta reach an agreement that all the jobs that are in the state of Minnesota, or that the headquarters at least, will end up being down in Atlanta, Georgia? Why are we doing that?" said Rep. Tom Emmer, R-Delano."
Well, actually, I can answer that question, Mr. Emmer. You can't believe anything that Northwest and Delta promise in term of jobs. They'll take the money, but will never live up to their agreements. And here's the core of Tom Emmer's economic development philosophy - throw more money at a corporation that has repeatedly broken its promises to bring jobs to Minnesota in exchange for corporate welfare.

So, we all know the ending to this story, right? Delta closed the deal, and negotiated an agreement with the State of Minnesota to get out of having to immediately repay the $245 million in bonds they still owed from the 1991 deal. And it seemed like Minnesota might actually save some jobs after all.
The new agreement is part of renegotiated repayment terms for approximately $245 million on bonds that the MAC issued for Northwest Airlines' use in 1992. Northwest is now a wholly owned subsidiary of Delta and, at issue, is a requirement that Northwest maintain a corporate headquarters in Minnesota.

In exchange for relief from this requirement, Delta agreed to increase its daily flight commitments from 187 in the original agreement to 400; to shorten the bond repayment period to 2016 from 2022; and to go beyond the original bond covenants and specific job functions that will stay in Minnesota as part of the 10,000 jobs commitment, including pilot and flight attendant bases; reservations centers in Chisholm and the Twin Cities; the pilot training center and technology center in Eagan; and the headquarters of Mesaba Airlines.
But once again it seems we've been had:
Delta Air Lines sold its Mesaba Aviation Inc. subsidiary to Memphis-based Pinnacle in a $62 million transaction announced Thursday. The deal should bring more jobs to Memphis, though Pinnacle said Mesaba's headquarters would stay in Eagan, Minn., for at least two years. Pinnacle, based at Nonconnah Corporate Park, off Interstate 240, has space planners looking at new offices at multiple locations, including Downtown. "Safe to say, we're going to need more space," [Pinnacle] president and CEO Phil Trenary said. Larry Cox, president and CEO of the Memphis-Shelby County Airport Authority, said, "I would assume they would want all their people in one place, and that would be Memphis."
How many times can we be hoodwinked before someone says "enough?" And how many times will we hear Tom Emmer propose massive giveaways to corporations in the name of "prosperity?"

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