Businesses in California were given state tax breaks worth about $2.67 billion over the past two decades, with more than half the money going to two sectors of the economy – those trading in war and circus.

These tax breaks – denounced as “corporate welfare” or praised as “business incentives” – totaled $889.3 million for aerospace and military contractors, and $389.4 million for entertainment and media companies, according topublic data compiled by the nonprofit Good Jobs First.

The biggest breaks went to two aerospace defense giants, Lockheed Martin and Northrop Grumman. In 2014, the Legislature approved a controversial bill aimed specifically at Lockheed, a key subcontractor for Boeing on a bid to build next-generation bombers for the Air Force. The bill granted Lockheed a tax credit of 17.5 percent of wages paid to its workers, worth $420 million over the 15-year life of the deal.

Northrop, a rival, quickly protested, saying the credit gave Lockheed a tremendous competitive advantage, and the Legislature extended the break to Northrop.

An analysis by the state Assembly suggests the tax credits operate as subsidies for wages paid.

California’s next-largest corporate break, worth $290 million, went to Anschutz Co. for construction of a 55-story hotel next to the Los Angeles Convention Center.

That package, courtesy of the city of Los Angeles, included a hotel-bed-tax rebate of up to $270 million over 25 years, a $16 million loan at below-market rate and a $4 million fee waiver.

The Walt Disney Co. weighed in at No. 4, receiving subsidies worth $149.7 million. Most of that came from the city of Anaheim, which agreed to foot the bill for up to $200 million in infrastructure improvements when Disney built its second theme park, California Adventure, next to Disneyland. The Mickey & Friends Parking Structure cost the city $108 million, electrical improvements cost $17.6 million, and a pedestrian bridge cost $3.6 million, Anaheim said.

Walt Disney Studios’ films “Whale” and “Overnight at 42nd Street” received state film tax credits worth $18.4 million, and Disneyland has received worker training reimbursements worth $2 million.

Not included in the Disney tally is the potential value of Anaheim’s 30-year ban on entertainment ticket taxes, or the $550 million in hotel bed taxes that Anaheim will return to Disney and developer Wincome Group in exchange for the construction of three luxury hotels in Anaheim’s resort district.

California’s state government has a dozen different incentive programs for businesses, and local governments offer myriad incentives of their own. The $2.67 billion number is not exhaustive, as data reporting among local governments is spotty, but that will soon change. More on that in a minute.

‘CHOICE’

Proponents of corporate tax breaks say the money encourages businesses to stay and grow in high-cost California, thus creating or preserving jobs.

“We must always remember that in today’s global economy, location is not permanent, but by choice,” said a letter signed by more than a dozen SoCal Jobs Defense Council members – leaders of business, labor and government – urging the Legislature to embrace the aerospace tax breaks.

“We have to be ready as a state to make that choice easier for them to locate, innovate, produce, and expand here.”

The very term “corporate subsidy” aggravates Orange County Business Council President Lucy Dunn.

“It is no more a ‘subsidy’ than when the feds let you deduct your personal home mortgage interest from your annual tax returns,” she said. “That deduction is supposed to incentivize home ownership – making it a bit easier to buy a home – a good thing! So it’s disingenuous for folks who take that deduction to say a business can’t do something similar when it delivers something a city wants, and takes all the risk.”

That’s what these incentives are: government enticements to get businesses to do something the government wants, but that the market has not yet delivered, Dunn said.

“Usually, no up-front funding comes from the government to do these projects. Instead, less taxes are paid for a limited time by business, if and only if, they meet certain conditions,” Dunn said.

“When the project is built, there are usually numerous other economic benefits – increased tourism, sales taxes, jobs creation, mitigation fees, public benefits like parks and transportation improvements, that a city weighs to offset the business’s tax incentive/deduction.”

Anaheim’s decision to refund bed taxes in order to get its desired four-star hotels is a classic example, she said.

From the city’s perspective, it can be a no-brainer, officials said.

“Anaheim views economic development, rather than resident taxes, as the best way to fund city services,” Anaheim spokesman Mike Lyster said in a statement. “When we work with companies to bring investment to Anaheim, we see a substantial return on that investment for our residents.

“Since we worked with Disney in the 1990s to expand the Anaheim Resort, our hotel-stay revenue has more than tripled. That allowed Anaheim to weather the Great Recession better than many cities and today is helping us add police officers, pay down debt and liabilities and to provide parks, libraries, community centers and family services for our residents.”

The Register contacted each of the companies receiving $10 million or more in subsidies/incentives, but only Disney and Lockheed Martin responded. Both declined to comment on specifics.

Lockheed Martin spokesman Bill Phelps instead pointed out that the company employs 10,000 people throughout California who work on high-tech aerospace and defense projects, from unmanned systems technology to space research.

GRATUITOUS

Opponents counter that while the incentives may sound grand, they do precious little to tip the economic scale in any direction whatsoever, often making them gratuitous and irrelevant.

“All state and local taxes, combined, only amount to about 2 percent of the cost of doing business,” said Greg LeRoy, executive director of Good Jobs First.

“Incentives don’t matter. They just can’t move the needle very much.”

An Assembly analysis of the bill to extend the $420 million tax credit to Northrop said as much.

“A defense project’s scope and budget are determined by the federal government. Personnel hiring decisions, capital investments, and additional activities a contractor must undertake to complete the project are all dependent on the parameters specified by the federal program.”

State subsidies are unlikely to change these investment decisions.

The Tax Foundation, an independent think tank, also had sharp words for the subsidies.

“Narrow incentives such as these are not sound tax policy. They rarely succeed in their aims of ‘creating’ jobs, and (instead) create major distortions as existing companies foot the full freight of the tax bill in order to provide incentives to other favored firms and new investments,” argued economist Lyman Stone.

And the threat of companies fleeing the state is often fiction, critics said.

“So, where is Disneyland going to move to if it doesn’t get a subsidy?” asked Scott Klinger of Good Jobs First.

“Of course they’re going to expand in Anaheim.”

TRANSPARENCY

Good Jobs First’s LeRoy began his career in corporate subsidy reform in the 1980s, when he was working to fend off industrial plant closures in Chicago. It turned out that many of the shuttering factories had received economic development subsidies and, despite that public investment, the shutdowns were legal.

Those revelations led to reforms, but in his opinion, they were not nearly comprehensive enough. It was hard to determine the true public cost of these deals: How much were the companies really getting to keep? How much tax revenue were governments really giving up?

That led to the nonprofit Good Jobs First, and its push for public transparency on “corporate welfare.” That effort will get a major boost next year when most governments will have to start placing a dollar figure on tax breaks they give to businesses.

Those numbers will then be included in the annual audited financial statements of those governments, allowing a much more precise accounting of how much corporate tax breaks divert from public coffers, and whether the tradeoff is worth it.

This new disclosure requirement is brought to you by the eggheads at the Governmental Accounting Standards Board, which made news recently for requiring governments to include unfunded pension liabilities in their bottom lines. That disappeared billions of public dollars instantly, and was meant to underscore that pension debts are real and must be paid.

Similar logic is at work here.

“Financial statements prepared by state and local governments … provide citizens and taxpayers, legislative and oversight bodies, municipal bond analysts, and others with information they need to evaluate the financial health of governments, make decisions, and assess accountability,” GASB says in its statement on the new rule, Number 77.

Tax abatements are widely used to encourage economic development, but governments “do not always provide the information necessary to assess how tax abatements affect their financial position … including their ability to raise resources in the future,” GASB says.

The numbers will start showing up in audits next year. The details might incite further outrage in those who think the system is rigged for the wealthy – but California is likely to come out looking a lot better than big-spending states like Louisiana and Michigan, which sometimes give up more revenue than they collect in taxes, LeRoy said.

“California, actually, is pretty stingy,” he said.

‘STINGY’

While the $2.67 billion California governments have extended in corporate subsidies may not be chump change, it’s small potatoes compared with New York’s $24 billion, Louisiana’s $16.65 billion, Michigan’s $14.2 billion and Washington’s $13.4 billion in corporate subsidies, according to the data.

“In the broad scheme of things, California is not a go-go spender, and you can blame a lot of that on Prop. 13, and the end of redevelopment in 2011,” LeRoy said. “It wasn’t seriously throwing money at Tesla during that five-state competition (for who would land its battery factory). It wasn’t competing hard for Boeing. And we don’t think that’s a bad thing. California’s job-creation numbers and entrepreneurial culture look great. There are lots of good things happening in your stingy state.

“Stingy can often be very smart.”

The stingiest state of all was Hawaii, which offered just $515,430 in subsidies, followed by Wyoming ($1.2 million) and New Hampshire ($8.4 million).

It’s also worth noting that California’s $2.67 billion-worth of subsidies are but a fraction of what corporations pay in taxes. There are the aforementioned property taxes, as well as payroll taxes, sales and use taxes, and corporate income taxes.

Corporations pay tax of 8.84 percent of net income, and over the past decade revenues from the corporate income tax have averaged $10 billion a year, according to data from the state controller.

California’s stinginess has left it vulnerable to piracy, some say, allowing lower-cost states such as Texas, Nevada and Arizona to lure away businesses.

A study by Joseph Vranich of Spectrum Location Solutions in Irvine found that, from 2008 through 2015, at least 1,687 businesses bailed out of California or chose to expand operations elsewhere. Vranich blames that on California’s “hostile business climate,” including high taxes and heavy regulation.

Wallace Walrod, chief economic adviser for the Orange County Business Council, had never seen state-by-state incentive values laid out quite like this. The next discussion might not be how to curb corporate subsidies in California, but how to provide more incentives, he said.

Dunn, president of the Business Council, agrees. “California is not as creative as it could be,” she said.

Contact the writer: tsforza@scng.com