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Tennessee’s Corporate Welfare Scheme Needs Reform


A decade ago, Tennessee underwent welfare reform — massively overhauling the failing welfare bureaucracy — resulting in widespread job creation, business growth and a reduced burden to taxpayers. Today, taxpayers should encourage the state to take a lesson from this and reform a different kind of welfare: corporate welfare.

This year, the Tennessee Department of Economic and Community Development, the state’s administer of corporate welfare, will cost Tennessee’s taxpayers over $100 million. What began as a well-intentioned program to encourage business growth has become a scheme that allows bureaucrats, rather than consumers and market forces, to determine the winners and losers in business. The result is a program that forces businesses subsidize their fiercest competitors.

For the better part of 90 years, Athens-based Mayfield Dairy Farms has been among Southeast Tennessee’s largest employers, as well as one of the largest agricultural employers in the state.

The Mayfield family, which settled in McMinn County in 1820, began selling milk before the First World War. In 1923, the Mayfield’s expanded their dairy operation by purchasing an ice cream freezer. Eight decades later, the company’s ubiquitous yellow milk jugs are a staple in supermarkets across the Volunteer State and their ice cream is a Tennessee summertime tradition.

As one of the most successful regional ice cream makers in America, Mayfield and its employees pay millions in tax revenue to the state. With a disturbing disregard for both capitalism and fairness, bureaucrats in Nashville recently chose to use some of those same tax dollars to subsidize one of Mayfield’s leading competitors in the ice cream business.

In 2005, the makers of Blue Bell ice cream, a Texas-based newcomer to Tennessee’s freezer cases, were awarded a $216,000 taxpayer-funded state grant to offset infrastructure costs related to its new distribution facility in Nolensville. This grant allowed Blue Bell to build part of its facility at a tremendous cost advantage when compared against most other ice cream manufacturers in the state — including Mayfield — who pay for their production and distribution facilities out of their companies’ bottom line.

The rise of Mayfield is the quintessential American success story. Through risk-taking and backbreaking hard work, a threadbare rural family began a small business. With a quality product, it grew — taking no public money and paying full fare in taxes — year in and year out.

Through ECD, taxpayers, including the Mayfield family, are forced to help subsidize a Texas corporation that will compete directly with Mayfield. The scenario seems unthinkable — even laughable — yet it happens dozens of times every year as a consequence of Tennessee’s absurd economic development bureaucracy.

State legislators who are truly interested in economic development have an opportunity to help all businesses by shuttering the failed Department and returning the $100 million the bureaucracy devours every year to private enterprise by reducing the state business tax. A lower tax burden means that business owners can invest more of their money in growing their business, resulting in job creation and true, market-based, economic development.

This plan allows the state government to get out of the business of determining the winners and losers in the private sector economy, and allows the state to focus on the only role it should rightfully assume in the realm of economic development: ensuring a universally favorable business climate, free from high taxes and regulatory burdens.



Drew Johnson is president of the Tennessee Center for Policy Research, an independent, nonprofit and nonpartisan research organization committed to achieving a freer, more prosperous Tennessee through the ideas of liberty. Visit TCPR online at: www.tennesseepolicy.org. The TCPR presented the town of Farragut its inaugural “Most Business-Friendly City”. The ceremony took placeat Farragut Town Hall, Monday, Feb. 27.

 

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