“America’s Real Welfare Queen”: Romney Critical Of Government Aid That Helped Bain Capital Profit
Mitt Romney likes to say that “government does not create prosperity.”
His record in the private equity industry shows otherwise.
During Romney’s years as chief executive of Bain Capital LLC, companies owned by the firm received millions of dollars in benefits from a variety of state and local government economic development programs.
In California, taxpayer money built one Bain company a conveyor bridge between two of its buildings. New York City gave another Bain company tax breaks and lower energy bills to discourage it from moving to New Jersey. And in Indiana, a county government issued bonds to help buy new equipment for a Bain-owned steel plant — a business success featured in a Romney campaign ad touting his private sector prowess.
“From a national perspective, this makes no economic sense to allow cities and states to do this,” said Arthur Rolnick, former director of research for the Federal Reserve Bank of Minneapolis. “In general, you want the market to be making these decisions — not the political system.”
The public-private agreements, which began in the first decade of Romney’s tenure as CEO, show that government played a supporting role in establishing Bain as among the nation’s most successful private equity firms and enabling him to accumulate a fortune his campaign says could reach $250 million.
Criticizing Government Involvement
On the campaign trail, the presumptive Republican nominee has hammered at President Barack Obama for favoring an unhealthy government role in the economy.
“When government, rather than the market, routinely selects winners or losers, or puts its hands on the scales of justice then enterprises and entrepreneurs can’t predict their prospects,” Romney said in a March 19 speech at the University of Chicago.
Asked about the disconnect between Romney’s free market rhetoric and Bain’s track record, Amanda Henneberg, a campaign spokeswoman, said: “It’s not at all uncommon for state and local governments to use competitive incentives and programs to create a favorable business climate.”
Yet in his Chicago speech, the former Massachusetts governor decried the “endless subsidies and credits intended to shape behavior in our economic society,” and assailed government “intrusion in the workings of the free marketplace itself.”
Exhibit A in Romney’s attack is the Obama administration’s investment in the failed solar power company Solyndra, which could cost taxpayers more than $500 million.
Massachusetts Investment Bankruptcy
Romney’s effort to capitalize on the administration’s stumbles was complicated this week by the June 1 failure of a Massachusetts clean energy company that received state financing while he was governor.
As a private equity investor, Romney showed no reluctance to accept help from government coffers — on one occasion even becoming partners with taxpayers.
In October 1994, a Connecticut state fund made a $500,000 equity investment in Environmental Data Resources of Milford, Connecticut, which Bain had helped start. The state’s Connecticut Innovations agency the previous year also had given the firm a separate $500,000 to be paid back with royalties from its software products.
The company used the money to hire several technologists and digitize old maps of industrial sites, according to Rob Barber, the company’s chief executive.
EDR Expansion
Beginning in 1991, Bain had invested $2.3 million in the company, which produced software for environmental site assessments, ultimately recording a 35.7 percent return, according to a Deutsche Bank prospectus that detailed the performance of Bain’s funds through 1999. Starting with just three employees, EDR grew to about 50 workers by the middle of the decade, Peter Cashman, the company’s founder, said in an interview.
Victor Budnick, who was then Connecticut Innovations’ director of investments, says the company obtained better terms for the public funds than it likely could have received from private investors. Private money would have been “disadvantageous from the perspective of ownership,” Budnick said.
The deal ultimately profited both the government and EDR. The state got back $3.8 million in return for its $500,000 equity stake plus an additional $1 million from its royalty- linked investment, according to Pamela Hartley, a spokeswoman for Connecticut Innovations.
Management-led Negotiations
There is no indication that Romney, who became CEO of Bain Capital in 1984, was directly involved in any of the individual companies’ negotiations with government officials. Such operational issues were typically left to the management of companies Bain acquired.
“I never heard of Bain Capital,” says Walter Sprouse, who was president of the Randolph County Economic Development Corporation in North Carolina when it ponied up $375,000 to help lure Sealy Inc.’s corporate headquarters.
Even so, Romney benefitted from the incentives, along with other Bain investors. When the Internet advertising company Double Click Inc. considered moving its Manhattan-based corporate headquarters, New York City’s Economic Development Corporation in 1999 provided a $4 million package of sales and energy tax breaks tied to the company’s payroll.
The company reported a loss of $56 million that year and was acquired by Google Inc. in 2008. Bain realized $88.6 million on its initial $8.5 million Double Click investment, made in 1997, according to the Deutsche Bank prospectus.
Bain Portfolio Returns
Bain’s investments in the companies that benefited from government actions were part of a portfolio that earned an 88 percent average annual return through the end of 1999, the prospectus said.
The two-time presidential candidate says his business experience qualifies him to turn around the troubled national economy. He accuses government of “standing in the way” of recovery.
Yet, government officials employed a variety of techniques to help Bain-owned companies. In Kansas City, city officials issued industrial revenue bonds as part of a financing arrangement that saved a Bain-owned steel company about $3 million in property taxes over five years, according to the Kansas City Business Journal.
Decaying Steel Plant
The GS Technologies facility, dating to the late 19th century, had employed around 4,500 workers at its peak. By the mid-1990s, the plant, which produced wire rods for the auto and furniture industries, cried out for modernization.
“Really, it was in bad, bad shape. It looked like something out of a Dickens novel,” said Mario Concha, who headed the company’s international division at the time.
To help fund a $70 million updating, the city in October 1993 authorized a $45 million industrial revenue bond, which GS Technologies was to purchase. Kansas City issued the first $5 million the following year and used the proceeds to buy steel- making equipment and lease it back to the company. That arrangement was designed so that the city could cut the mill’s property tax bill by 50 percent, according to the Kansas City Business Journal.
New equipment didn’t solve all the company’s problems. Foreign competition and a two-month strike in 1997 fueled a downward spiral, which led to bankruptcy in 2001. The Obama campaign has featured GS Technologies in a political ad that includes one former mill worker accusing Bain of “vampire” capitalism.
Industrial Revenue Bonds
Industrial revenue bonds, typically repaid with money generated from the project they fund, act as a subsidy for private business, reducing either their financing costs or their tax bill, said Timothy Bartik, senior economist of the W.E. Upjohn Institute in Kalamazoo, Michigan.
One of Bain’s companies drew government benefits on two coasts. In 1993, when Leiner Health Products of Torrance, California, was looking for a new home, officials in nearby Carson, California, agreed to construct a $500,000 conveyor bridge linking two buildings the maker of vitamins and nutritional supplements was eyeing.
“Our construction guys were in awe of how fast the turnaround time was for permits,” Giffen Ott, the former Bain executive who was the company’s vice president of manufacturing, told The Los Angeles Times.
Ott didn’t respond to e-mail and telephone requests for comment.
Upgrading Public Roads
Five years later, Leiner decided to move a portion of its manufacturing operation from Ohio to a new site in York County, South Carolina. State and local officials provided a package of benefits that included worker training, upgrades to public roads, water and sewer facilities, and tax breaks. Officials with the state’s Employment Security Commission even handled inquiries from would-be job applicants, according to a July 21, 1998 article in The Herald of Rock Hill, South Carolina.
The county cut Leiner’s property tax assessment by 43 percent, saving the company “millions of dollars,” according to Mark Farris, York County economic development director.
Leiner has since been acquired by NBTY Inc., which itself was acquired by the Carlyle Group in 2010. Michael Collins, NBTY’s chief financial officer, didn’t respond to e-mail and telephone requests for comment.
Free market purists object to such government aid to business, saying profitable companies don’t need it and unprofitable ones should be allowed to fail.
A Corporate Gift
“It is a gift to the corporation,” says James Bennett, eminent scholar at George Mason University in Fairfax, Virginia. “The American welfare queen is the American corporation. All they’re doing is grabbing for taxpayer benefits and taxpayer dollars.”
The attractiveness of such deals can be glimpsed in cases where the marriage of public and private resources pays off for both sides. In 1998, state and local officials in Indiana assembled a package of incentives to convince Steel Dynamics Inc. (STLD) to locate a $341 million steel plant in Whitley County, in the state’s northeast corner.
Whitley County issued a $13 million taxable industrial revenue bond to buy the giant caster at the heart of the steel- making operation along with a separate $10 million bond for sewer and water improvements. State officials kicked in workforce training aid.
Company Expansion
In the intervening years, the company has expanded its Whitley County facility twice and now employs 596 workers. Last year, it produced 876,000 tons of structural steel beams for the construction industry and rails for the nation’s railroads, according to the company’s filings with Securities and Exchange Commission.
“It was a fabulous opportunity. Jobs have developed beyond our expectations,” said Jeff Gage, who was the county attorney at the time.
In an ad entitled “American Dream,” the Romney campaign boasts of the role his “private sector leadership team” played in Steel Dynamics’ success.
Some of his allies acknowledge that a savvy public sector deserves some of the credit.
“The government was trying to help out,” real estate developer Donald Trump, a Romney supporter, said during a May 14 appearance on Fox News, “and sometimes, that’s not the worst thing in the world.”
By: David J. Lynch, Bloomberg, June 5, 2012
“The Cleansing”: Rick Scott Prepares To Defy Justice Department, Continue Voter Purge In Florida
Florida Governor Rick Scott sent the strongest signal yet that he plans to defy the Department of Justice and continue purging registered voters the rolls. Last week, the Justice Department sent Scott a letter demanding an end the voter purgebecause it was in violation of federal law. His deadline for responding to the letter is today.
Although Florida has not formally responded to the Justice Department letter, a Scott administration spokesman strongly indicated to the Miami Herald that Governor Scott had no intention of ending the purge:
“Our letter will address the issues raised by DOJ while emphasizing the importance of having accurate voter rolls,” said Chris Cate, spokesman for Florida Secretary of State Ken Detzner, who’s in charge of the state’s elections division.
Cate would neither confirm nor deny what was in the state’s response, but he acknowledged that the state disagrees with the federal government and doesn’t plan to throw in the towel. “We know we’ve been acting responsibly,” he said…
“DOJ is making the same argument as the groups that have sent letters to us,” Cate said. “If we disagree with the interpretation — it doesn’t matter who’s raising it — we disagree with the interpretation”…
“We’ve been acting responsibly through this process,” Cate said. “And our letter will reiterate that while addressing the concerns raised by DOJ. We have continued our efforts to identify ineligible voters.”
It’s unclear what the practical impact of Governor Scott’s decision will be, however. All 67 county election supervisors, in light of the Department of Justice letter, have suspended executing the purge. Some have even reinstated voters purged previously. The local election supervisors, not the state, has the ultimate authority to remove names.
As ThinkProgress has documented, hundreds of eligible U.S. citizens — including two 91-year-old WWII veterans — have been wrongly targeted by the purge.
By: Judd Legum, Think Progress, June 6, 2012
“The End Of 5-4”: The Consequences Of The 2012 Election For The Supreme Court
Of all the things we talk about during a presidential campaign, the Supreme Court probably has the lowest discussion-to-importance ratio. Appointing justices to the Court is one of the most consequential privileges of the presidency, one that has become more important in the last couple of decades since the Court has become more politicized. But there isn’t a great deal to say about it during the campaign, beyond, “If we lose the election, we’ll lose the Court.” The candidates aren’t going to say much of anything about whom they’d appoint other than a bunch of disingenuous bromides (“I’ll appoint justices who will interpret the law, not make law!”), and we don’t actually know who’s going to retire in the next few years, so in the campaign context there isn’t much to be said .
But if there’s anything that ought to make you afraid of a Mitt Romney presidency, it’s this. First of all, if Romney wins he will be under enormous pressure to make sure that anyone he appoints will be not just conservative, but extremely conservative. Remember what happened when George W. Bush tried to appoint Harriet Miers: the right wing had a category 5 freak-out, not because they thought Miers was going to be a liberal, but because they couldn’t be absolutely, positively sure that she wouldn’t be a down-the-line Republican ideologue forever more. Unlike Romney, Bush had no particular need to prove to them that he was a real conservative, but the pressure was great enough that he eventually withdrew her nomination and nominated Samuel Alito, who was exactly what they wanted.
And that will be a shadow of the pressure exerted on a President Romney. So when he gets his chance to make an appointment, there is just no way he will do anything other than select someone pre-approved by the Republican base. And what kind of chance will he get? Well let’s take a look at the ages of the current Court. I’ve arranged them from oldest to youngest:
Ruth Bader Ginsburg: 79
Antonin Scalia: 76
Anthony Kennedy: 75
Stephen Breyer: 73
Clarence Thomas: 63
Samuel Alito: 62
John Roberts: 57
Sonia Sotomayor: 57
Elena Kagan: 52
Of course, it isn’t necessarily the case that the oldest justices will be the first to retire. A relatively young justice might become ill, or just get bored, and decide to go. And ideological considerations would probably affect that decision; if you were Ginsburg and Mitt Romney was president, you’d know that retiring would dramatically change the makeup of the Court, in a way you wouldn’t like. But all else being equal, one would expect the older ones to be more likely to step down first. And health considerations might leave a justice with no choice.
So if Mitt Romney were president and one of the four liberal justices stepped down, it would be the end of 5-4 decisions. It would also be the end of all the “What will Anthony Kennedy do?” discussions, since Kennedy won’t matter much anymore. There would be five highly partisan, ideologically ambitious justices who would have the majority on every question that came before them. If Kennedy retired during a Romney presidency, we’d be left with many 5-4 decisions, but they’d all be decided in the conservatives’ favor, and the effect would be the same.
The Court hasn’t had an ideological 180 since George H.W. Bush appointed Clarence Thomas to replace Thurgood Marshall in 1991 (though you might count Alito replacing Sandra Day O’Connor ). But there’s a fair chance that we’ll see one such shift in the next four years. If it happens when Romney is president, it could be the most consequential one in decades.
By: Paul Waldman, Contributing Editor, The American Prospect, June 6, 2012
“Ultra Hawk”: John Bolton, Too Far Right Even For George W.Bush
If Mitt Romney plans to make even a slight move toward the middle in the general election, campaigning with John Bolton is not a great way to do it. Bolton, a key foreign-policy advisor to Romney, created a stir recently by appearing to rejoice in an op-ed in The Washington Times that talks between Iran and the U.S. and the “P5 plus one”–the U.N. Security Council members and Germany – had “produced no substantive agreement.” Bolton said any talks with Iran were merely “a well-oiled trap” and declared that President Obama had become “increasingly a bystander” in Iran’s development of a nuclear weapon (despite the disclosure that Obama has authorized aggressive cyber-attacks on Iran’s nuclear facilities).
“Bolton has made it clear that he’s rooting for American diplomacy to fail and has repeatedly called for a rush to war with Iran,” said Michelle Flournoy, the Obama administration’s former Under Secretary of Defense for Policy, in a statement issued by the Obama campaign on Tuesday.
What is less understood about Bolton — and what is truly one of the great oddities in the career of any diplomat in U.S. history — is that for more than a decade the former undersecretary of State and U.N. ambassador has stood fast consistently against most diplomatic efforts, to the point of regularly belittling his former colleagues at the State Department. Both as a Yale-trained lawyer and a public official, Bolton has long campaigned against U.S. fealty to international agreements and multilateral treaties, and he was so extreme in these views that he proved to be too far right even for the George W. Bush administration, according to several former senior Bush officials. A favorite of Vice President Dick Cheney, Bolton ran afoul of senior officials including Secretary of State Condoleezza Rice and failed in successive bids to be named her deputy and to replace Douglas Feith as No. 3 at the Pentagon. He was given the U.N. job as a consolation prize, at the urging of Cheney’s office, in part to keep him out of Washington, according to the former senior officials.
Even the British, America’s closest ally in the war on terror, found they could not work with Bolton diplomatically. On several occasions, Britain was irked by what U.S. and British sources said were efforts by Bolton to undermine promising diplomatic openings. In 2003, U.S.-British talks to force Libya to surrender its nuclear program succeeded only after British officials “at the highest level” persuaded the White House to keep Bolton off the negotiating team, my then-Newsweek colleague John Barry and I reported at the time. A crucial issue, according to sources involved in the affair, was Muammar Qaddafi’s demand that if Libya abandoned its WMD program, the U.S. in turn would drop its goal of regime change. But Bolton was unwilling to support this compromise. The White House finally agreed to keep Bolton “out of the loop,” as one source put it. A deal was struck only after Qaddafi was reassured that Bush would settle for “policy change”–surrendering his WMD.
Often misidentified as a neoconservative because of his ultra-hawkish views, Bolton told me in an interview in the early 2000s that he is actually a libertarian conservative, albeit not of the Ron Paul variety. Based on that interview and on his writings, in such essays as “Should We Take Global Governance Seriously?” (Chicago Journal of International Law, 2000), Bolton has made plain that his career-long goal has been to unwind America’s deep ties to the international community, including the U.N. and multilateral treaties such as the Nuclear Non-Proliferation Treaty, which he believes is based on an unsound legal concept. Bolton believes that international law in effect doesn’t exist and has no sway over U.S. sovereign prerogatives, especially whether to go to war.
At one point, Bolton even appeared to undermine the president’s own wishes in pursuing his personal agenda of undermining multilateral affiliations. In a landmark speech at the National Defense University in February 2004, Bush had called for a toughened Nuclear Non-Proliferation Treaty. But Bolton, who as undersecretary for arms control was supposed to be in charge of that project, “was absent without leave” when it came to implementing the agenda that the president laid out, failing to prepare for a five-year review conference of the NPT in 2005, a former Bush official who worked with Bolton told me at the time. “Everyone knew the conference was coming and that it would be contentious. But Bolton stopped all diplomacy on this six months ago,” another former official told me then. “The White House and the National Security Council started worrying, wondering what was going on. So a few months ago the NSC had to step in and get things going themselves. ” Bolton also held up a plutonium disposal project that required agreement with the Russians; it was completed after he left office.
Bolton is sometimes described as the author of the Bush administration’s Proliferation Security Initiative–a multilateral agreement to interdict suspected WMD shipments on the high seas. But the former senior Bush official who criticized Bolton’s performance on the NPT conference said that in fact Bolton’s successor, Robert Joseph, deserved most of the credit for the PSI. This official adds that it was Joseph, who was in charge of counterproliferation at the NSC, who had to pitch in when Bolton fumbled preparations for the NPT conference as well.
After he left the Bush administration, Bolton also became a vocal critic of its turn toward diplomacy, openly criticizing then-Secretary Rice’s efforts to negotiate a nuclear deal with North Korea, which ultimately failed. “This is classic State Department zeal for the deal,” Bolton said on Fox News. He also declared, in a Wall Street Journal op-ed, that the Bush administration, having purged or sidelined most of its hardliners, was “in a state of total intellectual collapse.”
And now John Bolton is back.
By: Michael Hirsh, National Journal, June 6, 2012
“Rand Paul’s Twisted Mind”: Protecting Individual Rights Is Not Stalinist
This week Republicans in the Senate once again blocked the Paycheck Fairness Act, which would take further steps to guarantee access to the legal system for women who charge they’ve been paid less than men for doing the same job. (That’s illegal, in case anyone was thinking of trying it.) Justifying his vote against the act, Rand Paul compared it to Soviet communism. This is sort of a dog bites man story; on a given day, Rand Paul probably compares several dozen things to Soviet communism. But here, for what it’s worth, is why he thinks legislation to make it easier for women to sue when they’ve been paid less than men for doing the same job is just like Soviet communism:
“Three hundred million people get to vote everyday on what you should be paid or what the price of goods are,” Paul told reporters on Capitol Hill. “In the Soviet Union, the Politburo decided the price of bread, and they either had no bread or too much bread. So setting prices or wages by the government is always a bad idea.”
Mr. Paul does not appear to understand either the law which he has just voted against, or the class of economic transaction about which he is speaking. If a woman sues because she has been paid less than a man for doing the same work, and a judge rules in her favour, that is not an instance of “setting prices or wages by the government”. The wage in question was set by the employer. What the judge has ruled is that the employer cannot offer different wages to different employees based on their sex. Why might such a hypothetical judge make such a ruling? Because, as noted above, offering different wages to different employees based on their sex is against the law, and has been so since 1963.
I. What Are the Federal Laws Prohibiting Job Discrimination?
1. Title VII of the Civil Rights Act of 1964 (Title VII), which prohibits employment discrimination based on race, color, religion, sex, or national origin;
2. the Equal Pay Act of 1963 (EPA), which protects men and women who perform substantially equal work in the same establishment from sex-based wage discrimination;
But should it be illegal to offer different pay for the same work based on an employee’s sex? Maybe not. Mr Paul’s argument here implies he thinks it should be okay. So, let’s try a thought experiment. How would you react to seeing a job advertisement that read: “Associate lawyer in patent firm, 3 years’ experience required, salary $100k for man, $77k for woman”? Is that okay? If not, why not? How about this: “Associate lawyer in patent firm, 3 years’ experience required, salary $100k for Christian, $70k for Jew”? How about “Salary $100k for white, $65k for negro”?
The Paycheck Fairness Act, like the Lily Ledbetter Act and Title VII of the Civil Rights Act, is not an instance of government price setting. It is an instance of government prohibition of certain forms of exploitative price discrimination. It is illegal for an employer to pay a woman less than a man for the same work just as it is illegal for a shop owner to charge a Jew more than a Christian for the same loaf of bread. There have been places in the world where at various times shop owners were allowed to charge Jews more based on their religion, to pay untouchables less based on their caste, and so forth.
Those places were not freer than America. Indeed, one place where employers were free to discriminate against women and Jews, and did so avidly, was the Soviet Union. One of the key differences between the Soviet Union and America is that in America, we have an independent judiciary to which individuals can turn for enforcement of their legal rights when someone is screwing them over because they are of the wrong race, colour, religion, sex or national origin.
In America, you have rights, and what makes those rights non-meaningless is that you can use the legal system to defend them. Mr Paul’s ideological system has performed the ingenious trick of twisting his head around 180 degrees, such that he views the fact that Americans have legally enforceable rights not to be discriminated against as a form of communism.
By: M. S., The Economist, June 6, 2012
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