Archive for the ‘The Corporate State’ Category.

Relocation Subsidies, Short-Term Thinking, And Why Bezos is Smarter than Musk

I will begin by saying that few things in government aggravate me more than corporate relocation subsidies.  They are an entirely negative sum game.  I believe that subsidies are misguided and lead to a misallocation of capital, but at least things like EV subsidies create an EV industry, even if it is uneconomic.  But relocation subsidies are payments to create nothing -- their entire purpose is to move economic activity that would happen anyway across some imaginary line on a map.  Locally, we had a $100 million subsidy to a developer to move a mall approximately 1 mile.  Pure insanity.

However, it is hard for me to blame the managers of public companies who seek these subsidies.  I own my own company and can easily eschew such pork (if it were ever offered to me) but the CEO of a public company would be failing in their fiduciary duty to their shareholders to not accept government money that the drunken sailors in government are so gleefully trying to stuff in corporate g-strings.

With this money so available, it is important that corporate management make location decisions considering these subsidies but not solely focused on them.  The contrast between Amazon and Tesla (including the former SolarCity) helps explain my point.

In finding new headquarters locations, Amazon's most important considerations were likely

  • Ability to attract great management and developer talent who seem to be more attracted to hipster areas with lots of Starbucks and sushi more than to areas with low cost housing.
  • As they incur regulatory scrutiny, closeness to national government
  • Access to domestic and international partners
  • Access to capital

Note these criteria do not include access to low cost labor and real estate.  These do not really matter much for its headquarters offices.  These DO matter for distribution centers and warehouses, which is why these are located not in the center of high cost cities but in low cost suburban or rural areas.  In this context, then, splitting its headquarters between New York and Washington DC make a ton of sense.

Now let's think about Tesla.  Tesla was looking for manufacturing locations for solar panels and cars.  This is in an era when few even consider anywhere in the US a viable long-term option, but Tesla selected New York state and southern California.  I can tell you from sad personal experience that both these places are among the most expensive and hardest places to do business in the country.  Seriously, in SoCal Tesla took over a facility that Toyota couldn't make work.  These make absolutely no sense as long-term locations for manufacturing, but Tesla came here none-the-less in part for big fat subsidies and in part to ingratiate two powerful sets of state governments (in addition to subsidies, California reciprocated by giving Tesla a special sweetheart deal upping its zero emission vehicle credits).

I am reminded of this because Bloomberg has the whole, sad tale of Tesla in New York here.

I am not much on memes but I thought I would try my hand just this once...

 

Tesla Is A Finely Crafted Machine for Sucking Money Out of Taxpayers' Pockets

I have ranted about this before, but the numbers for Tesla subsidies in the third quarter were simply staggering:

Tesla's Main Product Isn't Cars, It's Subsidies

Tesla received $713 million in U.S. subsidies in Q3, compared to its $312 million profit.

That's a pace of $2.8 billion a year.   More than half of this starts going away January 1 with the phased expiration of the $7,500 per car subsidy to buyers.   I predict that high on the list of Tesla's post-election to-do list will be to lobby what they hope is a Democratic Congress for extension of the expiring subsidies.

Amazon's $15 Minimum Wage Proposal is A Brilliant Way To Get The Government to Hammer Amazon's Competition

Via the WSJ today

Amazon.com on Tuesday said it was raising the minimum wage it pays all U.S. workers to $15 an hour, a move that comes as the company faced increased criticism about pay and benefits for its warehouse workers.

The new minimum wage will kick in Nov. 1, covering more than 250,000 current employees and 100,000 seasonal holiday employees. The company said it also will start lobbying Congress for an increase in the federal minimum wage, which was set nearly a decade ago and is currently $7.25 an hour.

“We listened to our critics, thought hard about what we wanted to do, and decided we want to lead,” said Jeff Bezos, Amazon’s chief executive, in a statement. “We’re excited about this change and encourage our competitors and other large employers to join us.”

Here is the cynical view of this:  Amazon likely is being pressured by the tightening labor market to raise wages anyway.  But its call for a general $15 minimum wage is strategically brilliant.  The largest employers of labor below $15 are Amazon's retail competitors.  If Amazon is successful in getting a $15 minimum wage passed, all retailers will see their costs rise but Amazon's competition will be hit much harder.

(Source)

The reason is that due to its internet sales model, Amazon's revenue per employee is MUCH higher than for most retailers -- you can see this in the chart above in a comparison to Sears.  If we had data on revenues per employee in small retail, the numbers would be even lower.  So a minimum wage increase raises costs to Amazon's competitors by a much larger percentage of revenue than it does for Amazon.  In short, Amazon's cost advantage over bricks and mortar retailers would be enhanced by a $15 minimum wage.

Today's Lesson in Public Choice Theory and Unintended Consequences

"F.D.A. Cracks Down on Juul and E-Cigarette Retailers" today, via the NYT.

As of this moment, cigarette-maker Phillip Morris stock is up nearly 4.5% on the news.  This happens so many times in sloppy policy making that I can't even count them.  Do-gooders assume that when they ban things, like e-cigarettes, that individuals will turn to the regulators' preferred alternative, in this case abstinence from any type of vaping or smoking.  But in fact, many are much more likely to switch to tobacco smoking, which is orders of magnitude more dangerous than vaping.  Adults who think these things through, like investors on Wall Street, understand this so that is why Phillip Morris has gained over $5 billion in value today.  The FDA is working to create a whole new generation of tobacco smokers.

When I hear that "that teenage use of electronic cigarettes has reached 'an epidemic proportion,'" unlike the regulators I do not immediately assume this is unalloyed bad news.  Another way of putting this is an "epidemic of teenagers who are turning to safer alternatives to really damaging tobacco products."

And when it turns out the regulators just make things worse so they can win this news cycle of virtue signalling, there is no way they will take responsibility for it,

And if you want to be really, really cynical about this, you might remember that with the huge government tobacco settlement, the government essentially made itself business partners with the large tobacco companies.  Any competitors threatening the top companies in the settlement seriously threaten tax income to many state governments.

Why Tesla ZEV Credits Don't Appear on the Balance Sheet

I asked this question to an accountant friend you runs a web site on accounting technical issues:

Tesla gets Zero Emission Vehicle (ZEV) credits from about 10 states for selling EV's.  These have a LOT of value and can be sold to other car makers who need them to compete in these states.  In the past Tesla has sold batches of them for upwards of a billion dollars, so they are material.  Tesla tends to horde them for several quarters and then sell them in a big batch to juice a particular quarter.  However, they do not appear on the balance sheet.  Anywhere.  It is a public company but no one in the outside world knows how many of the ZEV credits Tesla has until they show up on the income statement as having been sold and having generated a huge profit.

How is it possible that Tesla is gaining these valuable assets with each sale of a car in certain states but they are not getting put on the balance sheet in any way?
He answered, and for now I am going to leave his name off -- he says he may post on it soon and I will link him then.

I  learned of this a few weeks ago, and was actually thinking about writing a blog post on it because it is so ridiculous.  I’ll try to explain quickly.

One’s first reaction could be that this is a “tax asset,” like tax loss carryforwards.  BUT, GAAP only addresses tax assets that arise from determination of income taxes; hence, the literature on “deferred tax assets” is not directly in the scope of this issue.

The second thought is that this is a contribution from a government that has value.  BUT, GAAP is silent on how to account for donations to a company from the government (ironically, this is addressed by International Financial Reporting Standards, but not GAAP).

In a nutshell, that leaves Tesla with a lot of wiggle room on accounting for this.  The FASB’s definition of an asset in its conceptual framework would pretty clearly include this, but not perfectly.  So, with the permission of its auditors, Tesla gets to treat this as sort of a rainy-day reserve.  It’s utterly ridiculous – classic definition of a loophole.

It's probably a marker of our expanding corporate state that GAAP needs to address more carefully "donations to a company from the government."

Staggering Cronyism In San Francisco, At The Expense of Workers

In San Francisco, you have to pay your employees $14 an hour, you have to schedule their shifts at least 7 days in advance, you have to provide them with a meal break, but God forbid that you give them a free meal:

Two San Francisco supervisors want to do away with employer-provided free lunches, a perk enjoyed by thousands of people who work in the City. That’s because restaurant owners say they can’t compete.

It’s lunchtime at Perennial in SOMA but you wouldn’t know it. The seats are empty. Anthony Myint is the restaurant’s owner and says it’s extremely challenging owning a restaurant so close to big companies that have their own onsite free employee cafeterias.

“I think it’s never been harder to run a restaurant in the city then right now,” he said.

Other restaurant owners in the area agree.

“We see it in our business,” says Ryan Corridor, owner of Corridor. “We see thousands of employees in a block radius that don’t go out to lunch and don’t go out in support of restaurants every day — it’s because they don’t have to”

I really do not understand the business mindset that companies are somehow owed a minimum amount of revenue, but the same "logic" driving this law is also driving the Trump tariffs.  You asked for bipartisanship, and here it is -- Trump and San Francisco progressives are united in their belief that the job of government is to force consumers to shift their business, even at high personal cost**, to crony favored suppliers.

Thanks to several readers who sent me this story.

** Note that the cost is not just in dollars but also in extra time travelling from the office to an offsite restaurant.

Schadenfreude: Crony Jerks at Whirpool Who Begged for Tariffs Are Now Suffering From Them

This is definitely from the schadenfreude files, via the WSJ:

After the Trump administration announced new tariffs on imported washing machines in January, Marc Bitzer, the chief executive of Whirlpool Corp., celebrated his win over South Korean competitors LG Electronics Inc. and Samsung Electronics Co.

“This is, without any doubt, a positive catalyst for Whirlpool,” he said on an investor conference call.

Nearly six months later, the company’s share price is down 15%. One factor is a separate set of tariffs on steel and aluminum, imposed by the U.S. in March and later expanded, that helped drive up Whirlpool’s raw-materials costs. Net income, even with the added benefit of a lower tax bill, was down $64 million in the first quarter compared with a year earlier.

Unfortunately, as is always true in protectionism, consumers are being hurt as well.  This chart on the left is amazing:

One reason politicians do this sort of thing is that there really is not any sort of organized consumer groups in this country, other than groups on the Left like Ralph Nader's PIRG groups that often actually support protectionism -- these groups always seem more beholden to traditional Democratic groups (especially unions) than they are to consumers.  Elizabeth Warren, who styles herself a consumer advocate and who created the CFPB almost single-handedly, actually supports Trump's tariffs.   Since the link above is gated, I will give an excerpt of Senator Warren advocating for higher consumer prices:

But the support of key Democrats—including Sen. Elizabeth Warren of Massachusetts—for Mr. Trump’s “America first” approach to trade stands to complicate any GOP effort to tie the president’s hands.

The awkward political divisions over trade matters were on display Sunday as Ms. Warren backed Mr. Trump’s policy while Republican senators rebuked the president.

“When President Trump says he’s putting tariffs on the table, I think tariffs are one part of reworking our trade policy overall,” Ms. Warren said on CNN’s “State of the Union.”

Some Democratic lawmakers have found fault with the implementation or scope of the steel and aluminum tariffs. But Ms. Warren, to whom Mr. Trump derisively referred as “Pocahontas” again on Saturday, declined to criticize the president’s policy and said previous approaches to trade boosted profits at multinational corporations.

 

The Inevitable Lifecycle of Government Regulation Benefiting the Very Companies Whose Actions Triggered It

Step 1:  Large, high-profile company has business practice that ticks lots of people off -- e.g. Facebook slammed for selling user data to Cambridge Analytica

Step 2:  Regulation results -- e.g. European GDPR (though it predates the most recent Facebook snafu, it was triggered by similar outrages in the past we have forgotten by now so I use the more recent example)

Step 3:  Large, high-profile companies that triggered the regulation by their actions in the first place are the major beneficiaries (because they have the scale and power to comply the easiest).

GDPR, the European Union’s new privacy law, is drawing advertising money toward Google’s online-ad services and away from competitors that are straining to show they’re complying with the sweeping regulation.

The reason: the Alphabet Inc. ad giant is gathering individuals’ consent for targeted advertising at far higher rates than many competing online-ad services, early data show. That means the new law, the General Data Protection Regulation, is reinforcing—at least initially—the strength of the biggest online-ad players, led by Google and Facebook Inc.

This is utterly predictable, so much so that many folks were predicting exactly this outcome months ago.

My "favorite" example of this phenomenon is toy regulation that was triggered a decade ago by a massive scandal and subsequent recall by toy giant Mattel of toys with lead paint sourced from China.

Remember the sloppily written "for the children" toy testing law that went into effect last year? The Consumer Product Safety Improvement Act (CPSIA) requires third-party testing of nearly every object intended for a child's use, and was passed in response to several toy recalls in 2007 for lead and other chemicals. Six of those recalls were on toys made by Mattel, or its subsidiary Fisher Price.

Small toymakers were blindsided by the expensive requirement, which made no exception for small domestic companies working with materials that posed no threat. Makers of books, jewelry, and clothes for kids were also caught in the net. Enforcement of the law was delayed by a year—that grace period ended last week—and many particular exceptions have been carved out, but despite an outcry, there has been no wholesale re-evaluation of the law. Once might think that large toy manufacturers would have made common cause with the little guys begging for mercy. After all, Mattel also stood to gain if the law was repealed, right?

Turns out, when Mattel got lemons, it decided to make lead-tainted lemonade (leadonade?). As luck would have it, Mattel already operates several of its own toy testing labs, including those in Mexico, China, Malaysia, Indonesia and California.

The million bucks was well spent, as Mattel gained approval late last week to test its own toys in the sites listed above—just as the window for delayed enforcement closed.

Instead of winding up hurting, Mattel now has a cost advantage on mandatory testing, and a handy new government-sponsored barrier to entry for its competitors.

This Simple Tesla Production Trick Could Cost Taxpayers An Additional Half Billion Dollars

The Federal government provides a $7500 tax incentive for the buyers of electric cars.  This is an attractive discount on a $100,000 Tesla Model S, but is a huge incentive for a $40,000-ish Tesla Model 3.  However, there is a sunset for this incentive.  It turns out it begins to phase out for a given company in the first quarter after that company sells its 200,000th eligible electric car (two quarters at $3750, two quarters at $1875, then zero).

By the end of the second quarter, Tesla will be approaching its 200,000th car.  The numbers will likely be close enough that Tesla could likely easily manage to move the date for this event either just before or just after the end of the quarter.  The obvious incentive for Tesla, if it is going to be this close, is to build inventory at the end of the quarter, but keep actual deliveries under 200,000, then go full speed ahead with deliveries in the third quarter to maximize the last of the full tax credit.  Randy Carlson has created a model that looks at the case of Tesla delivering its 200,000th car on June 30 vs, July 1 (ie 2nd quarter or just in the third quarter) and demonstrates that the additional tax incentives by pushing this even into July are as high as a half billion dollars!  His model is below.

Thank God Arizona Not In The Running For Amazon (part 2)

Can you imagine the insult to Maryland businesses that $5 billion of their hard-earned money as they struggle to make their businesses work is going to be just handed over to another business because that business creates better press releases for politicians?

In one of the most aggressive attempts to cajole Amazon into selecting their state as the location for the e-commerce giant's second headquarters, the Maryland General Assembly just passed a bill offering the company a $5 billion incentive package should Amazon choose to settle in Maryland's Montgomery County.

Montgomery County is competing with Washington DC, Northern Virginia and 17 other areas that made Amazon's HQ2 "short list", which was released earlier this year. Specifically, Amazon is eyeing the site of the former White Flint Mall.

The "Promoting ext-Raordinary Innovation in Maryland’s Economy," or PRIME (yes that misplaced capitalization was intentional) would require Amazon to create at least 40,000 qualified jobs (with an average comp of at least $100,000). The company would also need to spend $4.5 billion on "eligible costs" like capital projects, the Baltimore Business Journal reported.

Note that governments pretty much never police these jobs or investment requirements after the fact.  High-profile businesses in states from New York to Michigan to California have pocketed the money and then failed to add the promised jobs or investment without a hint from anyone the money was going to be taken back.

Hmm, I Think the Elephant in the Room on this Business Relocation is Being Ignored

Apparently some hot new auto company called Nikola Motors (in the class of companies to my mind like Tesla and Fiskar that have a sexy idea and a lot of cash burn) is relocating to the Phoenix area.  Ugh.  You know what that probably means:

Arizona Governor Doug Ducey and Nikola Motor Company today announced the company has selected Buckeye, Arizona for its Nikola Motor Company hydrogen-electric semi-truck manufacturing headquarters facility. The new 500 acre, one million square foot facility will be located on the west side of Phoenix and will bring more than $1 billion in capital investment to the region by 2024.

"After 12 months, nine states and 30 site locations, ArizonaGovernor DuceySandra Watson and Chris Camacho were the clear front runners. Arizona has the workforce to support our growth and a governor that was an entrepreneur himself. They understood what 2,000 jobs would mean to their cities and state," said Trevor Milton, CEO and founder, Nikola Motor Company. "We will begin transferring our R&D and headquarters to Arizona immediately and hope to have the transition completed by October 2018. We have already begun planning the construction for our new zero emission manufacturing facility in Buckeye, which we expect to have underway by the end of 2019."

Nikola Motor Company designs and manufactures hydrogen-electric vehicles, electric vehicle drivetrains, vehicle components, energy storage systems and hydrogen stations. The company is bringing the nation's most advanced semi-trucks to market with over 8,000 trucks on preorder.

Nikola Motor Company selected Buckeye, Arizona due to numerous factors including the state's pro-business environment, engineering schools, educated workforce and geographic location that provides direct access to major markets.

How much do you want to bet that the number 1 reason for moving to Phoenix was left off the list: taxpayer subsidies.  Yep, I have not seen the deal, but my guess is that yet another company is going to get a piece of my profits transferred over to them because they make a better photo op and press release for politicians.  I am pretty sure that the statement "[arizona] understood what 2,000 jobs would mean to their cities and state" is code for "they offered us a pile of cash".

Postscript: By the way, I do like their idea of a hydrogen truck better than Musk's all-electric truck -- that is, if they can figure out how to scale up a hydrogen distribution system.

"No Arizona cities named as a finalist for Amazon's second headquarters"

Thank God.  One less occasion for my business to be taxed more in order to hand money to another business, merely because their business's name is better known and makes for a good press release for politicians.  The final 5 or whatever they get it down to is going to be a just stunning exhibition of politicians throwing average people's money in huge amounts at a wealthy corporation.

Local Government Subsidies: Worse Than We Thought

I have written several times about the convention hotel the City of Phoenix built downtown.  At the time of that last article, it looked like the city would lose about $150 million total between the operating losses and the loss on the sale.   But incredibly, it is worse:

Last week, City Manager Ed Zuercher released an economic-impact report that revealed more details of the deal. Along with that, he also released a memo that contends the tax break wouldn't add to the city's losses.

According to Applied Economics, an outside consultant hired to do the report, the tax incentive would spare the buyer from paying an estimated $97 million in property taxes to the city, county, school districts and other taxing jurisdictions over 20 years.

Elon Musk as Orren Boyle

First, two disclosures

  1. I am short TSLA
  2. I love the Model S.  I would love to own one.

At some level, the quality of the product is irrelevant.  They key questions are:  Does TSLA really justify a $60 billion valuation and does TSLA really deserve billions of dollars in taxpayer subsidies.

As to the first question, I will leave it up to you to research.  This is a good case for the short position.   I still think the SolarCity purchase was an absurd business decision and borderline corrupt.  The problem with shorts, especially in emotionally driven near-religion stocks like TSLA, is how long you have to hold on before the crash comes.

As for the second question, a guy who goes by the moniker of Montana Skeptic over at Seeking Alpha has been looking in to some of the larger Tesla subsidies, and the picture is not pretty.  Here is his analysis of the subsidy of the SolarCity plant in New York (SolarCity, another Musk company, was bailed out of near-bankruptcy and bought by Musk's Tesla, a smelly deal that put me on the road to shorting the company).  He tells a long, interesting story but the tl:dr is:

  • In the fall of 2014, New York State awarded SolarCity a sumptuous subsidy package: free use of the enormous Riverbend factory and $750 million of taxpayer money to refurbish and equip the factory.
  • The "Essential Purposes" of the subsidy deal were to enable manufacture and sale of Silevo's Triex technology, and then develop "next generation technology improving on the Triex product."
  • Governor Andrew Cuomo praised the deal as a visionary accomplishment "of critical importance to the United States economic competitiveness and energy independence."
  • In return for the subsidies, SolarCity promised to spend $5 billion in New York State over a 10-year period and to create 4,900 New York State jobs.
  • After the deal was signed, SolarCity's promises were noiselessly scaled back.
  • A promise that 1,460 of the jobs be "high-tech" disappeared. A promise to hire at least 900 people within two years of the factory opening shrank to 500.
  • And, SolarCity's promise to hire 2,000 solar panel installers throughout the state quietly disappeared in December 2015. It appears SolarCity knew then - two months before Elon Musk and Lyndon Rive say they had their first merger discussions - that its solar panel business was failing.
  • While SolarCity's obligations were shrinking, the factory opening was delayed. And delayed. And delayed some more. The opening is now almost two and one-half years late, with no date yet announced.
  • Meanwhile, SolarCity has abandoned the Silevo technology and taken a huge write-off on its Silevo investment.

This is the sort of reporting you almost never see in the press.  All these subsidies for business development made on promises of jobs addition.  My experience is that the resulting promises are never kept.  Why does no one ever follow these things up?

Postscript:  I have a quibble with the article on cases for shorting TSLA.  This is one part:

Until recently, TSLA has been the recipient of substantial subsidies, fawning praise and a “fanboy” following. In other words, it has received large financial benefits from various governments which were not available to its automotive peers. It’s been judged by a non-critical press, and any problems with product quality and/or delays in timelines have been readily accepted by its hardcore supporters. All of this has combined to build the quixotic narrative which justifies the sky-high valuations outlined above.

Apple has benefited from this effect for years with no sign that its cult following is diminishing.  Just wait for Apple fanboys who lose there head over whatever Apple announces for its anniversary iPhone later this year.  Prediction:  Apple will add a number of new features already found on Android phones and the press will fawn over its inventiveness and leadership.

$150 Million in Lost Tax Money Later, Another Sorry Tale Of Government "Investment" Hopefully Comes to An End

Years ago I wrote about the Sheraton hotel the city built:

For some reason, it appears that building hotels next to city convention centers is a honey pot for politicians.  I am not sure why, but my guess is that they spend hundreds of millions or billions on a convention center based on some visitation promises.  When those promises don't pan out, politicians blame it on the lack of a hotel, and then use public money for a hotel.  When that does not pan out, I am not sure what is next.  Probably a sports stadium.  Then light rail.  Then, ?  It just keeps going and going....

When Phoenix leaders opened the Sheraton in 2008, they proclaimed it would be a cornerstone of downtown's comeback. They had one goal in mind: lure big conventions and tourism dollars. Officials argued the city needed the extra hotel beds to support its massive taxpayer-funded convention center a block away.

Finally, we may be at an end, though politicians are still hoping for some sort of solution that better hides what a sorry expenditure of tax money this really was

Phoenix has entered into exclusive negotiations to sell the city-owned Sheraton Grand Phoenix downtown hotel —the largest hotel in Arizona — for $255 million.

The city signed a letter of intent with TLG Phoenix LLC, an investment company based in Florida, to accept the offer and negotiate a purchase contract, city officials announced Tuesday evening.

But the deal faces criticism from some council members concerned about the loss to taxpayers. The city also attempted, unsuccessfully, to sell the hotel to the same buyer for a higher price last year.

If Phoenix ultimately takes the offer, the city's total losses on the taxpayer-funded Sheraton could exceed $100 million.

The city still owes $306 million on the hotel and likely would have to pay that off, even after a sale. That would come on top of about $47 million the city has sunk into the hotel, largely when bookings dropped due to the recession.

...

In addition to taking a loss on the building, Phoenix would give the buyer a property-tax break — the city hasn't released a potential value for that incentive — and transfer over a roughly $13 million reserve fund for hotel improvements.

By the way, the hotel -- after just 9 years under city ownership -- will require a $30 to $40 million face lift from the owner.  Why do I suspect that part of the sales price problem is that the government, like with every other asset it owns, did not keep up with its regular maintenance?

Update:  Phoenix is in the top ten US cities in terms of hotel room capacity, so city government of course detects that there is a market failure such that the city ... needs more hotel rooms, so it gets the government in the business of building more.  Good plan.

Karmic Justice: EU Does to Google What Google Did To Others With Net Neutrality

Google was (and is) a big supporter of Net Neutrality.  Content providers like Google (Google owns Youtube, among other large content sites) want to make sure that other content providers are not somehow given special treatment by the ISP's that provide the bandwidth for consumers to view these sites.  In particular, sites like Youtube and Netflix, which consume a HUGE percentage of the bandwidth at many ISP's, don't want to somehow pay any extra costs that might be imposed on content sites that use a lot of bandwidth.   I wrote this on net neutrality a few years ago:

Net Neutrality is one of those Orwellian words that mean exactly the opposite of what they sound like.  There is a battle that goes on in the marketplace in virtually every communication medium between content creators and content deliverers.  We can certainly see this in cable TV, as media companies and the cable companies that deliver their product occasionally have battles that break out in public.   But one could argue similar things go on even in, say, shipping, where magazine publishers push for special postal rates and Amazon negotiates special bulk UPS rates.

In fact, this fight for rents across a vertical supply chain exists in virtually every industry.  Consumers will pay so much for a finished product.  Any vertical supply chain is constantly battling over how much each step in the chain gets of the final consumer price.

What "net neutrality" actually means is that certain people, including apparently the President, want to tip the balance in this negotiation towards the content creators (no surprise given Hollywood's support for Democrats).  Netflix, for example, takes a huge amount of bandwidth that costs ISP's a lot of money to provide.  But Netflix doesn't want the ISP's to be be able to charge for this extra bandwidth Netflix uses - Netflix wants to get all the benefit of taking up the lion's share of ISP bandwidth investments without having to pay for it.  Net Neutrality is corporate welfare for content creators.

A typical ISP would see this relative usage of its bandwidth.  You can be assured everyone on this list is a huge net neutrality supporter.

Essentially, Google wanted to force ISP's to be common carriers, to be legally required to carry all traffic equally, even if certain traffic (like Google's Youtube) is about a million times more expensive to serve than other people's content.

But the point of this story is not about my issues with Net Neutrality.   The point of this story is Karma, or as we used to say it in the South, what "goes around, comes around."

The European Union’s antitrust watchdog in the coming weeks is set to hit Alphabet Inc.’s Google with a record fine for manipulating its search results to favor its own comparison-shopping service, according to people familiar with the matter.

The penalty against Google is expected to top the EU’s previous record fine levied on a company allegedly abusing its dominance: €1.06 billion (about $1.18 billion) against Intel Corp.in 2009.

The fine could reach as high as 10% of the company’s yearly revenue, which stood at $90.27 billion last year.

But more painful to Google than a sizable fine could be other consequences that come with the European Commission’s decision, including changes not only to the tech giant’s business practices with its shopping service but with other services as well. The EU’s decision could also embolden private litigants to seek compensation for damages at national courts.

The EU is likely to demand Google treat its own comparison shopping service equally with those of its competitors, such as Foundem.co.uk and Kelkoo.com Ltd., possibly requiring the search giant to make rival services more visible on its own platform than they are at present. Such companies rely on traffic to their site from search engines like Google’s.

Hah!  I think this is a terrible decision that has nothing to do with economic sanity or even right and wrong -- it has to do with the EU's frequent historic use of anti-trust law as a way to bash foreign competition of its domestic providers, to the detriment of its consumers.  But it certainly is Karma for Google.  The EU is demanding that Google's search engine become a common carrier, showing content from shopping sites equally and without favor or preference.  The EU is demanding of Google exactly what Google is demanding of ISP's, and wouldn't you know it, I don't think they are going to like it.

Elon Musk, America's #1 Crony Capitalist

This is from a couple of years ago, so the numbers will only be larger:

Los Angeles entrepreneur Elon Musk has built a multibillion-dollar fortune running companies that make electric cars, sell solar panels and launch rockets into space.

And he's built those companies with the help of billions in government subsidies.

Tesla Motors Inc., SolarCity Corp. and Space Exploration Technologies Corp., known as SpaceX, together have benefited from an estimated $4.9 billion in government support, according to data compiled by The Times. The figure underscores a common theme running through his emerging empire: a public-private financing model underpinning long-shot start-ups.

"He definitely goes where there is government money," said Dan Dolev, an analyst at Jefferies Equity Research. "That's a great strategy, but the government will cut you off one day."

The figure compiled by The Times comprises a variety of government incentives, including grants, tax breaks, factory construction, discounted loans and environmental credits that Tesla can sell. It also includes tax credits and rebates to buyers of solar panels and electric cars.

Another Reason to Discuss Government-led Local Business Development

I have written many times about my frustration with cronyist business relocation incentives handed out by most local and state governments.  I have always considered these government incentives to be insanely unproductive spending, often taking taxpayer money to move a company as little as a few miles to get it over some artificial border.  One issue I have not considered in these critiques is whether the sorts of companies selected for relocation are really in the long-term interest of the local community at all.

Almost by definition, most relocation subsidies go to large, well-known companies.  This is for a couple of reasons.  First, large companies have the clout to lobby and demand such subsidies, clout smaller businesses do not have.  Second, politicians are handing out these subsidies in order to get re-elected.  The actual product of these subsidies is a press release and a blurb on the politician's campaign website.  A press release saying that your faithful governor has gotten Joe Smith's Widgets to move to Arizona is a lot less powerful than saying he got a branch of General Electric to move to Arizona.  In fact, the sexier the name the better, which is why politicians fall all over themselves to get Google and Apple and Tesla to come to town (despite the fact that in my observation, it is the staid old companies like Honeywell and Wells Fargo and such that tend to invest a lot more in their local communities).   We have a plant in the Phoenix area that has already had two subsidized sexy companies in it (First Solar and an Apple screen manufacturing partner) and now is empty yet again waiting for the next sexy crony.  Apparently, the state has agreed to subsidize Apple again to use it for a data center, though the move-in may be delayed as there was a large fire at the building when the solar panels on the roof caught fire.  Three sexy press releases for Arizona politicians for the same building!

Anyway, I was thinking about this when I read the piece below from Scott Sumner

This reminded me of a very interesting study that compared two cities in Michigan, Flint and Grand Rapids:

In 1946, sociologist C. Wright Mills and economist Melville Ulmer concluded the fortunes of two of Michigan's largest cities, Flint and Grand Rapids, were headed in opposite directions.Seventy years later, their predictions are getting new notice from academics.

The researchers warned Flint was overly dependent on its big employers even though its workers made 37 percent more than the national average at the time.

The warning seemed out of place. By 1950, Flint was labeled "the happiest city in Michigan" and the "epicenter of the American Dream," thanks to its thriving auto industry.

Grand Rapids, whose economy was defined by its numerous small businesses, was less flashy. But it offered its citizens more mobility and opportunity for its middle class that would help it survive tough times, the researchers concluded.

Flint was still booming in the late 1960s, so it looked like this 1946 prediction was wrong. But then the prediction suddenly came true. Flint's metro population fell from 445,589 in 1970 to 410,849 in 2015. In contrast, Grand Rapids has been booming, with its metro population soaring from 539,225 in 1970 to 1,038,583 in 2015. And both of these places are in the rustbelt state of Michigan.

What A Disaster Nationalization of the US Oil Industry Would Have Been!

Back in the 1970's, there were serious proposals in Congress to nationalize US oil companies.  My dad, who was an executive at a major oil company, was being constantly dragged to DC to testify in front of Congress to try to explain what a bad idea that would be.  This was a time of incredible economic ignorance in Washington, perhaps even more than average, when a Republican President had recently instituted wage and price controls and Congress was looking for ways to "fix" problems with oil supply that they themselves had caused with price control rules and other restrictions on exploration.

Think about what we know about state-run oil companies in Venezuela, Mexico and even Saudi Arabia:

  • They always under-invest capital in well maintenance, preferring to route cash flow to social spending that helps maintain shaky governments in power.  Many folks don't understand this, but production from a well starts falling off almost from the moment you drill it.  Well's must be expensively reworked and maintained and upgrade to keep flowing over their life.  This has gotten so bad in Venezuela that the country with the world's largest oil reserves is running out of gas.  I worked with Pemex for years and, at least in the 1990's, were about 1 step away from Pemex looking just like Venezuela's state oil company
  • They have missed most of the recent revolutions in technology, and do no technology development of their own.  If not for technology developed by private western oil companies, they would barely be ahead of Edwin Drake.
  • They deal with price downturns by forming cartels and attempting to fix prices and reduce output.

Private oil companies at the same time:

  • Reinvest massively in both new and existing fields, often with 20-30 year time horizons
  • Continue to revolutionize technology - the shale boom is just one example
  • Respond to market price downturns with innovation and efficiency improvements.

The link above is gated so here is an excerpt:

Now, with oil currently trading near $50 a barrel, these producers are trying to unleash fracking 2.0, the next step in the technological transformation of the sector that is aimed at extracting oil even faster and less expensively to eke out profits at that level.

The promise of this new phase is potentially as significant as the original revolution. If more producers can follow EOG’s lead and profitably ramp up output from shale drilling even at lower prices, the sector could become a lasting force that challenges OPEC’s ability to control market prices.

For a sector in which the previous era’s success was tied to the rapid expansion of output, the shift toward finding more cost-effective ways to get to that oil and gas is full of challenges. When oil prices dropped, critics wondered if the shale industry—rife with heavily indebted companies that had never turned a profit—would collapse.

EOG, with its longtime focus on low-cost production, is the producer many hope to emulate, thanks to the iSteer app and dozens of other homegrown innovations. Dubbed the “Apple of oil” by one analyst, EOG made its name as a pioneer in horizontal drilling and in finding ways to get oil out of shale—often dense layers of rock that hold oil and gas in tiny pores—a feat many once believed impossible.

Can you imagine people like Gina McCarthy running our state oil company?  Good god, we would have $10 gas and import 80% of our oil.

Losing the Prisoner's Dilemma Game: Economic "Development" Incentives are a Total Waste of Money

From today's WSJ:

The race to woo companies has intensified as state and local governments struggle with a slow economic recovery, sluggish new business formation and job losses resulting from automation. Many older industrial cities see tax incentives as one of the few levers they can pull.

The fight to attract and retain companies “is probably as competitive as it has ever been in the 30 years I have been doing this type of work,” said Lawrence Kramer, managing partner with Incentis Group, the consulting firm that helped Riddell with incentive negotiations.

Economic-development tax incentives more than tripled over the past 25 years, offsetting about 30% of the taxes the companies receiving incentives would have otherwise paid in 2015, compared with about 9% offset in 1990, according to an analysis of incentives covering more than 90% of the U.S. economy.

By 2015, the total annual cost of these incentives was $45 billion, according to the analysis, by Timothy Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich. The study looked at 47 cities in 32 states plus the District of Columbia.

Total incentives are likely higher because the analysis didn’t include some used by cities, including Elyria, such as city income tax rebates for companies.

Seriously, how absolutely pointless is this:

When Elyria Mayor Holly Brinda learned that Riddell Inc. was looking to leave this small city in northeast Ohio, she came up with a $14 million package of tax incentives and offered to lease land to the company for $1 a year.

It wasn’t enough. Riddell, which makes the football helmets used by many NFL and college players, decided to move its roughly 320 employees just over 2 miles down the road to a neighboring town, which offered its own bundle of incentives and lower corporate and individual income-tax rates.

You can't even argue you are trying to save jobs for local people, because the same people are working, just with a 2 mile delta in their commute.

One of the very earliest posts on this blog, waaaay back in 2005, was to compare local economic development spending to a prisoner's dilemma game:

politicians who are approached by a company looking for a handout for business relocation face what is called the prisoner's dilemma.  Many of you may know what that is, but for those who don't, here is a quick explanation, via the Stanford Encyclopedia of Philosophy:

Tanya and Cinque have been arrested for robbing the Hibernia Savings Bank and placed in separate isolation cells. Both care much more about their personal freedom than about the welfare of their accomplice. A clever prosecutor makes the following offer to each. "You may choose to confess or remain silent. If you confess and your accomplice remains silent I will drop all charges against you and use your testimony to ensure that your accomplice does serious time. Likewise, if your accomplice confesses while you remain silent, they will go free while you do the time. If you both confess I get two convictions, but I'll see to it that you both get early parole.  If you both remain silent, I'll have to settle for token sentences on firearms possession charges. If you wish to confess, you must leave a note with the jailer before my return tomorrow morning."

The "dilemma" faced by the prisoners here is that, whatever the other does, each is better off confessing than remaining silent. But the outcome obtained when both confess is worse for each than the outcome they would have obtained had both remained silent.

I hope you can see the parallel to subsidizing business relocations (replace prisoner with "governor" and confess with "subsidize").  In a libertarian world where politicians all just say no to subsidizing businesses, then businesses would end up reasonably evenly distributed across the country (due to labor markets, distribution requirements, etc.) and taxpayers would not be paying any subsidies.  However, because politicians fear that their community will lose if they don't play the subsidy game like everyone else (the equivalent of staying silent while your partner is ratting you out in prison) what we end up with is still having businesses reasonably evenly distributed across the country, but with massive subsidies in place.

Of course, garnering positive press releases for politicians' re-election campaigns is part of the equation as well.  Actually, the game is worse than a prisoner's dilemma game because politicians playing it enjoy all the positive benefits while the price is paid by others (taxpayers).

It would be great to ban this stuff entirely.  But you know what, Arizona already did!  In its Constitution no less.  And we still can't stop this BS.  Our Constitution reads that neither the state nor any municipality in it may “give or loan its credit in the aid of, or make any donation or grant, by subsidy or otherwise, to any individual, association, or corporation.”  This seems pretty definitive, but as I wrote here

This has been interpreted by the courts as meaning that if a state or municipal government gives money to a private company, it must get something of value back - ie it pays money to GM and gets a work truck back.  But politicians will be politicians and have stretched this rule in the past out of all meaning, by saying that they are getting "soft" benefits back.  In other words, they could subsidize the rent of a bookstore because reading is important to the community.

The Goldwater Institute in AZ keeps filing suit and has been pretty successful in blocking some of the most egregious subsidies, but it takes constant vigilance, and at the end of the day, if politicians want to throw money at private companies in order to help their re-election chances, they are going to do it.

 

Diesel Emissions Cheating, Regulation, and the Crony State

One of my favorite correspondents, also the proprietor of the Finem Respice blog, sent me a note today about my article the other day about cheating on diesel emissions regulations.   The note covers a lot of ground but is well worth reading to understand the crony-regulatory state.  They begin by quoting me (yes, as I repeat so often, I understand that "they" is not grammatically correct here but we don't have a gender-neutral third person pronoun and so I use "they" and "their" as substitutes, until the SJW's start making me use ze or whatever.)

"My thinking was that the Cat, Cummins, and VW cheating incidents all demonstrated that automakers had hit a wall on diesel emissions compliance -- the regulations had gone beyond what automakers could comply with and still provide consumers with an acceptable level of performance."

Exactly. More importantly, the regulators KNEW it. I was researching energy shorts and had a ton of discussions with former regulatory types in the U.S. I was stunned to discover that there was widespread acknowledgement on the regulatory side that many regulations were impossible to comply with and so "compliance trump cards" were built into the system.

For instance, in Illinois you get favorable treatment as a potential government contractor if you "comply" with all sorts of insane progressive policy strictures. "Woman or minority owned business" or "small business owner", as an example. Even a small advantage in the contracting process for (for example) the State of Illinois puts you over the edge. Competitors without (for instance) the Woman or Minority Owned Business certification would have to underbid a certified applicant by 10-15% (it's all a complex points system) to just break even. It got so bad so quickly that the regs were revised to permit a de minimis ownership (1%). Of course, several regulatory lawyers quickly made a business out of offering minority or women equity "owners" who would take 1% for a fee (just absorb how backwards it is to be paying a fee to have a 1% equity partner) with very restrictive shareholder agreements. Then it became obvious that you'd get points for the "women" and "minority" categories BOTH if you had a black woman as a proxy 1% "owner." There was one woman who was a 1% owner of 320 firms.

Some of my favorites include environmental building requirements tied to government contract approval. The LEED certification is such a joke. There are a ton of "real" categories, like motion detecting lights, solar / thermal filtering windows, CO2 neutral engineering. But if you can't get enough of that, you can also squeeze in with points for "environmental education". For instance, a display in the lobby discussing the three solar panels on the roof, or with a pretty diagram of the building's heat pump system. You can end up getting a platinum LEED certification and still have the highest energy consumption density in the city of Chicago, as it turns out.

U.S. automakers have been just as bad. There's been a fuel computer "test mode" for emissions testing in every GM car since... whenever. Also, often the makers have gotten away with "fleet standards" where the MPG / emissions criteria are spread across the "fleet." Guess how powerful / "efficient" the cars that get sent to Hertz or Avis are.

Like so many other things in the crony capitalist / crudely protectionist United States, (e.g. banking prosecutions) foreign firms will get crucified for industry-wide practices.

Gee, I wonder if state-ownership of GM has been a factor in sudden acceleration / emissions prosecutions?

BTW, I wrote about the silliness of LEED certification here, among other places, after my local Bank of America branch got LEED certified, scoring many of their points by putting EV-only spaces (without a charger) in the fron of the building.  In a different post, I made this comparison:

I am not religious but am fascinated by the comparisons at times between religion and environmentalism.  Here is the LEED process applied to religion:

  • 1 point:  Buy indulgence for $25
  • 1 point:  Say 10 Our Fathers
  • 1 point:  Light candle in church
  • 3 points:  Behave well all the time, act charitably, never lie, etc.

It takes 3 points to get to heaven.  Which path do you chose?

The MPAA Responds, Urges that Taxpayers Continue Paying for Their Movie Productions

The MPAA wrote me back in response to my post here thanking our local paper for actually considering (for the first time I have ever seen locally) that subsidizing movie production locally might not be a good idea.  The MPAA sent me a response, which in full is online here.

I will state in general that the whole academic sub-field of making net economic contribution calculations (always full of fact juicy multipliers) is a total write-off in my mind.  You can pretty much throw out everything you read as crap.  Because most are funded by the folks (e.g. sports team owners) who want the subsidy, so the analyses almost always miss the unseen:  Here are all the job gains and benefits in our industry!  But these studies almost always miss the opportunity cost effect of taking tax money and revenues from other industries.  Besides, I truly believe the economy is far too complicated to pull out one single variable out of billions and forecast changes to overall economic numbers from changes in that single variable.

Here is the email I wrote back:

Sorry, but all industry-specific government subsidies are a total useless gravy train for the politically-connected industries that are able to obtain them.

  1. These state subsidies are only shifting jobs from state to state.  Why should Americans be paying taxes just to move companies to different places around the country?
  2. The implication is that somehow your jobs you provide are better than the jobs my company provides, since you get taxpayer money handed to you and I don't.  Why?  Can you really make an academic argument that your multiplier of your jobs is somehow higher than my employees' multiplier?  Your jobs last 3 months or so in my state, and the highest skilled and highest paid jobs go to people who travel only temporarily in from out of state.    My jobs in my company have lasted for over 25 years.  Remember -- you are essentially demanding that I be forced to pay money from my business to yours.
  3. Markets do a really good job of allocating capital.  No industry, I suppose, feels like investors give them all they deserve.  But what you are doing in effect is demanding that the market's allocation of capital be interrupted, and capital that would have been used for other purposes should be forced to be used for your purposed instead.  What basis do you have for claiming this?  And do your analyses ever consider the opportunity cost of what that tax money you are using would have been used for if it were not grabbed away for you?
  4. Your problem is basically that your movies don't make enough money on their own to cover costs and you need taxpayers to make up the difference.  After all, you are arguing that less activity would occur without these subsidies so these subsidies must be the difference between losing and making money (and thus between greenlighting and turning down certain projects).  To which I would provide a suggestion -- you need to do what all the rest of us business owners who don't have access to Uncle Sugar's money spigots must do when revenues don't cover costs:  Fix your costs or increase your revenues.  Make better movies or get your costs under control.  Don't demand that I, as a taxpayer, have to make up the difference because you are too lazy or greedy to fix your own financial problems.
  5. I can't prove it, but I am not at all convinced subsidies make more movies.  I think that subsidies tend to just increase the income of those in the movie production chain with the most bargaining power, such as actors and producers.  This certainly is what has happened with sports subsidies.  We insanely subsidize every pro sports team in America.  Do you really think we would have fewer pro sports teams without the subsidies?  No -- the subsidies have simply flowed to increasing the income of the top athletes and team owners.

At the end of the day, your industry is particularly good at getting this money forced out of taxpayer hands for two reasons.  The first  is that politicians hope for financial support from you in the next election.  Hell, you might even convince me that local small-time politicians do it entirely just for a photo op with some actor or celebrity.    And the second is that you make for a sexier press release.   Politicians like saying they funded Apple or Tesla or highbrow art like "Sausage Party" -- it makes for a better soundbite in their campaigns than saying they funded a call center or a machine shop.

Update:  The Tax Foundation has also replied to the MPAA

This is A First: Our Local Paper Actually Questions Movie Tax Incentives

I find that the local newspaper in most towns is generally a strong supporter of most every business relocation subsidy or tax incentive that comes along -- whether it be for Apple or an NHL team or a movie production, the local paper benefits from having more newsworthy activity in town.

But the AZ Republic actually ran an article this weekend questioning movie tax incentives, perhaps the only government subsidy dumber than buying sports stadiums for billionaires

States, including Arizona, that don't offer movie and television tax breaks usually are smart not to do so, a researcher contends.

Nearly all states have lured Hollywood productions at one time or another with special tax incentives, but a University of Southern California professor says such spending fails to deliver the long-term economic benefits promised by industry lobbyists and lawmakers.

“The subsidies are a bad investment," said Michael Thom, an assistant professor in USC's Price School of Public Policy, in a prepared  statement. "States pour millions of tax dollars into a program that offers little return."

Arizona doesn't currently offer tax incentives for the industry but spent $23.7 million on subsidies between 2005, when the program started, and 2010, when incentives ended amid a state budget crisis.

Thom, who has led two recent studies on the topic, looked at job growth, wage increases, entertainment-industry output and other factors for each state.  "On average, the only benefits were short-term wage gains, mostly to people who already work in the industry," he said. "Job growth was almost non-existent. Market share and industry output didn’t budge.”

Demand Curve? What Demand Curve?

Today's little slice of economic ignorance comes from tech site Engadget, a frequent contributor of such morsels.  Apparently California is considering new penalties on auto makers for not selling enough electric cars, penalties which by their structure will be fed right into the pocket of Tesla, already a gaping maw of government subsidy consumption:

Assemblywoman Autumn Burke tells the Associate Press that she's introducing a bill requiring that car manufacturers sell at least 15 percent zero-emissions free vehicles within a decade. Companies operating in the state already have to hit yearly emissions targets and get credits for sales, but this would require that they embrace electric or hydrogen fuel cell cars in a big way -- not just one or two novelty models. And if they don't sell enough eco-friendly cars, they'd have to either pay a fine to the state or pay rivals that meet the targets. Yes, they might inadvertently help the competition.

If the bill becomes law, it could light a fire under car makers that have so far been slow to adopt emissions-free tech. Only 3 percent of all California car sales are either electric or plug-in hybrids.

The underlying assumption, both by Ms. Burke as well as the article's author, seems to be that lack of electric car sales is entirely a supply-side problem -- low sales are because auto makers don't make enough of them.  While I have no doubt that there would be incrementally more sales if auto makers had a larger variety of models with different combinations of features, all of this seems to ignore the demand side.  Automakers, who are constantly locked in a death struggle over tiny increments of market share, and who already pay penalties for not selling as many electric cars as politicians would wish them to, have every incentive to sell as many as they can.  The issue strikes me as one of demand rather than supply - given current technology limits and costs, and despite large financial incentives from the government in the form of tax subsidies, most buyers have eschewed electric vehicles to date.  Neither Ms. Burke nor the author even pretend that this law will change this demand situation.

Which is why critics rightly argue that this is just another way to funnel other people's money into Elon Musk's pocket, without his actually having to sell any more cars.  Tesla already depends on payments from other auto makers for electric vehicle indulgences for much of its revenue, and this can only go up under this kind of law.

Progressivism is Not Caring. It is Authoritarianism

The city of Seatac (a small area of land around the Seattle-Tacoma Airport) gained national attention a while back for passing a $15 minimum wage.  Many other groups, including the city of Seattle itself, as well as this year's Democratic platform committee, cited the Seatac example as an impetus for higher minimum wages everywhere.

In today's politics, there is no better way for a Leftish politician to virtue-signal than to advocate for a $15 minimum wage.  It is a classic case of a government law that helps a few easy to identify people and hurts a whole bunch of people in ways that are hard to attribute to the law, such as reduced employment for low-skill workers and higher prices for consumers.

So the City of Seatac has been taking a victory lap over the last year, patting itself on its back for how caring it is of its citizens.  Oh, and it has also been doing this:

A three-month-long civil trial revealed the shadowy subterfuge behind a secret land grab that was orchestrated by the city of SeaTac, replete with backroom deals, baldfaced deceptions, and a mayor intent on driving Somali refugees from the neighborhood.

The aim of it all: to wrestle 4.23 acres of prime real estate from entrepreneurs Gerry and Kathy Kingen, according to the judge and jury who heard the case.

The West Seattle couple sued the city and won, proving in court that SeaTac officials intentionally sabotaged their development plans, strong-armed them into giving up their property and then violated the state’s Public Records Act by withholding city emails and documents proving the deception.

The trial judge also concluded the former SeaTac mayor wanted condos built on the site, believing they would price out Somalis who had moved into “his neighborhood.”...

In March 2004, K&S Developments [the Kingen's investment vehicle] began working with SeaTac’s planning department to get approval for [a] park-and-fly, and city officials “voiced support and encouragement” for the proposal. The judge noted there “was never any public opposition” to the plan.

But unbeknown to the Kingens, SeaTac’s planning director, city manager and other staff decided in late 2005 they didn’t want K&S to build the park-and-fly because it would create competition for a park-and-fly the city wanted to build about a mile south at South 176th Street.

So in February 2006, city staff “devised a secret plan” to get the City Council to pass a moratorium designed to kill the Kingens’ park-and-fly project, the judge wrote. After learning of the permanent ban, Gerry Kingen met with members of the City Council and then-Mayor Gene Fisher, who “promised to make things right.”