Bonding with developers

How stealth corporate welfare gives Weyerhaeuser a windfall at Snoqualmie Ridge.

KING COUNTY COUNCIL members owe one to county executive Ron Sims. He's given them a reprieve on a bitterly tough decision: whether to approve $60 million in tax-exempt bonds—in effect, a whopping federal subsidy—for Weyerhaeuser's sprawling, controversial Snoqualmie Ridge planned development in the Cascade foothills.

"We asked them to hold off" on the vote pending further negotiations with Weyerhaeuser, says Sims' chief of staff, John Arthur Wilson. "We think there are probably some better terms we can strike for this." Still, the day of decision must come—thanks to a federal program, little-known outside the development realm, that allows the issuance of tax-exempt Industrial Revenue Bonds (IRBs) to assist new private construction.

The Snoqualmie Ridge IRBs would pay for a sewage plant, pump station, road and drainage systems, and other public facilities for the 1,343-acre development, which will include an industrial park, a private golf course, and 2,000 new homes. All these improvements would be conveyed to the City of Snoqualmie, which has approved the bond issuance.

The IRB program is basically a federal subsidy for development. Under it, a private developer issues tax-exempt bonds under the authority of a local government­owned entity (in this case, the King County Economic Enterprise Corporation). Because bond purchasers needn't pay taxes on the interest they earn, they accept a lower rate and the developer saves money on interest payments (almost $14 million over the 20-year life of Weyerhaeuser's bonds). The bond purchaser makes a good buck. The federal treasury stays empty.

The bonds are paid off through project revenues, not by the government. This protects taxpayers, but limits the number of companies that can qualify for IRB funding. Ray Moser, the county's economic-development program manager, says IRBs "are well-suited to mid-sized, successful, expanding companies." In essence, the program makes the rich richer—the borderline projects and startup businesses usually targeted by economic-development programs simply can't negotiate the financial hurdles.

Plus, since the program grants local governments the authority to approve what is essentially a federal subsidy, city and county officeholders can be generous to big businesses without taking a penny from their own budgets. Few can resist the opportunity.

Washington voters authorized IRB funding in 1981, through a state constitutional amendment championed by Gov. John Spellman and a bipartisan group of legislators; they noted that Washington's constitutional ban on lending public credit made it the only state without the authority to issue IRBs. Backed by a coalition of major newspapers, businesspeople, and public officials, the amendment won handily at the polls. The IRB program was tagged for elimination by Ronald Reagan's administration but was sustained by his Republican successors, who have proven more amenable to corporate subsidies.

SINCE IRBs ARE AVAILABLE in every state, they play no role in companies' siting decisions. And because of their involved funding process, they are usually issued after facilities are already under way or completed, so they also can't be said to "create jobs." County Council member Dwight Pelz notes that the public generally thinks of economic-development money as leveraging marginal projects, not benefiting successful corporations. "This industrial revenue bond is being used to subsidize a massive, suburban subdivision," he told colleagues at a July 8 hearing, "which, I think, somewhat strains the credibility about the term 'industrial bonds.'"

Nevertheless, Washington's IRB law specifically includes public facilities like those being built by Weyerhaeuser. (Those prescient 1981 legislators also authorized bonds for "sports facilities.") The company also anticipates 2,000 light industrial jobs in its Snoqualmie Ridge business park, and has pledged to work with county agencies to make some of them available to residents coming off public assistance. County Council member Rob McKenna, who voted for the bonds in committee, notes that with the trend of shifting infrastructure costs from government to developers, the IRBs are merely subsidizing facilities that government used to pay for.

What's most upsetting is the sheer scale of the Weyerhaeuser IRB proposal, and the late notice policymakers got of it. Since 1984, the county has approved just 16 IRB projects worth a total of $48 million—significantly less than Snoqualmie Ridge's $60 million. Pelz and other council members want to see the approval process reexamined. Obviously, they were not pleased to have a huge, controversial bond request dropped into their laps with little warning. "I think when the public asks questions about corporate welfare," says Pelz, "these are the kinds of projects they're asking about."

 
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