The Politics Of IBM: Can Small States Influence Big Business?

Oct 20, 2014

The sale of IBM’s chip-making business looks to be good news for the approximately 4,000 Vermont workers employed at the company’s plant in Essex Junction. But the change in ownership will reignite a longstanding debate over whether Vermont is doing enough to retain and grow jobs in the state.

IBM has always been a flashpoint in Vermont politics. It’s a massive employer here, by the standards of this tiny state. And policy makers frequently stop to ask: is Vermont doing enough to keep employers like Big Blue happy?

For most Vermont Republicans, the answer has been, and continues to be a resounding "no." 

Sure, they say, IBM’s sale to GlobalFoundries may at least temporarily save the jobs of the thousands of employees working at the Essex Junction plant. But Republican candidate for governor Scott Milne says high property taxes, rising energy prices and an unforgiving regulatory climate will subject the plant’s new owner to the same hostile business environment that IBM faced.

“I think we need to stop treating IBM and property taxpayers, small employers, like cash cows that we can just continue to milk and milk and milk,” Milne said Monday.

"I think we need to stop treating IBM and property taxpayers, small employers, like cash cows that we can just continue to milk and milk and milk." - Republican gubernatorial candidate Scott Milne

Milne and other Republicans say they worry that, barring serious economic reforms, GlobalFoundries and other important employers will soon shift operations out of state.

“We need to grow and nurture our work force,” David Sunderland, chairman of the Vermont GOP, said Monday. “We need to a create business climate that is favorable to employers. And we need to remove obstacles to job creation that exist now.”

IBM is giving California-based GlobalFoundries $1.5 billion to take its money-losing chip-making division, which includes plants in Essex Junction and New York. Spokespeople for both companies say GlobalFoundries will, for now at least, maintain operations at the Chittenden County plant. And the jobs of the employees – which many feared would disappear from the state along with IBM – are safe for now.

Milne, Sunderland and other Republicans interviewed Monday said they’re happy for the families who for months have feared the worst. But with Election Day just three weeks away, the GOP says short-term job stability for IBM workers has come in spite of, not because of, the Democrats who control the governor’s office and the Legislature.  

GlobalFoundries has made no long-term commitments to maintaining the Essex Junction plant. And the value of the assets acquired by GlobalFoundries, analysts say, lies in the high-skilled workforce and intellectual property, not the bricks and mortar that go with them.

Democratic Gov. Peter Shumlin met with GlobalFoundries executives Monday, and announced the formation of an “economic development and infrastructure advisory team.” The aim is to convince GlobalFoundries to keep its chip-making operations here, and not move them to the $8.5 billion manufacturing facility the company owns in Malta, New York.

The aim is to convince GlobalFoundries to keep its chip-making operations here, and not move them to the $8.5 billion manufacturing facility the company owns in Malta, New York.

Shumlin said his administration will move “immediately to offer state support and assistance with permitting, infrastructure, workforce development and similar needs.”

House Minority Leader Don Turner said if Shumlin really wants to improve prospects for Vermont workers, he ought to jettison a single-payer health care proposal that he says will spook wary executives.

“If I’m making decisions … for a big corporation or a business that’s here now, or is thinking about being here, that’s got to be an issue,” Turner said. “There’s just too much uncertainty in that one particular issue.”

Sunderland says Shumlin's decision to abandon the Circumferential Highway complicated transportation issues for IBM. And he said a long-term energy plan that calls for 90 percent renewables by 2050 could scare away the new owners of a plant that is among the largest consumers of electricity in the state.

Rutland Sen. Kevin Mullin, chairman of the Senate Committee on Economic Development, agreed Vermont needs to do more for major employers.

“Whether it’s trying to reduce the cost of energy to our largest employers, whether it’s getting out of their way with less government regulation and interference, there are things that we need to continue to keep working on so that we’re not losing a major employer,” Mullin said.

But Mullin, a Republican, said the Democratic governor has been an economic development ally, not a liability. He said other Democratic legislators are also on board with needed economic reforms.

“I will say that the administration has been supportive of all the efforts that I’ve made as chair of senate economic development to try to move us into a more business-friendly state,” Mullin said.

House Speaker Shap Smith said he’s eager to work with GlobalFoundries executives to craft an economic development package that fits their needs. But he said that major decisions by multi-billion-dollar companies often have more to do with global markets than they do with legislative interventions.

And Vermont’s power to influence the business decisions of GlobalFoundries is constrained.  

Vermont's power to influence the business decisions of GlobalFoundries is constrained.The value of the incentives to GlobalFoundries provided by New York about matches what Vermont's general fund budget is for the entire year.

Five years ago, the company began construction on a state-of-the-art, $8.5 billion manufacturing facility in Malta, N.Y that now employs about 2,200 workers. So how did New York lawmakers convince GlobalFoundries to call the Empire State home? They supplied it with a one-time cash payment of $665 million, along with another $700 million in tax breaks. It was an unprecedented sum in the history of taxpayer-funded economic incentives.

“If you take a look at the package that the state of New York put together for GlobalFoundries in Malta, there’s a case study for what a state can do to attract a major employer with good-paying jobs,” Mullin said.  

But the value of the incentives provided by New York about matches what Vermont’s general fund budget is for the entire year. The “Enterprise Fund” created by lawmakers earlier this year to keep IBM, or whoever owns the Essex Junction plant, from leaving town, now contains about $3.8 million.

Smith said he’s open to allocating more taxpayer money to keep GlobalFoundries in Vermont. But he said the best economic development investments might be less targeted in nature.

“I think that for the long-term good for the state of Vermont, the best bang for our buck is making investments in infrastructure that will exist over the long term, and that will be good not only for GlobalFoundries, but for other businesses here in the state of Vermont,” Smith said.

"For the long-term good for the state of Vermont, the best bang for our buck is making investments in infrastructure that will exist over the long term, and that will be good not only for GlobalFoundries, but for other businesses here in the state." - House Speaker Shap Smith

And Dean Corren, the Progressive/Democratic candidate for lieutenant governor, said Monday that throwing limited taxpayer money at big multi-nationals is a dangerous bet.

“It is still a cautionary tale in terms of future economic development, in that large, out-of-state companies can have goals that do not have Vermont at their core, and make us susceptible to changes that cut significant numbers of jobs in a single stroke,” Corren said. “This can happen even when the people and facilities are performing at a high level of productivity, quality, and profitability.”