Journalism
What Corporate Welfare Costs You: The Empire Of The Pigs (Part 4)
"This is quite a Christmas present," said Harlan Nelson, then mayor of Albert Lea, Minn., on that December day in 1990 when he learned that a closed factory in the town would reopen. "Fairy tales do come true!"
The fairy godmother turned out to be Seaboard Corp., a giant of agribusiness with headquarters in Merriam, Kans., and controlled out of Chestnut Hill, Mass. Seaboard officials announced that they would restart the shuttered pork-processing plant that had once been the town's largest employer—if the city offered a little help. Albert Lea responded by giving Seaboard a $ 2.9 million low-interest loan and a special deal on its sewer bill and grading and paving parking lots for employees. And before long, the plant reopened, and several hundred workers were back on the job.
That's when the process began by which the fairy tale turned into a very bad dream. Just four years later, in 1994, Seaboard phased out the plant and moved its hog-slaughtering operations to another town 800 miles away, which came up with an even larger corporate-welfare package. Albert Lea was left saddled with debt, higher utility bills and an abandoned slaughterhouse. The entire episode, says City Manager Paul Sparks, was a "disaster." This is the story of how an extremely resourceful corporation plays the welfare game, maximizing the benefits to itself, often to the detriment of those who provide them. It's also a vivid reminder to cities and towns everywhere about the potential long-term liabilities they may one day face by spending public funds to get results that are best achieved by the free market.
Seaboard is a publicly owned company, but in fact it is the fiefdom of a reclusive Boston-area family (more on that later). A sort of mini-conglomerate, Seaboard has interests in hogs, strawberries, chickens, shrimp, salmon, flour and wine. Its operations span four continents and nearly two dozen countries and range from cargo ocean liners to sugarcane. And like other profitable businesses, it collects subsidies—or, more accurately, corporate welfare—from local, state and federal governments. Indeed, officials trip over one another in the rush to extend taxpayer support to Seaboard—from the Federal Government's Overseas Private Investment Corp. (OPIC) in Washington to the Kansas state agency responsible for industrial development, to the utility authority in little Guymon, Okla. Wherever Seaboard is, there is a government throwing money at it. Money the company uses to build and equip plants, hire and train workers, export its products and expand overseas.
This Little Piggy Skipped Town
For a closeup view of Seaboard, let's begin with Albert Lea. For most of this century, Wilson Foods operated that pork plant and was the town's largest employer. Wilson fell on hard times in the early 1980s, cut workers' average annual pay from $ 22,200 to $ 16,600 and eventually sold the plant to Farmstead Foods. In turn, that company went belly-up a few years later, after it lost its biggest customer—Wilson. Then, in December 1990, just as workers were receiving the last of their unemployment checks, Seaboard appeared.
Once the company negotiated its sweetheart deal with the city, the Chamber of Commerce erected a billboard declaring, 35,000 FRIENDLY PEOPLE WELCOME SEABOARD CORP. At an appreciation luncheon, Rick Hoffman, Seaboard's vice president of finance, observed that it is "really a pleasure to be associated with such a fine community and to have such a quality work force."
The more than $ 3 million Albert Lea handed out to help reopen the plant represented only the latest installment in corporate-welfare payouts. Because hog killing created serious pollution problems, Albert Lea earlier had kicked in $ 3.4 million to build a wastewater-treatment plant devoted mostly to servicing the pig factory. The hogs had your help as well: the Federal Government contributed $ 25.5 million, while the state of Minnesota gave $ 5.1 million. Total cost of the sewage plant: $ 34 million. The city also built new roads and water lines to the plant, built a parking lot and came up with $ 1 million to help erect a hog-slaughtering building.
Hoffman, Seaboard's vice president of finance, took note during that luncheon of the stream of government aid: "We're especially grateful to the state of Minnesota and the city of Albert Lea, who together since 1984 have supplied literally millions of dollars in the form of grants, tax incentives and loans to the facility. They had a lot of confidence in it... Truly this has been a lesson in economic development."
A lesson was about to unfold, all right—a textbook study of the fickle results of corporate welfare. Seaboard was unable to attract enough workers from Albert Lea to run the plant. Many former Farmstead employees had already left the area in search of work. More than 100 had retired. Still others declined to work for Seaboard wages—$ 4,500 a year less than the plant's 1983 wage, and no vacation the first year on the job.
Seaboard's solution: recruit Hispanic laborers from other areas of the U.S. as well as from Mexico and Central American countries like Guatemala. Soon the recently arrived immigrants began to stream into Albert Lea—with no money and no place to stay. It was a practice Seaboard would repeat in other towns, in other states.
It became common for several workers to share a room. Families couldn't afford local rents on a Seaboard wage. Eventually some went on welfare. In short, corporate welfare begot individual welfare.
Meantime, Seaboard failed to invest in upgrading its sewage-pretreatment facility. As a result, its waste began to overwhelm the city's municipal treatment plant. The city normally placed its treated sludge on soybean cropland, but by the second summer, city officials were in search of more land. As Sparks recalls, "We had so much sludge accumulation that...we had to go out in the middle of the summer, buy a crop [for $ 36,000] and plow it under because our storage capacity was exceeded."
Rather than overhaul the plant, Seaboard responded in the classic manner of corporate-welfare artists: it began quietly looking around for another town, another state. Alarmed, Albert Lea and Minnesota came up with an additional $ 12.5 million in incentives to keep the plant. But Seaboard had found a bigger patsy—Guymon (pop. 7,700), in Texas County, Okla. Guymon, the county and the state put together an economic incentive package worth $ 21 million to entice Seaboard to the Oklahoma Panhandle, a section of the country where hogs and cattle far outnumber people.
Among the subsidies: Texas County borrowed $ 8 million to plow into the company up front. To pay off the loan, the county enacted a 1% sales tax. The state granted a $ 4 million, 10-year income tax credit with the understanding that it was "unlikely" the company would pay any income tax during those 10 years. The state spent $ 600,000 to train Seaboard's workers. The company received grants and low-interest loans to finance a waste-pretreatment plant. (Remember the one in Albert Lea?) The company was excused from paying $ 2.9 million in real estate taxes.
As always, local and state officials were on hand when Seaboard announced in August 1992 that it would employ as many as 1,500 workers at its new pork-production facility. In time the plant will slaughter 4 million pigs a year. Oklahoma Governor David Walters declared the plant "a huge and much deserved economic boost to the entire Panhandle area, and to the state."
Meanwhile, back in Minnesota, Seaboard's local president was reassuring newspapers that the Albert Lea plant would remain open.
That was in August 1992. Seventeen months later, in January 1994, Seaboard announced that it would shutter its hog-slaughtering operations and lay off upwards of 600 employees. The company said it would keep about 300 workers to process and produce ready-to-buy meats like bacon, sausage and ham. (The number of employees eventually dropped to about 200, and Seaboard sold the business.)
It was not just Oklahoma's subsidies that persuaded Seaboard to relocate. The Albert Lea work force was unionized; wages had risen to $ 19,100 a year—still $ 3,100 below their level in 1983, but too rich for Seaboard's blood. Guymon, by contrast, promised low-wage, nonunion labor. Also, Seaboard had decided it wanted to raise its own hogs for slaughter, not just buy them from farmers. Minnesota banned corporate hog farms. Oklahoma had had a similar ban but had repealed it before Seaboard came along.
When Seaboard moved on to Guymon, it left behind in Albert Lea the abandoned hog-slaughtering building, empty parking lots, a waste-treatment plant that now operates at only 50% of capacity and higher sewer bills to pay for it. And when Seaboard walked, the state had to come up with some $ 700,000 to retrain displaced workers or help them find new jobs.
"For 15 years, the community devoted the major portion of its federal and state legacy and a good share of local money to providing improvements to keep the slaughtering plant in our community [for Seaboard and its predecessor]," says Sparks. "In retrospect," he says ruefully, "the money could have been better used."
Ever Buy a Pig in a Poke?
In Oklahoma, it was starting to seem like deja vu all over again. The $ 21 million that state and local governments put up to bring Seaboard to the Panhandle was just the start. Guymon, like Albert Lea, couldn't supply the work force required by Seaboard. In time the company would need workers by the thousands. That's because the turnover rate in all processing plants runs close to 100% a year owing to the low wages. This slaughterhouse, one of the world's largest, will eventually kill an average of eight hogs a minute, 24 hours a day, 365 days a year—more than 4 million annually. So Seaboard repeated the Albert Lea hiring process—it attracted immigrant workers, some Laotian and Vietnamese, but most from Mexico, Guatemala, Honduras and other Central and South American countries. Some turned out to be illegal immigrants.
Just getting there was no easy feat, since Guymon, which calls itself "An American Original," is located in a less than convenient spot—320 miles east of Santa Fe, N.M., 335 miles west of Tulsa, 125 miles north of Amarillo, Texas, and 500 miles from the Mexican border. The nearest bus stops are in Liberal, Kans., 40 miles to the north, and Stratford, Texas, 40 miles to the south. As was the case in Albert Lea, the freshly arrived immigrants had no place to stay, and the town that had never had a homeless shelter was forced to open one. Volunteers cleaned, repaired and painted a vacant motel. Unemployed individuals and families could stay up to one week at a cost of $ 10 a day, which included two meals. If they found work—largely at Seaboard—they could stay up to 90 days while they saved money for a permanent home.
Simultaneously, the state began training Seaboard workers even before the plant opened. Curriculums were provided in English, Spanish, Laotian and Vietnamese. In all, 3,300 Seaboard workers received training. The cost to taxpayers: $ 617,168.