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ECONOMIC DEVELOPMENT
The Man Behind the Plan
The secrecy of today's corporate tax negotiations can be traced to one man who started it all.
Today, when a private company is considering relocating to a new city, there's a carefully orchestrated process involving tax incentives, site consultants and complicated, confidential negotiations. But the site-location game wasn't always that way. Interestingly, just about every aspect of the process as it exists today can be traced to one man who started it all: Felix Fantus.
An industrial real estate salesman in Chicago, Fantus had been wooing manufacturing companies to relocate to the Windy City since 1919. In an effort to attract these factories, Fantus compiled information on land, buildings, wages, local taxes, transportation and utilities. It was a service he had been giving away for free. His son-in-law thought Fantus ought to charge for the information, and in 1939 the Fantus Factory Relocating Service — and the entire site-location industry — was born.
Today, there are over a hundred site location consultants seeking to engineer deals between cities and companies. But for a solid 20 years, Fantus was the only game in town. And the firm continued to dominate the industry well into the 1980s, brokering, by its own count, over 6,000 relocation deals with local governments. (The company was purchased and merged into Deloitte and Touche in the mid 90s.)
Fantus pioneered the whole method of the business-relocation industry, according to Greg LeRoy, the executive director of Good Jobs First, a policy resource center that advocates for greater transparency in economic development. LeRoy is also the author of The Great American Jobs Scam: Corporate Tax Dodging and the Myth of Job Creation, in which he traces the development of the site-location industry. Fantus, LeRoy says, was responsible for the entire way the game is played today, in which cities that are competing for a new company must keep mum about their involvement. It's a process LeRoy likens to the classic prisoner's dilemma: two men are being interrogated separately for the same crime. Rat out your accomplice, the police say, and you'll walk free while he goes to jail. If both of you betray each other — or if neither of you talks — you'll both be thrown behind bars.
"The Fantus company really perfected the prisoner's dilemma technique," LeRoy says. "Keep the deal secret while the deal is playing out."
He says it's a raw deal for cities, but the set-up has been so ingrained into the corporate incentives process that it's difficult to imagine it changing. Felix Fantus may be gone, but he cast a long shadow.