10 Companies Receiving the Biggest Handouts From the Government

The job market has certainly improved from the depths of the great recession where unemployment tipped the scales at a disappointing 10%. It's true that some workers have dropped out of the workforce because of retirement, or they've gone back to school, but generally speaking finding a job now is easier than it was just a few short years ago.

One of the many reasons we can attribute to this jobs surge is an improving economy. Low lending rates have spurred businesses to borrow and expand while homeowners have been able to refinance existing loans at favorable rates and either pocket or spend their leftover cash.

However, an often overlooked reason why job growth remains steady are incentives from local governments and states to businesses designed to draw corporations to a particular region or state in order to spur or maintain job growth. We fully understand that subsidies, which are akin to government handouts, are all around us, but what we've never known, until now, is exactly which businesses were racking up the biggest subsidies.


Source: Steven Depolo, Flickr.

10 companies receiving the biggest government handouts
Thanks to the hard work of Good Jobs First (link opens PDF) and its Subsidy Tracker database, we now know that a vast majority of the largest state and local government development subsidies have gone to just 965 large corporations.

Now here's where it gets interesting. The total known value of awards received by these 965 companies is $110 billion, yet this group of large corporations only accounts for 10% of total handouts divvied out by state and local governments. In other words, small and medium-sized businesses are successfully garnering a substantial number of subsidies from state and local government, but the big dollar development deals are going to already big corporations. As further evidence to this, Good Jobs First's data notes that 89 of its top 100 corporations in terms of aggregate subsidy value had inked a megadeal, which it quantified as a $75 million development deal or greater.

Let's remember, now, that subsidies aren't necessarily a bad thing as they help create and maintain jobs in specific regions of the country. What I'd like to do today is take a closer look at the 10 companies receiving the biggest handouts from these state and local governments according to Good Jobs First, and note what similarities exist that may be to our investing advantage.

Here are the 10 companies with the highest cumulative subsidy dollars received: 

Company

Subsidy Value

Number of Subsidies

Boeing

$13,174,075,797

137

Alcoa 

$5,635,305,059

91

Intel 

$3,867,492,085

58

General Motors

$3,494,237,703

307

Ford

$2,522,304,454

173

Fiat

$2,060,988,039

93

Royal Dutch Shell

$2,038,202,298

66

Nike

$2,024,582,002

23

Nissan

$1,799,585,041

25

Cerner 

$1,732,784,334

15

Source: Good Jobs First.

These 10 companies all tallied greater than $1.7 billion in cumulative subsidies. All told, according to Good Jobs First's data, 17 companies brought in more than $1 billion in subsidies and 182 hit the $100 million mark.

Furthermore, there can be a very wide variance in terms of total subsidies issued. The Mayo Clinic, a non-profit medical care and research group, received a single $585 million subsidy according to the Good Jobs First's data. By comparison, chemical products supplier Dow Chemical has received more than 400 separate state and local subsidies on its way to $1.4 billion in cumulative subsidy value.

Now let's have a closer look at what similarities might be apparent in the data above which may make you a smarter investor.

Select trends emerge
Perhaps the most notable trend that emerges from the data above is just how lopsided state and local government handouts are toward the industrial and energy sector. With the exception of health care information technology systems developer Cerner (NASDAQ: CERN  ) , which has benefited in a big way from the rollout of Obamacare, the remaining nine companies are all manufacturing based. In fact, expanding this list above through No. 13 would yield three additional manufacturing companies.

Source: Boeing,

The point here is clear -- state and local government will incentivize large corporations to stay within their state or region in order to stabilize the local job market. Boeing (NYSE: BA  ) , for example, received the largest corporate tax break a state has ever dished out in November from Washington in an effort to keep the build-out of its next-generation 777 within the Puget Sound region. Boeing has received hefty subsidies from South Carolina as well. 

Automakers are also a big source of corporate subsidies, with Ford (NYSE: F  ) , General Motors (NYSE: GM  ) , Fiat, and Nissan among the top nine. Expanding the list a bit further, and you'll find Toyota at No. 16, Volkswagen at No. 22, Hyundai at No. 24, and Daimler at No. 32.

The draw for state and local governments to incentivize automakers is twofold. First, select subsidies encourage domestic automakers such as Ford and GM to produce next-generation electric and electric-hybrid vehicles. These vehicles reduce or eliminate carbon dioxide emissions and are better for the environment.

Source: Ford.

Also, these subsidies help keep American jobs in America instead of outsourcing them to lower-cost labor regions of the world such as China or India. Labor unions generally do a good job of protecting workers' rights in the auto industry, but these subsidies are also a strong draw for Ford and GM to continue producing American cars, and perhaps even cars that will wind up in foreign countries, within the United States.

Finally, it's worth noting is that foreign companies fare just as well as large domestic U.S.-based businesses in drawing government subsidies. Three of the top nine businesses in terms of cumulative subsidy dollars – Fiat, Royal Dutch Shell, and Nissan – are foreign companies.

As I noted above, automakers are among the most courted companies by state and local governments through incentives. Nissan, for example, received $1.25 billion via multiple subsidies from the state of Mississippi in 2000 to construct an auto assembly plant in an effort to create and/or save 4,000 jobs. However, energy companies like Royal Dutch Shell (NYSE: RDS-A  ) are also on the receiving end of bountiful handouts as well. In 2012, Pennsylvania awarded Royal Dutch Shell $1.65 billion worth of tax credits for the construction of an ethane cracker plant within the state.

How this helps you
Companies which are clearly adept at seeking out incentives are much more likely to be able to keep more of their hard-earned income as these subsidies often take the form of a multi-year tax break. Lower effective taxes within a state can allow for more research and development as well as hiring, which can lead to even faster growth for these companies. In other words, seeking out companies with large subsidies is another way of giving yourself an edge over the uninformed investor. Keep in mind that a large subsidy alone is no guarantee of a companies' success, but it often translates into lower taxes and higher profits.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 02, 2014, at 7:39 AM, snommis69 wrote:

    Berkshire Hathaway at #15, but no mention. Can't take a whack at the MF darling?

  • Report this Comment On March 02, 2014, at 7:55 AM, TMFJCar wrote:

    Sean,

    Good article. I think this line is increasingly up for debate: "Let's remember, now, that subsidies aren't necessarily a bad thing as they help create and maintain jobs in specific regions of the country."

    Many studies are saying it is a poor job-creating move and others are saying it creates no net new jobs, just job relocation.

    http://www.cbsnews.com/news/are-corporate-subsidies-worth-th...

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