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Allegheny Institute

Additional Funding for Sporting Goods Retailer?

by Policy Brief

Dick's Sporting Goods has announced plans to move from its current headquarters location to another site near Pittsburgh International Airport to accommodate a growing need for space. This will be the company's second move since 2003—the last move, and a subsequent expansion, was done with the funding from state and local taxpayers. But as they contemplate yet another move, will any of the earlier aid be recoverable and will the firm seek even more dollars for this latest relocation?

Proponents of this type of economic development are quick to point out that this is a necessary evil to keep a company from fleeing to another state or area. The success of the sporting goods retailer is used to illustrate the viability of these programs. But if they are so successful—reports indicate the company earned $12.8 million in net income in the third quarter of 2007—why do they need taxpayer money to fuel their expansion?

The sporting goods retailer has received money from both state and local governments as it has outgrown previous spaces. When Dick's moved to its present Findlay Township headquarters, the Redevelopment Authority of Allegheny County (RAAC) agreed to assume the lease of their old office space. The agreement could cost County taxpayers as much as $13.8 million as the RAAC had agreed, beginning in November 2004, to assume the lease at Dick's former office space until June 2019 or until a new tenant can be found. The obligation was $50,737 per month plus an additional $35,000 per month in escrow for taxes, utilities, maintenance, etc. on the property. A new tenant had not been found as of December 31, 2006 (according to the County's 2006 Certified Annual Financial Report) and the County has already paid more than $2.5 million for this move.

In 2005, Dick's wanted to expand its present headquarters and the Department of Community and Economic Development (DCED) awarded them four grants totaling $10.8 million. The package consisted of grants from the Infrastructure Development Program, Opportunity Grant Program, Job Creation Tax Credits, and the Customized Job Training Program. In return for this money, Dick's promised to add 700 jobs over five years.

The municipality and school district also pitched in by granting the firm property tax abatements on the original headquarters building and subsequent move into the present location.

Their corporate citizenship standing is further being called into question as Findlay Township and school district officials claim the retailing giant owes more than $200,000 in back taxes since the end of their abatement agreement in August 2007. While the problem is being blamed on County assessments, it is creating a burden for the municipality which had to raise taxes to maintain their budget. Company officials are now seeking new tax abatement agreements to cover this new relocation. This time they are meeting resistance from municipal and school officials who are claiming the first set of abatements has negatively impacted their constituents.

But what will happen to state taxpayers' investment in the company's $10.8 million economic development package received in 2005? According to each program, the recipients must agree to certain conditions or they must repay some if not all of the money plus penalties and interest. One requirement—specifically that they must remain at the project site for a minimum of five years—will not be honored. Since they plan on moving after only three years, will Dick's be required to forfeit any of the grant money or will state officials turn a blind eye to any grant violations?

It appears the company hasn't violated the requirements of the Customized Job Training or the Job Creation Tax Credit Programs since each only requires a firm to remain in Pennsylvania for five years. However, the other two programs, Infrastructure Development and Opportunity Grant, do require that the recipient of the grants remain at the project site for a minimum of five years. On the surface this seems to be a clear breach of the terms of the programs, but as was pointed out in the Auditor General's report of the Opportunity Grant Program (October 2007), there seems to be a tremendous amount of discretion by those in the DCED when it comes to determining if a violation has occurred and whether it warrants a penalty. Thus it is very unlikely Dick's will be forced to repay any of the grant money. In fact, it is very likely they will be able to apply for more money to subsidize the next move since the programs' applications requirements merely preclude applying for assistance in two successive years.

These programs were primarily intended to assist companies who would otherwise not be able to start up and grow—not benefit already profitable national retailers. As for the argument that in absence of these grants firms would leave the area, US Airways is a prime example of a firm who received millions from taxpayers yet pulled up stakes anyway. Government intervention leads to more government intervention and Pennsylvania politicians seem bent on proving the truth of that statement. Taxpayers are not venture capitalists. If corporations are successful and need to expand, then they should be funding expansions from that and future successes. Indeed, US Steel's announced plans to invest $1 billion in the Clairton Coke Works without any monetary assistance from government represents the gold standard of corporate responsibility and citizenship.

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Frank Gamrat, Ph.D., Sr. Research Assoc.
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