FRIDAY, Feb. 1, 2013, was a red-letter day for a proposed Arkansas steel mill called Big River Steel. With a cost estimated at around $1.3 billion, the project, if it got off the ground, was expected to be the largest industrial development in Arkansas history, easily exceeding the cost of two Nucor steel plants situated just 30 miles from the planned site of the new mill.
As is typical of such things, the people who dreamed up Big River Steel wanted government aid that would help make the project successful — the kind of aid that groups like Heritage Action and Americans for Prosperity, both generously supported by the right-wing billionaires Charles and David Koch, derisively describe as “corporate welfare.”
For instance, the Arkansas Legislature was considering a $125 million bond issue to help pay for the mill’s construction, as well as over $200 million in tax credits for buying and installing recycling equipment. The recycling credits would go to the investors, though, not the mill itself.
The deal also depended on an $800 million 10-year loan from a German bank, KfW IPEX-Bank. That loan, in turn, was contingent on credit insurance provided by Euler Hermes, a credit agency like the Export-Import Bank of the United States. In America, of course, Koch-funded groups have led the battle to defund the Ex-Im Bank, which Congress declined to reauthorize this summer, in part because of pressure applied by those groups. (On Friday, Ex-Im backers in the House said they had enough support to force a reauthorization vote.) Opponents argue, among other things, that giant corporations like Boeing and General Electric that make use of the Ex-Im bank shouldn’t put taxpayers’ money at risk to finance their exports.
The Germans have no such ideological hang-ups. Because Big River Steel would be buying its steelmaking equipment from a German company, SMS Siemag AG, and because the deal would lead to German exports “while also safeguarding many qualified jobs for the exporter in Germany,” as a news release later put it, the German government was only too happy to insure the loans, through Euler Hermes.
So what happened on Feb. 1, 2013? On that day, the Arkansas Legislature was informed that Big River Steel had a new investor: none other than Koch Minerals, which is part of Koch Industries, the Koch brothers’ privately held industrial conglomerate. The Kochs, you see, had decided to take a 40 percent equity stake, making them the project’s biggest investor. In doing so, of course, the Kochs were taking advantage of the same “corporate welfare” they had long condemned — while relying on the kind of government credit agency they are trying to dismantle in America.
When I asked a Koch Industries spokesman about the company’s willingness to take advantage of tax incentives and other government goodies, he gave me the standard response to such queries. “Koch Industries has consistently opposed and actively lobbied against all forms of corporate welfare, including those we currently benefit from,” read an emailed statement. “With that said, we will not put ourselves and our employees at a competitive disadvantage in the current marketplace.” In other words, the Kochs believe there is nothing hypocritical about employing government subsidies they oppose.
But I’m not so sure. The Arkansas incentive package ultimately passed, the German government-insured loan was completed and the plant should be up and running next year. And thanks to the recycling tax credits, the Kochs will recoup a significant portion of their investment even if the mill never makes a penny in profit. Indeed, the Kochs’ involvement helped give Arkansas legislators the comfort they needed to approve the incentive package. It gave “validity to the project,” one state legislator told the Arkansas Democrat-Gazette.
“We don’t have the budget to hire people to do due diligence,” says Grant Tennille, who was then running the Arkansas Economic Development Commission. “If people like the Kochs walk in the door, with a reputation and money, that’s a big deal.” In other words, the Kochs didn’t just take advantage of corporate welfare; their involvement was the impetus for the corporate welfare Big River Steel got.
Perhaps more important, the Big River Steel project offers a clear illustration of why those who want to put the Export-Import Bank out of business are dead wrong.
Usually, big new plants are built by existing companies, but that’s not the case with Big River Steel. It is the brainchild of the late John Correnti, a steel executive who rounded up bank financing and investors. (Correnti died in August; the new chief executive is the project’s investment banker.) A group of investors, even one led by a seasoned executive like Correnti, was never going to be able to get the $1 billion-plus needed to build Big River Steel without government help.
“Because of the size of the loan and the 10-year repayment period, private insurers would not have wanted to pick it up,” says Jonathan Bell, the editor in chief of Trade and Export Finance. “And banks wouldn’t have touched it with a 10-foot pole.” There is also usually a grace period during construction that would make banks wary, Bell adds. “This is exactly what export credit agencies are good at,” he says: stepping in to complete deals that make business sense but need the backing of a sovereign to complete.
This would seem to offer a rather resounding rejoinder to the right-wing refrain that giant companies like G.E. ought to be able to finance their own exports. Sometimes that’s simply impossible. SMS Siemag is a reasonably big company, yet there was no way that Big River Steel could borrow the money to buy its steelmaking equipment without the involvement of the German government. Understanding that, Germany facilitated the deal — because it would benefit German exports and German workers.
As for American workers, Big River Steel likes to brag that the mill will provide 525 well-paying jobs. But with the steel industry in a terrible slump, it will surely result in layoffs for other American steelworkers. Those nearby Nucor plants are operating at less than 75 percent capacity; other American steel mills are faring no better. Nucor, in fact, has tried to block Big River Steel, largely because it fears the effect the new mill will have on the steel industry over all. Thus are the Koch brothers helping German workers while hurting Americans.
Bell, the editor who covers export credit agencies, sounded appalled at the fight over the Export-Import Bank. “A lot of U.S. companies are going to lose business,” he said. Then he added, “Those Tea Party idiots have no idea how business is done in the real world.”
But the Koch brothers sure do.
