What Tennessee Paid to Lure Lawbreaking Volkswagen to Chattanooga

Tennessee taxpayers have financed hundreds of millions of dollars in economic incentives for VW to locate and expand a plant in Chattanooga that manufactures one of the vehicles involved in the emissions cheating scandal. What happens to that money now?

Sue Sturgis The Institute for Southern Studies
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Federal, state and local taxpayers have poured hundreds of millions of dollars in incentives into Volkswagen's Chattanooga plant, where one of the cars at the center of the company's emissions cheating scandal is made. ,Larry Miller via Flicker

The scandal over Volkwagen's illegal scheme to sell diesel vehicles equipped with software designed to cheat U.S. air pollution limits is widening.

The estimated number of affected vehicles was upped this week from almost 500,000 sold in the U.S. since 2008 to 11 million worldwide. Both the U.S. Environmental Protection Agency and the Justice Department have launched investigations of the German automaker, and hearings are being planned by the U.S. House Oversight and Investigations Subcommittee and the Tennessee legislature. Germany's transit ministry is investigating, and officials in France, Italy and South Korea are also looking into the matter.

Volkswagen could reportedly face a fine of as much as $18 billion as well as criminal charges. The company's stock price fell 31 percent over two days amid a sell-off, and on Wednesday its CEO resigned.

Meanwhile, anger is growing over the scandal in Tennessee, where taxpayers in the state with the nation's 11th highest poverty rate have spent hundreds of millions of dollars on incentives to lure and keep a $1 billion Volkswagen plant in Chattanooga. The plant makes the Passat, one of the four-cylinder diesel models found to have the cheating software. The other affected models, all with the same engine, are the Audi A3, Beetle, Golf and Jetta.

On Monday, Tennessee Gov. Bill Haslam (R) said he was "very concerned" about the cheating revelations, which he first learned about in a courtesy call from EPA head Gina McCarthy late last week before the agency's public announcement. Tennessee Lt. Gov. Ron Ramsey (R) called the news "depressing" and "hard to believe."

"We've made a huge investment," Ramsey noted.

How huge, exactly?

* In 2008, VW got $577 million in incentives from federal, state and local governments to open the plant in Chattanooga, which now employs more than 3,200 people.

* Last year, state and local governments offered VW incentives valued at $230 million to expand its operations in Chattanooga rather than Puebla, Mexico, the site of the company's other major North American auto plant. Combined with other tax breaks, credits and incentives, the package could add up to more than $300 million over the next decade.

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* Earlier this month, Tennessee's State Building Commission approved $168 million in state incentives to help VW add SUV production at its Chattanooga plant. The expansion is expected to add about 2,000 workers.

"I am very concerned as to the financial impact these violations could present to the state of Tennessee," state Sen. Bo Watson (R), who has criticized VW as a "magnet for organized labor," wrote in a letter to the state Senate Finance Committee chair. "Any action that threatens the stability and sustainability of the investment should be reviewed by the finance committee, without delay."

The state portion of the latest incentive package would be subject to a "clawback provision" if VW fails to meet its spending and hiring goals at the Chattanooga plant, The Commercial Appeal reports. But the original incentive package given to VW is not subject to such a provision.

Sue Sturgis joined the Institute in November 2005 as director of Gulf Coast Reconstruction Watch, a project to document and investigate the post-Katrina recovery. A former staff writer for The News & Observer in Raleigh, North Carolina and Durham, North Carolina's Independent Weekly, Sue directs and writes for the Institute's online magazine, Facing South, with a focus on energy and environmental issues. She is the author or co-author of numerous Institute reports, including "Life After BP" (2011), "Faith in the Gulf" (2008), "Hurricane Katrina and the Guiding Principles on Internal Displacement" (2008) and "Blueprint for Gulf Renewal" (2007). Her work has also appeared in other publications including The American Prospect, The Progressive, and Salon. Sue holds a master's degree in journalism from New York University and a bachelor's in social work from Penn State.