Amazon’s promises to change a city’s fortunes with its HQ2 contest, and, in the words of the boosterish official announcement, “spur the creation of tens of thousands of additional jobs in the surrounding communities,” has rung hollow for many. As residents of New York City and Arlington, Virginia, begin to weigh the full impacts of landing the company’s HQ2 and HQ3, and scrutinize the tax breaks and employment promises, they may want to revisit the history of corporate subsidies.
While the public, city-versus-city race to the bottom structure may seem like a unique product of the reality-show era, it’s just the latest spin on an established tradition of local governments paying for jobs. Cities and states are hooked on incentives, spending tens of billions of dollars on them every year.
“Cities have grown up in a corporate-dominated site-selection system, where public officials are playing poker with a weak hand,” Greg LeRoy, executive director of Good Jobs First, a Washington, D.C., policy center that promotes accountability in economic development, told Curbed. “Their role is to wait for companies to come and knock on the door, and put as much money on the table as possible.”
How common is this practice? Cities and states, for one, seem eager to prostrate themselves and blame themselves for not offering up the greatest financial sacrifice of public money. Pennsylvania belatedly released a letter penned to Bezos suggesting they were ready to pony up billions, while the Pittsburgh group behind the city’s proposal plans to host a news conference to celebrate “how far we progressed in the site selection process.”
A long history of corporate subsidies
Compared to other corporate mega-deals, Amazon’s HQ2 subsidies are far from the worst offenders. Deals for manufacturing and production centers for companies such as Alcoa and Foxconn cost substantially more—and without the promise of so many high-paying tech jobs. They also follow Amazon’s stated maxim of finding a city with a sufficiently talented workforce and infrastructure.
Some subsidy battles have been for bragging rights. A few years ago in the Kansas City metro area, split down the middle by the Kansas-Missouri state line, the two states were engaged in an economic Border War, doling out hundreds of millions of dollars in tax breaks to get companies to move just a few miles east or west. Companies didn’t even change their workforces; some workers just ended up with a longer commute.
The story of the largest corporate subsidy in U.S. history—the $8.7 billion-dollar incentive Washington state provided to Boeing in 2013—may seem radically different than the incentives New York City and Arlington, Virginia, promised to Amazon this week. Boeing’s offer was about keeping a factory in town, and in some ways, it fell flat. After all the hype came the layoffs: 20,000 jobs lost in five years.
Amazon’s official announcement breaks down the subsidies for both locations, each of which will receive approximately $2.5 billion in Amazon investment and 25,000 jobs.
In Long Island City, Amazon will receive $1.525 billion in performance-based direct incentives for creating 25,000 jobs, including $1.2 billion from the state’s Excelsior Program and $325 million from Empire State Development for developing real estate. The company claims that equates to $48,000 per job for 25,000 jobs with an average wage of over $150,000. Amazon estimates the city will receive $10 billion in incremental tax revenue over the next 20 years.
In Arlington, Virginia, Amazon will receive $573 million in direct, performance-based incentives from the city, which includes $550 million from the Commonwealth of Virginia tied to job creation. The company will also receive a $23 million cash grant over the next 15 years based on a local hotel room tax. The Commonwealth will also invest $195 million in local infrastructure. Amazon estimates the region will see an estimated incremental tax revenue of $3.2 billion over the next two decades.
Those offers seem like a lot, but according to research from the Mercatus Center at George Mason University, the average Amazon offering from the 20 semi-finalists—based on the limited public data— was $2.15 billion from cities and $6.75 billion from states over the next 15 years.
Does haste make waste of public money?
Amazon’s contest, which enticed 238 cities to spend extensive time and money making pitches, exemplifies the lack of transparency that often goes hand-in-hand with corporate subsidies. While the game show-like atmosphere of the contest, and the string of announcements and confirmations, seemed to drag on, in reality, a year of closed door meeting isn’t enough to engage locals and build public support for such a large, game-changing urban development.
Both the New York and Arlington offers were negotiated in secret, without public input or a true accounting of the public costs of these subsidies. In Long Island City, the New York City Council had no involvement in the plan; Mayor Bill de Blasio and Governor Andrew Cuomo side-stepped city land use policies. In Arlington, Amazon forced local leaders to sign a deal committing them to warning Amazon of any Freedom of Information Act requests, and doing its best to restrict information access when possible.
According to Good Jobs First, the haste with which deals were negotiated out of the public eye isn’t uncommon. The largest corporate subsidy deal in North Carolina history, a $242 million deal for a Dell factory, was rushed through the legislature in a single day (the plant was closed in 2009). Tesla’s Gigafactory deal, which could be worth $1.3 billion over 20 years, was debated during a special legislative session that lasted a few days. And an Apple data center project in Waukee, Iowa, was debated and approved during a single meeting of the state economic development board last year. Incentives were released 90 minutes before the meeting, with just 10 minutes of public comment included in the agenda.
While the lost tax revenue will be set in stone, city benefits aren’t. Amazon claims that in New York City, the total subsidy package equates to $48,000 per job for 25,000 jobs with an average wage of over $150,000. But often, those estimates are just that, guesses that don’t turn out to be accurate. According to Good Jobs First, past U.S. megadeals have cost an average of $658,000 per job.
The benefits, and the backlash
What may set Amazon apart is the backlash. With so many economic development officials saying that in today’s economy, jobs follow talent, it seemed particularly cruel to ask smaller cities to try and sell themselves in an ultimately futile attempt to land HQ2. And with locals residents in the winning cities having little to no say in these deals, grassroots action is poised to take off.
In New York, Democratic Assemblyman Ron Kim has introduced a bill to block the state’s $1.7 billion subsidy for Amazon and redirect the money towards reducing student debt, arguing in part that it would do more for the average New Yorker. Congresswoman-elect Alexandria Ocasio-Cortez says she’s heard negative feedback from many constituents, and some Queens city councilmembers have come out against the deal, saying Amazon needs to follow traditional community engagement and site review channels.
”Amazon is the poster child for the concentration of wealth and political power in our new Gilded Age,” said New York Working Families Party State Director Bill Lipton in a statement. “Amazon has shuttered local retail stores, grocery stores, and other small businesses in cities large and small, and then viciously fought attempts by its workers to organize. Amazon has disrupted the communities in which it locates, spiking housing prices and driving up homelessness, and then used all its political clout to make sure it’s working families who foot the bill.”
As Bloomberg’s Shira Ovide wrote, the year-long process included Amazon’s rise to a trillion-dollar valuation, Jeff Bezos’s ascension to the position of world’s richest man, and continued anxiety about tech’s negative role in society. The beauty pageant has gotten ugly.
“The year of hoopla during a period of deepening anxiety about powerful technology companies means there will be more attention on whether Amazon is a good corporate citizen,“ she wrote.