State Watch

States, cities rethink tax incentives after Amazon HQ2 backlash

State and local governments are reconsidering their efforts to use tax incentives to attract major corporations after a decade of mega-deals handed billions of dollars to some of the wealthiest companies in America.

Those deals typically involved states, counties and cities giving companies subsidies or allowing them to forgo paying some taxes in return for a pledge to create a certain number of jobs. At the height of the recession and in the early years of the economic recovery from the global financial crisis, governors and legislators were eager to show they were bringing jobs to their states.

The price tags were steep: Washington State approved an incentive package worth $8.7 billion to keep Boeing jobs in the Seattle area. New York offered Alcoa a package worth $5.6 billion in 2007. Nevada handed Tesla a $1.3 billion package in exchange for a high-tech gigafactory.

More recently, President Trump helped close a deal that was supposed to bring the Chinese manufacturing company Foxconn to Wisconsin in exchange for a $4.8 billion deal.

Then came Amazon’s proposed HQ2 project, in which the company promised to deliver 50,000 high-paying jobs to the winning community. Across the nation, 238 cities prostrated themselves for Amazon’s business, in some cases offering the company free land or to change their own names.

Amazon ultimately chose to split the project between Northern Virginia and New York City, potentially reaping billions in incentives for the third-most valuable corporation in the world.

But studies in retrospect show many of those deals rarely work out, either because the company does not deliver the promised jobs or because the promised residual economic growth never materializes. A recent study by Columbia Business School business professor Cailin Slattery and Princeton economist Owen Zidar found that state and local governments pay out an average of $119,000 in tax incentives for every job created.

Now, state and local governments are pumping the brakes on big new tax incentive packages, and moving to shine a more transparent light on those that are approved — a rethink prompted, in part, by the backlash to Foxconn and Amazon, which retreated from its New York City decision after backlash from community groups and local elected officials.

“HQ2 really threw some gasoline on the fire. Foxconn had already heated things up,” said Greg LeRoy, executive director of Good Jobs First, which tracks corporate subsidies and incentives offered by state and local governments.

In New Jersey, Gov. Phil Murphy (D) created a task force to review previous incentive deals struck by the state’s Economic Development Authority, which identified a number of projects that did not deliver as promised.

This week, the Economic Development Authority asked the Philadelphia 76ers basketball team to repay $400,000 in incentives awarded when the team moved a practice facility to Camden, N.J., in 2016.

“Their reports have been ugly, including people who were gaming the system,” Murphy told The Hill of his task force’s work. “We were throwing money hand over fist at companies, and we were not generating results.”

In Wisconsin, Gov. Tony Evers (D) has been critical of the Foxconn deal he says will not deliver the promised jobs. Evers said in December the state and the company were likely to renegotiate their contract, because Foxconn is not building the product it promised when the initial deal was struck.

“There’s a renewed sense of making these things transparent and accountable. I think that’s a national movement,” Evers told The Hill.

Even in states where projects have hewed more closely to the original plan, lawmakers are reprioritizing, spending more on quality of life issues that would attract a trained and talented workforce rather than on the incentives meant to lure the companies. In Nevada, Gov. Steve Sisolak (D) — who backed the Tesla deal struck by his predecessor — said he would approach future deals differently.

“Every dollar that we have to put towards education is hard to find. Every single dollar. And to abate those dollars is really, really tough,” he said. “I’m not interested in attracting real minimum wage jobs. I’m interested in attracting career-type jobs.”

At least ten states are considering legislation to rein in their government’s ability to offer incentive packages. The bills they are considering, sponsored by both Democratic and Republican legislators, would create an interstate compact in which states agree not to woo businesses from other states with tax incentives.

“We want to push back and take ownership of the process and not be pitted against each other,” said Ron Kim, a New York assemblyman who leads his state’s version of the bill. “These giant corporations should be paying their fair share, just like any other mom and pop businesses. The government shouldn’t be in the business of picking winners and losers.”

But agreeing to disarm can be a tough political pill to swallow, especially if the big corporations that benefit from tax incentives also carry significant political clout.

“The corporations who benefit from these types of programs are very powerful in the state of Florida,” said state Rep. Anna Eskamani (D), who leads Florida’s interstate compact bill. “As long as they set the agenda, they’re going to work hard to make sure that things like this don’t move.”

Some states hit hard by regional rivalries have agreed to disarm. In August, Kansas Gov. Laura Kelly (D) and Missouri Gov. Mike Parson (R) agreed to stop offering incentives for companies deciding to move a few miles between Kansas City, Mo., and Kansas City, Kan. The Kansas City, Mo., council voted in December to limit incentives offered to companies already located in nearby Kansas counties.

Those sorts of cross-border wars — in which companies pit competing local governments against each other — are especially costly to governments in metropolitan areas near state borders. Neighboring-state suburbs around cities like Memphis, Boston, Charlotte and Chicago have all ponied up big incentive packages to entice a company to move just a few miles on one side of the border or the other.

“It really does become a race to the bottom,” said Montana Gov. Steve Bullock (D). “Ultimately, [it] can also mean gutting long-term tax revenues.”

Tags Alcoa Amazon Boeing Donald Trump Steve Bullock Tesla
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