Chasing a glamorous Amazon
Don’t be surprised if Pennsylvania offers up the East Huntingdon industrial graveyard where — hefty incentives notwithstanding — Volkswagen, Sony and Aquion Energy lie in repose as a potential site for the second headquarters of the company that would rule the world.
Amazon’s promise of 50,000 full-time jobs paying average salaries of more than $100,000 has visions of sugar plums dancing in the heads of mayors and governors across the land. The frenetic sweepstake hopefuls include Pennsylvania, fresh off the heels of luring a Shell Chemical ethane cracker plant to Beaver County with a grab bag of $1.6 billion in taxpayer-supported incentives.
Richard Florida, who made a name for himself at Carnegie Mellon University espousing the creative class as an economic engine, has pronounced Pittsburgh, Nashville, Detroit and Austin as sleepers in the Amazon sweepstakes.
Andwhy not? We have the talent.We have the universities. We haveaffordable housing.
And Pennsylvania has a track record of being generous when it comes to dangling carrots in front of companies offering economic cure-alls.
In the 1970s, the state provided about $75 million to Volkswagen, which promised as many as 20,000 jobs at its Westmoreland County plant. Employment never got anywhere near that number before the plant shut down in 1988 after 10 years.
Sony, armed with $40 million in incentives, lasted a little bit longer.
But battery maker Aquion Energy proved to be no Energizer bunny. After promising 341 jobs in exchange for nearly $19 million in state grants and loans, Aquion declared bankruptcy in March, saying it owed Pennsylvania $5 million from loans, $2.9 million to the Regional Industrial Development Corp. of Southwestern Pennsylvania, and more than $500,000 in back taxes.
The economic development dreams buried at the East Huntingdon site raise the question of whether Pennsylvania is capable of analyzing how much it should pay for the substantial
benefits that Amazon would bring to the region.
“The thing that governors and mayors need to do is be very careful that they do not over promise in the interest of winning,” said David Clingingsmith, who teaches economics at Case Western Reserve University.
Amazon’s very public process of soliciting bids intensifies the competition and increases the chance of bidders offering more than the prize is worth, he said. It wouldn’t be the first time, because there’s not much information available to make a sound assessment.
“There’s not much data on incentives and it’s hard to get the data,” said Timothy Bartik, senior economist for the Upjohn Institute for Employment Research.
Mr. Bartik has compiled a database of incentive offers from 1990 to 2015 and estimates the average deal eliminated about 30 percent of the receiving company’s business taxes.
His February report concludes that governments offered about $45 billion in incentives in 2015. While the pace of growth has slowed, and some of the incentives are well-designed, “Incentives are still too far broadly provided to many firms that do not pay high wages, do not provide many jobs, and are unlikely to have research spinoffs,” the report concluded.
Recent changes in government accounting rules may make it somewhat easier to evaluate whether incentives are good investments. Governments must now annually disclose the impact incentives have on tax revenue.
However, only one number — reflecting the revenue lost from all incentives — will be disclosed. The impact of individual projects, like what tax revenue Pennsylvania is forgoing from Shell, won’t be disclosed unless a government does it voluntarily.
“My view is that all of this stuff should be disclosed. Not just the aggregate, but on a company-bycompany basis,” Mr. Bartik said.
Whatever the price tag, Greg LeRoy of Good Jobs First, a watchdog group that studies incentives, maintains that incentives are seldom the decisive factor in where a company decides to locate.
Mr.Florida’s prediction ofwhere Amazon will settle —Washington, D.C. — reflects that reality. He notes that the nation’s capital meetsAmazon’s criteria of a dense,walkable urban centerwith mass transit and a multitudeof knowledge workers.But it’s also where Amazonfounder Jeff Bezos recentlypurchased a $23 millionhome.
“People typically do not buy $23 million homes without an intent to live in them,” Mr. Florida tweeted.