Chas­ing a glam­orous Ama­zon

Pittsburgh Post-Gazette - - Business & Region - LEN BOSELOVIC

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.


Sony Drive sign re­placed the VW Drive in 1990 along Route 119 when Sony in­vested more than $300 mil­lion to trans­form the for­mer Volk­swa­gen plant in West­more­land County into a tele­vi­sion pic­ture­mak­ing fac­tory.

Robin Rom­bach/Post-Gazette

One of the empty pro­duc­tion floors in the old Sony plant in Hemp­field and East Hunt­ing­don.

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