Ama­zon HQ2: Win by los­ing

The Community Connection - - OPINION - Low­man S. Henry Colum­nist Low­man Henry is CEO. Lin­coln In­sti­tute of Pub­lic Opin­ion Re­search. Low­man Henry

Two Penn­syl­va­nia cities are com­pet­ing to be­come Ama­zon’s sec­ond na­tional head­quar­ters. Undis­closed bil­lions in tax­payer dol­lars are be­ing of­fered to lure the on-line gi­ant and the 50,000 plus jobs and spin-off eco­nomic ben­e­fits the fa­cil­ity will sup­pos­edly gen­er­ate.

This is a case where we might win by los­ing.

The HQ2 sweep­stakes is a prime ex­am­ple of the mis­guided “eco­nomic de­vel­op­ment” poli­cies prac­ticed in Penn­syl­va­nia and most other states which try to over­come high taxes, bur­den­some reg­u­la­tions, and an­ti­quated in­fra­struc­ture by of­fer­ing tax cred­its and other in­cen­tives to en­tice busi­nesses to lo­cate or ex­pand within their bor­ders.

In ad­di­tion to the flawed premise that this ac­tu­ally works, the HQ2 com­pe­ti­tion has be­come even more egre­gious due to the lack of trans­parency in the bids be­ing of­fered by Pitts­burgh and Philadel­phia. Tax cred­its and other in­cen­tives are a de facto ex­pen­di­ture of pub­lic funds. Such ex­pen­di­tures are not di­rectly ap­pro­pri­ated by gov­ern­men­tal bod­ies, but rather are hid­den in var­i­ous bud­get cat­e­gories es­sen­tially ced­ing to non­elected bu­reau­crats con­trol of tax dol­lars.

The state, county and mu­nic­i­pal gov­ern­ments in­volved have re­fused to dis­close de­tails of their pro­pos­als claim­ing the need to keep such in­for­ma­tion hid­den from com­peti­tor cities which might use the data to one up Penn­syl­va­nia’s pro­pos­als. Trade se­crets are fine for pri­vate com­pa­nies, but tax­pay­ers de­serve to know how much of the pub­lic wealth is be­ing of­fered to en­tice a large and enor­mously prof­itable com­pany to lo­cate here.

Based on ex­ist­ing busi­ness cli­mate con­di­tions, and ab­sent tax cred­its and in­cen­tives, nei­ther Pitts­burgh nor Philadel­phia or any lo­ca­tion within our state’s bor­ders would be even re­motely com­pet­i­tive in the HQ2 sweep­stakes. In fact, re­gard­less of how sweet of­fi­cials make their of­fer, Penn­syl­va­nia has vir­tu­ally no chance of land­ing Ama­zon.

With the sec­ond high­est cor­po­rate tax rate in the na­tion, reg­u­la­tors that are in­her­ently hos­tile to busi­ness, and a leg­is­la­ture con­stantly on the prowl for new rev­enue sources to feed its spend­ing ad­dic­tion, Ama­zon could lo­cate vir­tu­ally any­where else in the na­tion and find a more hos­pitable cli­mate in which to do busi­ness.

This was driven home in the re­cent Rich States/Poor States re­port re­leased by the Amer­i­can Leg­isla­tive Ex­change Coun­cil (ALEC). Over­all Penn­syl­va­nia ranked 38th. The good news is we eclipsed our neigh­bor­ing states New York and New Jersey, the bad news is other mid-At­lantic states such as Vir­ginia and North Carolina as well as south­ern pow­er­house states like Florida and Texas leave us in the dust.

Penn­syl­va­nia also has some tick­ing fis­cal time bombs. Most notably state pub­lic em­ployee pen­sion sys­tems fac­ing over $60 bil­lion in un­funded li­a­bil­i­ties that at some point will re­quire a mas­sive in­fu­sion of dol­lars from the gen­eral fund. Add in high prop­erty taxes, high unem­ploy­ment and work­ers’ com­pen­sa­tion costs, and a large state debt bur­den and the Key­stone state be­comes a very unattrac­tive place to lo­cate.

When a com­pany is awarded tax cred­its and other in­cen­tives to lo­cate or ex­pand in Penn­syl­va­nia those al­ready con­duct­ing busi­ness here un­will­ingly pay the price. That is be­cause when one com­pany does not pay its fair share of taxes, oth­ers must make up the dif­fer­ence. In the case of Ama­zon, the brick and mor­tar stores with which it com­petes will pay more to sub­si­dize a di­rect com­peti­tor who would ben­e­fit from state and lo­cal tax breaks.

Be­cause of the overt se­crecy sur­round­ing the bids by Pitts­burgh and Philadel­phia to con­vince Ama­zon to lo­cate HQ2 here we do not know ex­actly how many pub­lic dol­lars are be­ing of­fered, nor has there been any in­de­pen­dent anal­y­sis on the over­all eco­nomic im­pact of the in­cen­tive pack­ages. Worse, even when Penn­syl­va­nia has “won” such com­pe­ti­tions many com­pa­nies stayed only as long as the tax abate­ments and in­cen­tives lasted.

With Ama­zon shin­ing a bright light on the process, now is the time for pol­icy-mak­ers to re­assess hav­ing govern­ment pick win­ners and losers, and in­stead take the steps nec­es­sary to im­prove Penn­syl­va­nia’s eco­nomic cli­mate for all busi­nesses.

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