The Amazon tax-cut derby
Cities and states across the country are going to embarrassing lengths to woo online megaretailer Amazon, which has created a “Bachelor”-like competition to decide where it will locate a new, $5-billion second corporate headquarters with 50,000 high-paying jobs.
An economic development group from Tucson volunteered to truck a 21-foot saguaro cactus to Amazon’s existing Seattle headquarters. The mayor of Frisco, Texas, near Dallas, has offered to build his growing city around Amazon’s corporate offices if the company chooses to move there. The town of Stonecrest in Georgia went a step further, proposing to de-annex more than 345 acres of land so the company could create a new city of Amazon.
And New Jersey Gov. Chris Christie is advocating up to $7 billion in tax credits to persuade Amazon to move to the Garden State. The cactus and other gimmicks are cute, but New Jersey is probably the suitor that understands best what Amazon is shopping for.
Amazon’s seven-page request for proposals says the company wants financial incentives, such as land, tax credits, relocation grants, workforce grants and fee reductions to help offset both the capital costs of building its mega-campus and the “ongoing operational costs.” Got that? Amazon wants a permanent subsidy. And if it wasn’t already clear enough, the company adds: “The initial cost of and ongoing cost of doing business are critical decision drivers.”
The retail giant’s request for proposals is a savvy, if cynical, move, given how desperate many American cities are for the prestige of a corporate headquarters, along with the good-paying jobs and the investment they bring. And in fairness, the Amazon project would be a real boost to any local economy.
The problem, however, is that state and local governments are rarely that savvy when it comes to negotiating a good deal for the taxpayers. For starters, it’s a buyer’s market; the competition among communities for a big new facility only drives the amount of subsidy up, not down. And it can be hard for public officials to tell when they’re really being considered for a facility, as opposed to merely being used as leverage to extract more concessions from other cities. It seems unlikely that a company like Amazon, which was built on data analysis, didn’t have a short list of desired locations before it opened the bidding.
More fundamentally, local officials often assume — or take a company’s word for it — that the economic benefits brought by the company will dwarf the cost of the incentives. But officials rarely require a solid economic analysis before or after awarding tax breaks to determine whether the incentives were cost effective, according to a 2012 report by the Pew Center on the States.
Only in the last several years have a few states begun to require regular evaluations of their tax incentive programs. There’s also a new government accounting standard that requires states to report the total tax revenue forgone each year because of tax breaks.
Nor are officials rigorous about holding companies accountable for delivering what they promised. For example, Washington state approved tax breaks worth $8 billion in 2013 so the aerospace industry — and Boeing in particular — would stick around and hire more people. Since then, however, the company has slashed its workforce in the state by 15%. Now, belatedly, state lawmakers are trying to pass legislation to tie the tax breaks to job creation.
A company’s fortunes rise and fall, so cities and states would be foolish not to get a binding commitment from Amazon (or any corporation they’re wooing) on the number of jobs that the company will create and the salaries it will pay. Any deal ought to require the company to forgo tax relief or repay the money if the company doesn’t deliver.
Amazon’s second headquarters could be a huge boon for whatever region lands the deal — if local leaders don’t give away the store to get it.