Amazon is seeking a location for its second corporate campus — already known as “HQ2” — and the company has turned its search into a surreal spectacle by inviting local governments to publicly court the multi-billion-dollar company with tax incentives and subsidy packages. Public officials are eagerly playing along — in one case even offering to change their town’s name to “Amazon” if selected — and hurling billions of dollars worth of tax cuts Amazon’s way.
That’s public money, of course, that might otherwise go to vital public services like schools and sanitation.
With so much publicity around the Amazon sweepstakes, commentators are more attuned than usual to the grotesquerie of the spectacle of ultra-rich corporations soliciting public money, and politicians’ willingness to hand it over. Ask an average progressive what they think of wooing the private sector on the public dime, and they’ll probably tell you it should be illegal.
Which begs the question: why aren’t any elected leaders trying to outlaw it?
Municipal Hunger Games
There’s nothing new about interstate corporate bidding wars, but a couple of features made Amazon’s stand out when it was announced last fall. For one thing, it was highly publicized and open to any locality. That encouraged wildcard and underdog contenders, 238 in total, generating gripping suspense and national media attention. Amazon carefully cultivated this game show atmosphere by publicizing the process. Its “shortlist” of cities isn’t very short at all, encompassing nearly all the country’s metro areas — home to a combined 28 percent of the American population, ensuring that millions of people are tuning in. And Amazon promises to deliver a whopping fifty thousand jobs to the victor. While the credibility of that number can be questioned, even half that number would be historic. It’s clear that whichever city the campus lands in will be forever altered.
The cities that made the HQ2 shortlist in January got there by offering Amazon what it wants most: major tax breaks and cold hard public cash. Although available information is sketchy, it all points to unprecedented tax giveaways. St Louis and Southern Illinois offered a combined incentive package worth $7.1 billion, and didn’t even make the shortlist. The Newark package is worth about $7 billion, and the Maryland bid is a combination of about $3 billion in state tax breaks and $2 billion in state and local transportation and infrastructure upgrades. (“For all practical purposes, it’s a blank check,” the governor said.) For scale, the deal Tesla struck for its factory in Reno was worth $1.3 billion.
The purpose of this media spectacle was to hype the project, up the stakes, supercharge the competition, and increase cities’ willingness to debase themselves for Amazon. Now, having released the shortlist, the company has announced it will be going dark, conducting the rest of the selection process in private. “It’s kind of ironic,” says Greg LeRoy of Good Jobs First, a nonprofit that researches corporate subsidies. “Amazon issued this public call and this frenzy ensued, but then it didn’t disclose all the names of the bidding entities. They wanted to have it both ways: they wanted to have the pressure generated by this insane amount of earned media and all of these politicians acting like trained seals, and then go into the backroom to seal the deal.”
Money for Nothing
A smart corporation like Amazon, which has long had a sophisticated tax incentives department, knows how to play municipalities off each other so they end up overpaying for the deal. And when a city overestimates the value of corporate relocation, that money doesn’t come out of the public coffers only once — it just keeps coming and coming.
“There’s no such thing as free growth,” says LeRoy, meaning “either Amazon pays for the growth that induces, or everybody else gets struck with the bill.” One example is Tesla’s deal in Reno. The company is inducing a lot of growth in that area, LeRoy says, but it’s not paying for very much of it because of the tax breaks that it’s gotten. “So we know that the school system is going to be stressed, the taxpayers will have to pay higher property and sales taxes.”
Another example is Boston, where General Electric has recently elected to relocate its headquarters — and its highly paid corporate employees. “A lot of people said, you know, we’ve already got a big affordable housing crisis here,” LeRoy says. “You’re going to bring people at the top end of the housing market into this market, it’s just gonna make things worse.” An overcrowded housing market can be a major financial drain on a city, which then needs to pay out of pocket to deal with escalating problems like homelessness and crowded transit. Meanwhile, the company causing the problems isn’t contributing to the funding stream because of the tax breaks that lured it there in the first place. If public officials overplay their hand in a deal like this — and they often do — the company gets a free ride and everybody else is stuck with degraded public services and higher taxes.
But perhaps the grimmest aspect of all this is that in the final analysis, companies don’t actually make their decisions based on the tax incentives cities lay at their feet. The most important variable for a company like Amazon is, far and away, a city’s existing labor market. Despite posturing as if they hold all the cards, companies largely need to go where the workers are. “If you’re gonna hire fifty thousand brainiacs,” says LeRoy, “and you also have a reputation for extremely high turnover, chewing people up and spitting people out, you need a really big labor market with a lot of people trained in marketing and design and law and accounting and so on.” Specifically you need to be situated near a maximum number of graduate schools and existing corporate headquarters from which you can poach employees.
LeRoy points out that 98.2 percent of large corporations’ cost structures are not local and state taxes. Cities can bend over backwards to make a difference in the 1.8 percent they can affect with tax incentives, but ultimately the decision will be made based on other factors. Companies can then use the charged atmosphere of a public competition to squeeze extra cash from contending cities, even though it won’t matter that much to the final decision. “The system has grown up in such a way that it enables them to get a bunch of free money to do what they would do anyway,” says LeRoy. “They’re playing it like a fiddle.”
When unscrupulous public officials fall for these corporate mind games, they endanger their constituents’ livelihoods and gamble with the economic fate of their cities and states.
It’s not hard to imagine how this race to the bottom could be stemmed. Congress could prohibit state governments from participating in bidding tournaments against other state governments. The federal government could withhold funds from governors and mayors who threaten to poach jobs from other states, or who won’t disclose their incentive packages. LeRoy even thinks it would be possible to intervene in the war between states by executive fiat — a prospect that will look brighter when we don’t have a president who uncritically endorses this kind of contest, as Trump did on the campaign trail.
But with the corporate world united on this issue, there seems to be a bipartisan consensus in favor of perpetuating the race to the bottom. Consider the case of DaimlerChrysler Corp. v. Cuno, brought before the Supreme Court in 2006. In that case, taxpayers sought to challenge incentives offered by the state of Ohio to the Chrysler corporation over the relocation of a Jeep plant. The case barely made news for ordinary Americans, but it elicited an enormous amount of corporate pushback.
“Two corporate coalitions were formed on K Street just to file amicus briefs against the plaintiffs in the case,” recalls LeRoy. “Thirty-seven states, almost every association of state and local elected officials, and many companies and trade associations filed amicus briefs against the plaintiffs.” LeRoy’s organization was one of a handful of scrappy nonprofits that chimed in their support for the taxpayers. The case was thrown out on a technicality, but lawmakers in Congress were reportedly waiting in the wings with legislation that would undermine the Supreme Court’s decision if it had been unfavorable to corporate America.
As a result, politicians have been silent. “We haven’t had any leadership on this issue,” says LeRoy, “from the National Governors’ Association, or the International Economic Development Council, or the National League of Cities, or the US Congress of Mayors, or the National Conference of State Legislatures.” In recent times he recalls only one state supreme court judge in North Carolina who stuck his neck out for the cause, and resigned in protest.
Few phenomena better exemplify our neoliberal dystopia than the spectacle of ruinous competition among destitute localities prostrating themselves at the feet of corporations — with the tacit approval of both parties.