This is a really useful article, thank you.
Philadelphia stopped giving incentives to movie production based on conversations I had with a vendor. Guess what? Movie productions are a lot less now. Philadelphia gets less money overall.
Can we be honest? Having cities and states compete with each other is a good thing. Otherwise, governments will look to businesses as parasites look to hosts.
I mean...I kind of get the point of the article I think...except the ballot initiative had nothing to do with tax incentives...as the Warriors didn't receive any tax incentives to move to SF.
Look at that entitled brown welfare queen getting a handout from the hard-working people of Indiana. Sad!
1
This behavior falls squarely into typical the "collective action" problem grouping. It's the prisoners' dilemma at the municipal scale. Failing to realize this means, despite wanting the situation to be different, municipalities will "lose out" in new development. Whether the new development is a good idea/outcome is debatable, but the corporate behavior is no different than should be expected.
1
What everyone calls "economic development" is actually only business development- which is narrow & limited; true "economic development", because it is a public sector term, involves raising standards of living & quality of life outcomes. Persons who use this term have never worked in this field; their measure of success is in business, market terms rather than fulfilling a public purpose as they are supposed to.
If you want to measure your success in business terms, using private money, rather than relying on subsidized funds, I say, join the Chamber of Commerce. Just don't call it "economic development".
2
Why should it be a surprise that voters in general favor offering more (and more) to lure businesses (be it corporates or sports) to come to their city? The one mantra in life, that we all learn as adults, is that, there is no free lunch, and you have to work at it to gain more. (It matters not if you're making gains in the expense of someone else; a win is a win.)
Another reason for it, is the simple fact that cities/towns/states, even countries, are lacking in self-confident. How many of them can truly claim that, we are doing so well, we don't really need more business? How many of them can honestly say that their position is so strong that they don't have to lift a fingers, and companies will come begging to relocate to their city? The answer, is no, and no.
When a giant like Amazon comes to town, the network effect is immediate. Yes, that's the prestige factor, but it can also kick start a virtuous cycle (which cities like SF and Boston are already on that trajectory) to bring in more jobs and talents.
There are of course residual effects that can be perilous. Housing, for one, will get expensive. Those in the fringe will get pushed out even further. But, those are good problems to be had. Just ask Detroit if they would rather deal with gentrification than a city in decline.
1
This has been a real problem in Kansas City, on both sides of the state line between Missouri and Kansas. One of the worst examples was the hundreds of millions in tax benefits for the AMC Theater chain, which moved just over the state line into Kansas in order to get tax breaks. Shortly thereafter, the chain was acquired by a Chinese company, which got all the benefits. Neither city gained a damned thing.
2
Why don't states, cities, towns form a consortium called the "Aid to Taxpayers"?
Then agree to not offer any "incentives" to companies that are always to the detriment of taxpayers.
It is so ridiculous that anyone thinks they "have to" do this to get a company.
The company HAS TO GO SOMEWHERE! Don't you know!
1
This is not even a zero sum game. We throw money at a company to move, which leaves vacancies and unemployment behind and often creates disruption in the new location, and is almost never the economic stimulus that was expected. One of the costs of the new largesse should be the releasing of vacant space and the unemployment costs of the people left behind.
1
As usual, with anything in life, eliminate the extremes.
What I mean by this is don't go to either extreme.
Don't make your area so unfriendly to business with taxes, no incentives etc. but also don't turn it into a corporate welfare area.
I have seen it happen both way in my lifetime in my general area of Bklyn.
In the 1970s, with the pols. bloating the welfare rolls up to one million and demographics attributing to a super high crime rate among other things, business left NYC.
Now with corporate welfare for the film industry in my area of Greenpoint, studios are getting massive tax breaks, other incentives, filming 24/7 on the streets interrupting life here 24/7, doing nothing for the community except headache, catering their own food instead of buying from the area etc. etc.
It has come to a point where the community has come to dread them as being more harming to the area then helpful.
2
Having been in the ec-dev business for a dozen years, let me add a couple things: (1) Voters don't understand municipal/state finances regarding costs and benefits of growth; new residential development, especially in sprawl-like greenfields, can easily cost municipal governments more than they benefit from taxes. The ultimately cost/benefit of an incentive deal depends on many factors, including the ability of existing local people to secure the new jobs; the costs of serving new residential and commercial growth; the economic resilience provided if the economy becomes more diverse as a result of the new business/industry (building a new industry cluster might be a good investment); and the terms of the incentive package - e.g. is the company required to hire or at least try to hire disadvantaged citizens who need the new jobs the most? Second, there are rare cases where a particular local/state tax or economic factor really is a deal-killer for a company/industry, and if the governing body won't address that unfairness for the entire industry, which is preferable, an incentive package must be assembled to overcome it project by project (very un-preferable). In these cases, the incentive packages reflect poor economic governance more than competitive dealmaking. Third - why do voters care about ec dev happening? Often, they want diverse/quality job/entrepreneurial opportunities that will allow their children to not move away....and are willing to pay for it.
2
In 2012, the (New York) Times analyzed more than 150,000 awards and created a searchable database of incentive spending.
Here is the actual web address of the database:
http://www.nytimes.com/interactive/2012/12/01/us/government-incentives.html
$80.4 billion in incentives each year
1,874 Number of programs
2
Corporation advertise they are "Good Corporate Citizens." One way they can prove it is to pay their fair share of taxes - from Day 1, without placing any additional cost or debt on the existing residents or any backroom deals with the local, County and State Elected Politicians.
We must find a way to hold self-interested and self-enriching Politicians and their staffers, from both parties, personally and financially liable, responsible and accountable for the lies they have told US, their gross mismanagement of our county, our $21T and growing national debt (106% of GDP), and approximately 80T in future, unfunded liabilities jeopardizing our economic and national security, while benefiting themselves, their party, and special interest donors.
http://www.usdebtforum.com
2
Politicians raise taxes on businesses to the extent that doing business is unaffordable, and then the leftists blame the corporations for declining to participate.
Can you cite a number of examples? There are also firms that received such "incentives" and packed up a few years later nonetheless, leaving big time debt to the local taxpayers and not a few folks unemployed. The Jeep factory in Kenosha, WI and the NFL stadium in St. Louis are but two examples.
Boston is giving GE an enormous amount of money to move its headquarters there, even after the company left the state twice. GE Plastics was sold in the early 2000s, then closed a few years later. GE Power Systens closed a plant in Fitchburg in the early 2000s.
These incentives are the a race to the bottom for governmental entities that engage in this ludicrously disastrous conduct.
But it allows politicians to claim they are creating jobs, knowing most Americans are too ignorant to understand they are destroying their own government’s funding mechanisms.
5
I don't think the people in power what to change this. Business is in full control of America. If you saw our President at the G7 conference, you know we have little hope of fixing problems. Surviving is all we can try to do.
Why?
Almost every city is run by developers, not its residents.
Right and Left, Americans are losing their sense of collective destiny and responsibility.
Social and economic imperatives fracture communities.
Right and Left, Americans are losing their sense of collective destiny and responsibility.
Almost every city is run by developers, not its residents.
Bottom line: you get what you put up with. There is an alternative. As Scoop Nisker signed off his news broadcasts on KSAN many years ago, "If you don't like the news, go out and make some of your own."
While the responsibility for what a city does certainly devolves to the individual resident, as Americans' primary sense of identity changes more and more from that of "citizen" to that of the adjective in hyphenated-American, isolation, passivity, and a sense of civic power and responsibility all dissolve. Black-Americans, antiabortion-Americans, LGBTQ-Americans, 2nd Amendment-Americans, Hispanic-Americans, Christian-Americans. Across the political spectrum we are losing our sense of belonging to one, struggling-for-betterment vision and community.
Meanwhile, the developers' primary sense of identity remains the same: money. That is their right. And our right is to fight to place other values at the forefront of civic decisions.
5
Can anyone explain how it is legal? Anyone? It's not. The tax code is not up for grabs. It's not something that any elected official can legally make accommodations for anyone else. All of this is entirely illegal.
2
Would be interesting to know Professor Jensen's opinions about the slavish ways in which Austin and other surrounding communities have given corporate welfare to businesses to relocate or open up new facilities here, to the detriment of most members of the general population who don't have high-paying jobs in technology. Oh wait, forgot that we now have a Formula 1 racetrack that even puts on rock concerts to make us happy.
2
I'm tired of this mythology that cities and states need to beg business to enter their market, tired of governments allowing themselves to be extorted. Extortion is not capitalism. These corporations need markets to grow. Why not make demands on THEM if they want access to your market? If one company will not come to your area and access the market and infrastructure you provide, well. Another one will.
Mayors ought to band together and make demands of businesses, refuse to be played against one another. I can never stop saying I believe Louise Story's investigative reporting should have all the impact in the world. Giving your money away does not work. Sharkist of capitalistic scams. Do read her remarkable piece.
https://www.nytimes.com/2012/12/02/us/how-local-taxpayers-bankroll-corpo...
6
Sports teams are unimportant. The major issue is poaching companies from each-other with massive incentives that can't possibly pay off in the end. After reshuffling the deck chairs on the Titanic, the next result is the same number of jobs, but massive loss of tax revenue.
Cities and states need to agree to stop the insanity. But, alas, it will never stop. Look at the dog and pony show for Amazon's HQ2. It's insane. The real winners there are the cities that have already said "you're welcome to choose us, but we're not going to go broke in the process."
5
The SF 49ers left the city when voters would not approve a bill to pay for billion dollar stadium that only gets used for 7 or 8 games a year and few other events. A stadium is a huge foot print and usually only the owners make money.
10
You give a million dollars to a corporation and very little of that will stay in town, take that same amount and disperse it among the lower paid working class and see the multiplier effect in your own community. We need to reduce corporate welfare and look after our own communities welfare.
How many corporations close up shop after their tax breaks terminate. Then they roll down the road until they get to another community can be suckered into giving them what they want. Look how Beech Nut abandoned Canajoharie, o move 20 miles away, leaving the city that had supported it for 118 years. New York State helped fund the move.
13
Trump divided and conquered all the way to where he is now.
The EPA "Superfund" was created to clean up brownfields with funds derived from broad-based taxation of successor industries. No doubt Scott Pruitt would prefer it to be paid by you through your local property tax.
1
Giving incentives to lure sports teams and businesses - in other words giving millions and billions to millionaires and billionaires to get mostly low to modest income jobs has nothing to do with taking from our neighbors and everything to do with taking from ourselves. Such deals never pay for themselves - except of course for the economic studies by the economists on the payroll of the sports team or business - which everyone know is bogus - an always cost the taxpayers in higher school, transportation, infrastructure, and personnel costs
Unfortunately, the real problem isn't with the politicians who make the deals but with the people who vote for them, especially the ones who think paying big bucks to billionaires to have your own sports team to root for instead of educating your children or having affordable housing is anything but idiotic.
Team owners - and for that matter the players - are nothing more then economic mercenaries, and their only interest in a community is how big is their deal and how many tickets they can sell.
11
It's corporate welfare and wage theft from American workers.
The biggest players in wage theft are Fortune 500 companies, like Walmart, FedEx and AT&T, according to the Mattera and Shah report.
8
Decades before the new Niners stadium in Santa Clara, the team had their offices and their practise grounds there. Where could they practise in a cramped, ovrcrowded city like SF - on a rooftop?
Tents on the sidewalk, needles everywhere, commuters on Bart walking past addicts shooting up on the floor and people using the elevators as toilets. Really the tourists have no idea.
Add to this rampant car theft, increasing violence and rude people driving motorized scooters on the sidewalks one wonders why any team would choose to move there.
They did evruthing they could to prevent the largrr city of San Jose from acquiring a baseball team and most horribly poach the Warriors from Oakland.
When the 49ers left their very own senator threatened to pass a law to stop it happening.
My hephew from Australia and his colleagues were shocked at the sights they saw near the hotel where they were attending a medical conference.
Stop poaching teams and put your city in order.
2
If your company needs concessions to remain viable. Why would any city want such a company in town? The right loves socialism when it applies to the rich.
12
You are exactly right. They love to privatize the profits and socialize the losses.
This outrageous racket goes on between cities, and between states, and between countries. Industry has learned how to play politicians like a violin and we all get fooled and cheated in the process. Thanks so much for the article. May it be the first of a series. There is a lot more to be said. Please!! The public needs to wake up to this scam.
6
Wealthy developers, and their lawyers, dominate most state governments in the US. The states, another form of inanimate corporation, elect the president here, not the people.
1
Agreed, many forget, that those that receive taxpayers dollars have more than likely contributed to the campaigns of those that gave them the money. A pretty good deal, don't you think and also a very good return on investment for those doing the contributing. .
1
The relationship of all the fractured governments of the USA has become mutually assured destruction. These governments have all the same desperate "Me Firstism!" as the MAGA movement.
In a nation of rubes, what does anyone expect?
3
“The more intriguing question, then, is not whether these deals make sense, but why politicians and voters are so keen on them.”
Why? Many say Elected Politicians are greatly influenced by: 1) the millions of dollars, if not more, that are contributed to their and their party’s campaigns by developers and others benefitting, 2) prospects of future employment, 3) self-marketing value, and 4) myriad of other reasons – not the real, long-term economics.
Voters are keen because they do not have to “write a check today” and therefore do not feel the cost. The funding, for multi-million dollar facilities is paid for by added debt of the voters. While the voter may make a few tens of thousands dollars a year ball players, teams and corporate executives make millions, many tens of millions.
It’s really just that simple!
We must find a way to hold self-interested and self-enriching Politicians and their staffers, from both parties, personally and financially liable, responsible and accountable for the lies they have told US, their gross mismanagement of our county, our $21T and growing national debt (106% of GDP), and approximately 80T in future, unfunded liabilities jeopardizing our economic and national security, while benefiting themselves, their party, and special interest donors.
http://www.usdebtforum.com
5
There should be a running total of all the tax dollars forfeited over the years .. I know Texas offers up to 10 years tax free status and scores of companies left California to become newly minted Texans. I believe New York has a similar policy. So what happened to all of the money saved? Where did it go? Obviously not back into the community. Remember, "Corporate welfare GOOD - Social welfare BAD." It's mind boggling we as a nation tolerate these stupid rules.
3
I am afraid, while America touts itself for being the bastion of "free enterprise, capitalism and a pull up your bootstraps mentality, it also the "poster child" for handing out billions in corporate welfare not only to attract businesses, but the fossil fuel industry and others that receive billions EVERY year.
This is all done, of course, at the expense of "trivial" items like education and healthcare for ALL of its citizens.
Why does seeing a picture of a staid, dark suit clad, political adult man giving high-fives to a big toy rabbit just look so natural to me? Anyone can put on a suit and tie but it doesn’t change one bit that that it’s on inside. At a children’s birthday party, maybe, but I doubt a lot of kids were in the audience that day to hear that announcement and giggle at the bunny rabbit. Of course, who cares if Nestle preys on children in the guise of cute and cuddly woodland creatures? Getting hooked on chocolate and sugar is merely a rite of childhood passage these days, it serves them up on a platter ready for their next phase of adult exploitation by more “mature” Nestle products. Disney calls that the Circle of Life.
1
Tax incentives? Here's a small town story for yer:
In 2009, in Missoula, Montana, Starbucks closed it's doors because it could not compete against an established, locally owned coffee shop not fifty yards away. Good riddance, said most.
Move ahead to 2014. The City of Missoula, through the Missoula Redevelopment Agency, gave Starbucks $66,000 of taxpayers money to open another store within 100 yards of three already established, locally owned coffee shops.
Yup, that's your tax dollars at work all over the country. And Americans love to say that American businesses are not subsidized. Well not the small, locally owned ones anyway.
13
Franchising has killed community.
2
It is the way we have conducted business in America between the businesses and the politicians (not the government). Two different and distinct subsets of governing.
Businesses today have cultivated this process for many years now...remember Horward Corsell wrote about Al Davis and the Oakland Raiders move to LA, it was allowed and every sport has partaken in the financial windfall. But it only does support the 'investor/owner' who is the only one who reaps the financial benefit, not those who actually financially support it every year weather profitable or not, the taxpayers, the peoples dollars . This is the type of business transaction between politicians and the business community that needs to be curtailed and stopped. It is wanted by most Americans even if we are looking the other way, the choice has been made by those in Congress and the business community thru legislative policies.
Change the way we do business.
Corporations giving a high five to a rabbit....you've sold me!
2
Why?
Almost every city is run by developers, not its residents.
Right and Left, Americans are losing their sense of collective destiny and responsibility.
Social and economic imperatives fracture communities.
Right and Left, Americans are losing their sense of collective destiny and responsibility.
Almost every city is run by developers, not its residents.
Bottom line: you get what you put up with. As Scoop Nisker signed off his news broadcasts on KSAN many years ago, "If you don't like the news, go out and make some of your own."
While the responsibility for what a city does certainly devolves to the individual resident, as Americans' primary sense of identity changes more and more from that of "citizen" to that of the adjective in hyphenated-American, isolation, passivity, and a sense of civic power and responsibility all dissolve. Black-Americans, antiabortion-Americans, LGBTQ-Americans, 2nd Amendment-Americans, Hispanic-Americans, Christian-Americans. Across the political spectrum we are losing our sense of belonging to one, struggling-for-betterment vision and community.
Meanwhile, the developers' primary sense of identity remains the same: money. That is their right. And ours is to fight to place other values at the forefront of civic decisions.
5
I'll consider agreeing to this once the 9ers return from Santa Clara. This Proposition would have worked against that from ever happening.
Hmmm.
> There's an equal protection clause in the Constitution, right?
> And the Supreme Court has ruled that corporations are persons, right?
> Then why isn't it unconstitutional to give one "person" a tax break and not the other?
1
Welfare for multimillionaires and those that sell bonds is the short story.
Even better when the fans go wilding and who picks up the tab for the mess?
The Lingerie Football league.
Why didn't they get a tax incentive?
2
The fundamental problem here is that no city wants to unilaterally disarm. Every city would be better off if none offered incentives. And there are absurdities, as when Kansas City (Kansas) and Kansas City (MO) lured away company HQs from each other, only succeeding of depriving the metropolitan area of tax revenue.
But there is always one jurisdiction that is willing to undersell (or sell out) another. It's a reason why cartels like OPEC are not sustainable. Yes, Congress could outlaw the practice - good luck with that.
It's understandable that no politician wants to be known as the one who "lost" a sports team, so he/she uses taxpayer money to keep the team (and him/herself in office). It is a little surprising that many taxpayers seem to be ok about this.
1
It doesn't always work though. Most areas resoundingly vote down proposals to host he Olympics. And bond proposals that force taxpayers to pay for sports arenas for profitable teams often fail as well - and you can see business-friendly administrations scrambling to find alternatives to popular votes on the subject. The St. Louis mayor swore he'd never bend the knee to the NFL again after the Rams made him crawl and then went to LA anyway. It'll be interesting to revisit the issue in a couple of years and discover that St. Louis didn't lose any money out of the departure.
2
"Beggar thy neighbor" only works to impoverish everyone; taxpayers especially, who must pick up the tab for politicians' largesse. As for the feast, these subsidies -- what tax giveaways actually are -- given to, say, sports franchise owners, most of them multi-billionaires already, to finance new stadiums and arenas for their teams wastes money, especially given how our public health and education systems are so underfunded. And the sour whiff of corruption is ever-present at all levels of state and local government. Boondoggles galore, feeding frenzies on the public's tab.
And it doesn't really work because free-markets in goods and services are distorted by subsidies. In effect, the state picks winners and losers.
I'm especially disappointed in Gov. Jerry Brown for spending on new high-speed rail systems connecting California inland cities. The idea is grand and wonderful but the underlying economics make it infeasible. Ask the French, Germans, British and Japanese.
The simple fact is all passenger rail systems lose money. Their governments subsidize those because they must. But France, Germany, the UK and Japan are densely populated, compact countries with already-established and extensive rail-track systems, rights-of-way created 150 years ago in some cases. That vital infrastructure was established when automobiles didn't exist. California sprawls. Brown's attempt to duplicate it leaves its taxpayers deep in debt for what improvement in public transportation?
2
Touche! CA Bart has promised a branch of their subway above ground 90% of the time, to San Jose. That was 40+ years ago. At least 5 other cities smaller than San Jose have received branches but they are still just talking about here. San Jose has been paying a .5% tax for at least 20 years. For what?? So, yes, the speed train may be nice for those that have time, money and business up and down the coast from San Francisco to LA or San Diego. But who else can afford it??
@Patricia -
I lived in the Bay Area for several decades and still remember many of the promises made to voters when the proposed BART system was heavily promoted. BART tickets would be cheap, less than a dollar. Trains would run every few minutes. Trains would run 24-hours a day. The system would extend deep into the hinterland. Stations would be numerous, spacious and clean. And on and on. Just some of the fantastic future promised taxpayers, who had to fund it.
Since you still live there you know the reality: anything but.
Construction and operating costs were greatly underestimated. Rights-of-way for future line extension and expansion weren't purchased at the time -- one reason why it's now so expensive to "grow" the system. The cost-per-mile is truly eye-popping, almost mind-boggling.
Fast forward to today. The actual beneficiaries of BART expansion and Brown's proposed TGV in the Central Valley are real estate holding companies that bought large tracts of land anticipating such projects, construction unions, the rail car industry and enormous contracting management firms (like Bechtel) that will do the actual work; coincidentally, big contributors to Brown and the Democratic Party.
The Bay Area has crushing transportation and housing affordability problems; why I left. Politicians promise voters that building will solve both. But new construction can't keep up with demand, nor can it solve acute quality-of-life problems arising from overpopulation.
Reading through these comments it is almost universally true that no one believes there is a benefit to anyone other than the company. It's not often the case where everyone agrees. Refreshing to know and hopefully all of us can make progress towards putting an end to.
2
Solidarity rests on understanding what we do to each other.
@Jim -
It should be a non-partisan issue. We're all taxpayers. We're all being forced to subsidize businesses with our tax dollars. If most tax incentives were actually on the ballot most voters would probably vote against them, why they're enacted behind closed doors by legislative bodies in legislative chambers, presented to taxpayers as a fait accompli.
For some things it's appropriate, if not inevitable. National defense immediately comes to mind. But the enormous amounts of money squandered, wasted and stolen outright in military contracting and procurement puts paid to any argument that tax "incentives" will ultimately profit a locality or community, forget paying for themselves.
Taxpayers' dilemma is, both major political parties happily embrace them (aka "corporate welfare") as a means to "raise" (extort) money from businesses for their next election campaigns. It's bribery at their end, extortion at the politicians'. Their dialing-for-dollars turns American politics into a pay-to-play shakedown system artfully camouflaged to blur those lines. Our culture wars and other public controversies incited by politicians, like Trump's recent attacks on NFL football players who dare to kneel during the national anthem, serve as both smokescreen and diversion to distract voters from the stench under their noses -- it's extortionate, repellent and ultimately self-defeating heart.
2
Sounds an awful lot like "entitlements" to me. When taxpayer money is handed over to the wealthy, it's an "incentive". For the rest of us, it's that curse word, "entitlement".
Politicians should have to prove that giving a 32 million tax break is worth it to have 400 jobs. They should also let taxpayers know what kind of jobs will be provided, how much employees will make and what benefits will be provided
Then see how taxpayers feel about the incentives
Digital Equipment was given millions in subsidies to locate in Boston. Five years later Digital Equipment went out of business.
It seems to me that these cities would be better off creating jobs themselves
2
Shoo Shoo Amazon flu.
We don’t want you.
Please leave Austin alone.
Denver is a beautiful place to be.
Or anywhere.
Anywhere else, please, Mr. Bezos.
2
No way Austin. Metro Denver has already lost huge tracts of beautiful undeveloped land to developers and corporations in their relentlessness to turn a dime on every $quare inch they can grab. Don't come here either, Amazon.
Charleston SC is an example of how developers ruin a community with pro-business con jobs and tax incentives. This Boeing plant is a major disaster as it means more housing, more roads, more cars, more pollution, more noise, more people everywhere; all to the benefit of the wealthy. Tourism is another curse with the same effects. This town has been ruined by business. The American mind has been warped by business. Americans are a disease upon Planet Earth!
8
Regarding sports franchises in San Francisco, the Warriors new stadium, scheduled to open for the 2018-19 season, was privately financed. As was the SF Giants AT&T Park.
The SF 49ers CEO / chief grifter tried to weedle concessions from the city taxpayer funds and was rightly denied. So like a small angry child, he took his team to Santa Clara, and they foolishly succumbed to his scam.
4
Because we are a divided limited power constitutional republic of united states. Unlike Ancient Greece we are not a collection of city states. Unlike Ancient Rome no American city is paramount.
2
Everyone knows that it is always easier to just take the pie than to actually bake the pie. It's what people do and it has nothing to do with "economic sense."
The Congress is more than amply empowered to put a full stop to this destructive competition under the authority vested to it by the "commerce clause", allowing for laws to prohibit economic competitions between states. This particular clause in the Constitution is the open door the founders left to wither them away.
1
This is just the logical extension of the WalMarting of America. Build your store on the outskirts so the city will have no jurisdiction but will have to supply services, and build roads etc., Then lower prices to drive local businesses out of business, then pocket the money and move on.
2
Amazon and Starbucks did the opposite. They both started downtown Seattle. Amazon revamped a business area that was basically unused and abandoned and now the South Lake Union area is bustling again.
Starbucks did NOT drive the other coffee shops out of business. In fact, I could argue that Starbucks helps the other coffee shops by selling C-grade coffee for the same price I can get A-grade coffee anywhere else.
Amazon recently opened their biospheres to the public here along with the Star-Trek-like garden. Bezos spent around $4 billion on it and I do not think he is just going to pocket the money and move on. Besides, he lives just down the street from Bill Gates (another local company) and I do not think he is going to sell his house any time soon.
The WalMarting of America includes wage theft from employees.
The biggest players in wage theft are Fortune 500 companies, like Walmart, FedEx and AT&T, according to the Mattera and Shah report
In Portland, Oregon, city officials cooked the books when they cut a deal with the Portland Timbers in 2010 to renovate and lease a City-owned stadium to Henry Paulson and his son Merritt Paulson, the owners of the MLS franchise. The City made it look like the deal would only cost Portland taxpayers $12 million in renovation costs. But a marketing study paid for by the City before public hearings began showed that the deal will eventually cost taxpayers an estimated $400 million in the form of City-owned, stadium-related naming rights fees that the Paulsons will receive as part of the 25-year lease agreement, for which there has never been any public accounting. But this is the ultimate "third rail" here in Portland, so law enforcement officials have failed to investigate the case, and the media have failed to report the story.
3
Same thing here in Broward county Florida with the County building a stadium for the NHL Panthers that has been an economic nightmare. They used biased studies to justify stealing the Panthers from neighboring Miami.
1
I always chuckle when I hear so many Americans talk about "picking yourself by your bootstraps and deploring welfare recipients and that America is the "bastion of free enterprise and capitalism".
The reality is America is the "poster child" for handing out "corporate welfare" and unfortunately it seems the taxpayer continually fails to understand it is "their money" that is being handed out to those that don't need it.
9
Face reality, Americans. Broad based taxation is the only way you will end your localities competing against each other to sell out their local tax bases.
Tax increment financing and credits. Tell Mitch McConnell's constituents that the tens of million in breaks to companies heading to East Kentucky aren't going to save them all. The voters don't read Economic Council reports on the small numbers of real jobs created, the cost in infrastructure diverted to corporations, the clean up. It really is all about the photo op. And, with sport franchises, the chance to cheer for a team. Any team if it's your team. And watch your business and political VIPs wave from the VIP lounge.
2
Government never has and never will be able to pick winners though they will not stop trying. Bribery, which is what it is, is illegal for almost every entity. Government is an exception where it is acceptable. They even manage to play the reverse which is shaking down developers for "proffers" in order to get zoning changes or whatever else the need. Equally troubling is the government purchasing land to give away to a developer to build something like a stadium. It all comes down to someone spending the taxpayers money without regard for the fact they are ones who work for it. This will never end until some states go bankrupt and several already bankrupt with obligations they will never be able to meet.
4
Look, The Bay Area can lure all the big bucks superstars and godlike owners on the planet and we'd still have huge problems with homelessness and affordable housing, potholes and traffic gridlock.
If we're going to give a new quarterback a $137.5 million contract, we should at least tax that grotesque salary enough to make the region a decent place for people to live.
A very few already rich people make a great deal of money from fans the Bay Area (in LA, Las Vegas, NYC, DC, Seattle, even Pittsburgh) but most people still have more pressing needs than a few more rich people.
We need to stop tax incentives for billionaires and resume progressive tax rates for the good of the nation.
17
The "Tax Reform and Jobs Act" does raise taxes on the wealthy in more highly taxed states. It's another wedge of division from Trump the Disruptor, always favoring the inhuman, i.e., corporations.
2
When you give tax cuts to corporations, they can hire more people and reduce the cost of goods sold which help lower income people.
It is shocking the obvious needs to be explained to you.
3
The construction contractors and janitorial companies are politically well connected locals who get to charge higher prices to the corporation in exchange for politician endorsements and tax breaks.
The incentives do not determine the location decision. They are gravy over a predetermined decision.
Cities and states cut off their noses to spite their face in these deals. These companies get cozy deals and contribute next to nothing to maintain the communities they operate in. Many pay low wages which adds little to increasing the tax base and overall wealth. When the tax incentives run out and community infratructure is used up & broken down...they move on to greener pastures.
Cities/states would do better to operate as monopolies to put more pressure on corporations to behave as citizens of a nation - isn't that what they wanted when they paid for the Citizens United ruling.
7
The only real decisions the Supreme Court actually reaches anymore are travesties like this one dollar one vote "Citizens United" ruling.
Yes, well our politicians are more in for themselves than for any of their constituents. When a new company come to a city near you, look at their campaign contributions in the following election cycle.
3
Business poaching of all kinds is encouraged in our race-to-the-bottom economy. Ever wonder why movies get made where they do? Hint: It's not because Atlanta looks so much like LA, or that New Orleans looks like NYC, or because the weather in the UK is perfect for film making. Also can somebody explain to me the difference between an incentive and a bribe? Places like California create jobs and whole industries only to se them stolen by less vibrant economies all to willing to offer up their workers cheaper at an over-all cost to the real U.S. economy as defined by median income. Making a few rich people richer is just that, not "efficiency".
16
States give big incentives and tax breaks to new businesses and raise taxes on old businesses and residents to compensate for the revenue gifts to the newbie, which frequently do not even require a long term commitment on the part of the newbie.
Movies moved from NYC to LA when NYC got to be too expensive. They move to Louisiana and Georgia because the cost is lower to operated there, and not everyone thinks that all movies should be filmed in NYC or LA.
Washington State is taxing Amazon out of the state, along with the high cost of housing. If no city offered them an incentive, they would still move.
1
Amazon is not leaving Seattle. They have over 40,000 employees here, and growing. Typically they have over a thousand job openings in Seattle at any give time. As a huge international company with over 550,000 employees worldwide, it makes sense for them to open another corporate center in a different part of the country. Frankly they've just about maxed out in Seattle. Washington state has no state income tax, it's a pretty great place to be wealthy. There's a reason so many billionaires live here.
Seattle is HQ1 and will remain so.
Amazon is not leaving Seattle. They are looking to expand. Bezos just opened his $4 billion dollar indoor rainforest, lives down the street from Gates, and is not moving anywhere soon. And everyone here in Seattle knows that the latest head-tax imposed by our city council will not pass the state constitution tax. Bezos also knows that he will outlast City Councilwoman Kshama Sawant who is the bullhorn against billionaires in this city. There is growing momentum to recall the entire city council. And now that Howard Schultz has left Starbucks, I would not be surprised if he runs for office here.
I struggle to understand the legality of local governments selectively giving tax breaks to certain private companies in an industry while not giving them to others. This seems to fly in the face both of democracy and free trade. Maybe some lawyers out there can explain that to me.
Can they do this with private individuals as well?
"Mr. Moneybags, I'm so glad to meet you. My name is Mayor Kowtow. My city wanted to offer you a 10 year moratorium on the property taxes for your principal residence if you move to our city. We hope you'll consider our offer."
11
We have all kinds of laws about government procurement processes to avoid corruption, primarily by requiring competitive bidding on contracts, etc.
It seems to me tax incentives given selectively to certain companies give those companies unfair economic advantages over their competitors. How is it that government is allowed to engage in that kind of game? How is it that the government is allowed to pick and choose private companies to which they can offer those kinds of advantages?
If those same governments were issuing government contracts for the procurement of toilet paper for City Hall they'd be required to jump through all kinds of hoops to avoid even the appearance of favoritism.
9
Relocation incentives are a zero sum game. They should be considered in restraint of trade.
1
Actually, it isn't zero sum. True that the location or relocation is a cost to the community providing the incentives and in the case of a relocation it also hurts the community whose business departs. There is a benefit to the recipient. But the recipient does not reduce the costs of goods it manufactures; the result is the beneficiary gets he break but it can result in a harm to competitors who do not get the lower tax bills or the grants.
3
American businessmen are quick to point out the benefits of the subsidies received from government. Many of the same people decry subsidies given directly to people which produce good outcomes. These direct subsidies are depicted as addictive and getting in the way of people standing on their own two feet, but what about the subsidies they receive? Oh, those are different. Oh yeah, how?
19
Well, lemme explain, these guys (American businessmen [which include sports teams owners]) are rugged individualists--until it comes time for the next government handout.
2
TEA Party partisans object to corporate welfare sponsored at any level of government. There is generally a lot of publicity about incentives for sport stadiums and big relocations, but Tea partiers object to all of them. Which is why the establishment Democrats and Republicans view them as subversive extremists. Do not mess with official cronyism.
I am surprised that the article doesn’t mention that the city of San Francisco is not paying the Warriors to move ( both the land and the stadium are financed by private money). This is a good result. Cities shouldn’t have to pay for the stadiums of rich teams. It may have contributed to the defeat of the measure.
Caveat. The city did offer some public land initially but the voters objected to this.
6
Gavin Newsom--to his great credit--refused to kowtow to the 49ers demands when they were offering to build a new stadium in SF. Instead they picked up their ball and found their marks 40 miles south in Santa Clara.
1
That's a normal side effect from federalist system.
Capitalism is already a mode of production which tends to concentrate wealth as well as spatially; but the federal system make capitalism to amplify this problem by bringing it to the formal political front.
In the Federal system, cities, states etc. have to fight each other for the resources produced locally, in the States and nationally. Since they don't have armies and can't conquer each other by force and annexation, they have to do it through fiscal war. That's what, e.g., bringed Detroit down: after the Japanese car makers took the local markets by storm, Detroit tried to gentrify, by becoming a services and domestic infrastructure city for rich people; in this movement, it lost this battle to Auburn Hills and became a broke wasteland.
In a socialist system, this would be impossible. On the contraire, the excedent resources would be spatially distributed according to which regions need the development and integration; not to the cities which already have more. (China has ghost towns, but they were built from scratch, not already existing towns which lost a fiscal war; they were failed building projects, not towns)
3
Centrally planned economies are always suboptimal to those driven by the free choices made by countless individuals. That is why per capita production in America is many multiples of that in China and wealth inequality is lower in the US than in China.
Cities grow and die in America. That strikes you as worse than China building a ghost city from scratch that doesn't meet its centrally planned economy and so rots in place. At least American ghost towns at one point provided value to their residents. If, over time, industries moved or farm productivity reduced labor requirements that's part of change.
I think the Federalist founders believed and hoped that the states would eventually wither into administrative districts.
Yes, Ms. Badger, the "creates jobs" mantra is simply a smoke screen for Corporate Welfare.
Certainly people, who are the voters, want good jobs for their community. However, city, county, state and other local officials must include Social Responsibility in the equation if WE THE PEOPLE want good infrastructure and a strong social safety net. The homeless situation in most large U.S. cities is a direct result of local officials giving it all away to developers and BIG business without any social commitment.
It is time to end the give-it-all-away to get a few jobs. Those "jobs" entice people to move into the community and put great stress on the infrastructure. The profiteers - and politicians - are the only ones who benefit.
Time for a new business model that creates sustainable communities, cities and states.
9
The Bay Area has held the line better than most places. The Giants, the 49ers and (soon) the Warriors all play in venues built with little or no taxpayer money. The Warriors move back to SF (they started in SF before moving to Oakland) does not involve taxpayer subsidies.
4
Dig a little deeper on the 49ers deal. It hasn't been good for the city of Santa Clara.
It is utterly simple why this happens: game theory.
It is the Prisoner's Dilemma, over and over.
If you don't offer incentives and someone else does, you lose and you are toast.
If you offer incentives and someone else does, even if you lose you tried.
If you offer incentives and someone else does, and you win, then your incentives "worked."
The only way the cities win is if no one offers incentives... and try to make that happen, given the incentives to offer (in game theory terms, to defect).
Exactly this problem happens every day when businesses make pricing decisions to attract customers. Big customers are able to extract discounts by playing businesses off against each other.
That's how it works, and it is a race to the bottom. The only way to prevent it is via laws or regulations (e.g., the minimum wage). Then the challenge becomes preventing clandestine negotiating and court battles over what amounts to an "incentive."
7
If you have solidarity, you join with others to put an end to groveling.
Yes, that is the only way the cities win. It's even obvious that that's the solution, from the cities' perspectives.
The problem is each city has an incentive to want the other cities to have solidarity... and for their own city not to. The city that defects wins most of all, because it can get the deal without having a bidding war. But there goes the solidarity.
The only solution is enforceable rules. But any such rules would be hard to enforce. And getting such rules enacted when corporations are free to spend spend spend in political campaigns...
Why?
Almost every city is run by developers, not its residents.
Right and Left, Americans are losing their sense of collective destiny.
Social and economic imperatives fracture communities.
Right and Left, Americans are losing their sense of collective destiny.
Almost every city is run by developers, not its residents.
Bottom line: you get what you put up with.
12
I wonder how many citizens have attended the most recent meeting of their planning and zoning commissions or design review boards. One thing you can be sure of, the developers were there. And they have every right to be there.
6
Exactly, J ! Thanks for engaging here.
While the responsibility certainly devolves to the individual, as Americans' sense of identity changes more and more from that of "citizen" to that of the adjective in hyphenated-American, isolation, passivity, and a sense of civic power and responsibility all dissolve. Black-Americans, antiabortion-Americans, LGBTQ-Americans, 2nd Amendment-Americans, Hispanic-Americans, Christian-Americans. Across the political spectrum we are losing our sense of belonging to one, struggling-for-betterment vision and community.
There is nothing besides futile litigation to question that these regulators are doing what the law requires of them.
You really have to lump this issue in with all other aspects of taxation decisions, both local and national. Find me a politician who runs on the need for a tax increase and you'll have identified someone who stands little chance of getting elected. So one could blame the voters. But the secondary, and maybe more important, issue is how they propose to spend the tax increase. Are likely to use it for desperately needed infrastructure? Or increase funding to underfunded public pension plans? Or is it social programs? All these taxation decisions are the "devil in the details". There would be nothing wrong with a fiscally healthy city inducing an employer to bring their business in if the rest of the budget made sense.
2
How about a follow-up article that can be an expose of:
1) all the cities that were forced by their local pro sports team to pay for a new stadium or arena or risk losing the team. This causes the direct loss of hundreds of millions of local or statewide taxpayer dollars in order to keep a team that the population is emotionally connected to.
and
2) the current sham of giving billions in concessions to behemoth, environmentally unfriendly corporations to attract jobs that we don't even need.
You can focus on Scott Walker and Milwaukee, where the out-of-state, billionaire owners of the Bucks were promised a $200 MM new arena to keep them in Wisconsin.
This was shortly after the Great Recession, when Walker was drastically gutting public services, especially public education, infrastructure, healthcare, and the department of natural resources (DNR -- our state's EPA), while also giving corporate employers what they want to save money by destroying unions and making Wisconsin a right-to-work state.
Worse is the FoxConn con, which is now up from $3B to $4.5B in state funding, to be built on wetlands along Lake Michigan between Milwaukee and Chicago (Uihlein country) that is already at full employment.
So NOW Wisconsin is paying Millions more to advertise to and attract out-of-state workers.
Milwaukee is where Trump last year told upstate NYers (but not coal miners) to move because their area couldn't employ them.
Yet Republicans still campaign on Jobs, Jobs, Jobs . . .
18
" So NOW Wisconsin is paying Millions more to advertise to and attract out-of-state workers."
"Yet Republicans still campaign on Jobs, Jobs, Jobs . . ."
Yes. Republicans create lots of jobs.
How about politicians bought with ownership shares of sports teams? For arranging a taking by eminent domain, George W. Bush got a stake in the Houston Astros.
Sure, for fake George Orwells.
Yes and no. Incentives are over stated but not entirely useless. Amazon is probably the worst example. Any incentive is a drop in the bucket for a behemoth like Amazon. Of course the incentives act as a secondary consideration. I can tell you for a fact Salt Lake City was passed over because we didn't have the desired demographics for a headquarters. Whatever jobs Amazon is looking to fill, we didn't have enough of the right employees to fill them. An incentive package was therefore irrelevant. We made a passing offer for politeness sake. Amazon does maintain a logistics hub here. However, everyone knew the conversation wasn't going anywhere.
A better example is GOED's (Governor's Office of Economic Development) in-sourcing program. I know at least one small manufacturer that brought back a 1,000 manufacturing jobs from China as a result of an incentive program. Sure, they were looking to get out of China anyway. However, they could have sent the jobs to Korea or the Philippines instead. The incentive weighed heavily on the company's decision to bring the manufacturing jobs back in-house.
Other programs are strictly political. "Rourism" (rural tourism incentives) for example are just an excuse to throw money at rural voters. It's essentially a welfare program for jobless rural areas. Still, hotels exist as a result so someone is getting employed. I think the important point is to avoid throwing money at corporations that don't care anyway.
3
Offering tax incentives, or free land or other incentives, is a fool’s game. Of course the corporations (and sports teams *are* corporations, often real money makers) will take the payoffs, and actively solicit them. These handouts are nothing but transfers of wealth from the taxpayers of the city, region, or state to the corporation’s owners. If more taxpayers were aware of that, this practice would stop, because the politicians eagerly giving away taxpayers money would be voted out.
11
The state of Florida cancelled their film incentive program in 2016. Today there is not one single TV show or feature film above micro budget shot there. Not one.
This was an agenda pushed in Fl by the Koch Brothers, who's interests lie in Georgia. They bought the legislature, rep by rep.
Georgia, with film incentives, did $9.5 BILLION in TV and film in 2017. That is dollars coming in from elsewhere, e.g. Japan via Netflix, Hollywood production companies, etc., and being spread through the local economy through crew salaries, hotels, material & fuel providers, location fees, film permits, restaurants, rental cars, then into property taxes, education, etc. The Koch Brothers have no issue with this; they have a piece of that pie.
Anyone who thinks this spread of funds is not putting money into ordinary people's hands is not paying attention or has another agenda.
New York, where I now work instead of Fl, is a similar story. And though I am still a resident of Fl, I have followed the work, and tend to spend the bulk of my funds where I am; e.g. on a NY rental, gas and tolls, food, restaurants, dry cleaning and laundry, etc.
The film business is mercurial. There are no stadiums; everything is portable and temporary. Except for the infrastructure - studios, equipment rental houses, crew base - that supports it. Producers go where the deals are with immediacy.
Not all incentives are created equal. Fl shot themselves in the foot. I live with the consequences.
4
Ben K is absolutely right, and Emily Badger is absolutely wrong.
But it's not the Koch Brothers who caused Florida to cancel their film incentive program. It's Florida governor Rick Scott.
As soon as Florida cancelled their incentive, all film production left the state. That represents a significant amount of revenue. People who make a living in film production left Florida and moved to Georgia or New York.
Last summer, there were 55 film or TV productions in NY simultaneously. That's huge.
If NY were to cancel their incentive program, film production would go back to Canada, like 20 years ago.
Incentives work.
1
How often does a state or city offer a tax break to a start-up company, or an existing one with only a few employees? I suspect seldom, if ever. Is it fair that they then suffer a disadvantage with respect to an Amazon, a Delta, a Mercedes or BMW, a Facebook? Not only from a competitive standpoint, but also because the taxes the biggies don’t pay, they have to. The economic system is rigged against small companies as well as the population in general too.
32
The experience of marketing empty factories taught me all about economic desperation in the Rust Belt.
Call it what it is: corporate welfare. Why is wealth distribution -- picking the pockets of taxpayers, usually of those whose 'wealth' is unsheltered by preferential tax laws -- considered wrongheaded socialism when it pays for food, shelter, education, and medical care for those who truly need it, but is lauded as 'economic development' and 'incentives' when it's handed out to cash-rich corporations that truly don't, but know how to play one jurisdiction off against another?
59
In Boston, we already have skyrocketing rents and oversubscription by high-end businesses. Why are we giving away to the store to attract more and make things worse?
It's time to stop giveaways to the wealthy which make things worse for the rest of us.
Boston doesn't need the olympics, it doesn't need more attractions, it already has sports. It does need infrastructure and affordable housing.
8
Just to be clear, it's the Amazon auction I have in mind. The Olympics may seem like it's off topic, but it's the mindset that doesn't see what Boston needs and doesn't need that bothers me, and it's a superb example of unintelligent use of the attractions of a beautiful city.
5
A distinction needs to be drawn when discussing "tax breaks". There are numerous programs offered; grants, loans, abatements, and tax incrememt financing are the most common types of incentives used. I think the article is generally critiquing grants, but don't throw the baby out with the bath water. E.g., TIF is self generated by investment in a project, and often leverages investment that would not occur otherwise.
One issue that is not generally discussed in these types of critical opinion pieces is the role of banks and other lenders. Sure, the Amazons of the world may be rich enough to self fund, but the average infill or Brownfield project frequently faces a basic problem of not being valued high enough at the end of construction to justify the bank to lend the capital to clean up a site and rebuild it. Personally as a taxpayer, I find value in incentive programs that fill that gap.
Incentives backed by solid policy directing reinvestment in downtown and urban areas helps rebuild cities in a sustainable manner. Otherwise we would be trapped in a cycle of greenfield sprawl and blighted inner cities. A better critique would be to examine how different programs are more or less effective to rebuild our cities, and how jurisdictions are deploying them.
7
Thanks for the intelligent and informative comment. If only government did this kind of thing instead of publicity and giveaways for competitions that are cosmetic rather than substantive.
3
Economic development has become pretty easy: don't engage in tax incentives, just build up a first-rate university. Princeton, Madison, Blacksburg, Chapel Hill (and Durham and Raleigh), Austin...the list goes on. Not only do these places attract students, they end up being attractive places to build companies. And then they become appealing retirement sites for both alums and others.
In fact, instead of cutting taxes to companies, locales should be reaching out to Kendal and other retirement operators. That's a non-cyclical industry that is unlikely to face obsolescence and creates a wide range of employment...with minimal demands for building more K-12 classrooms.
1
Maybe someone could enlighten me as to how many companies have actually stayed AFTER their tax free or significantly reduced tax timeline expired. The break even point for Wisconsin in the Foxconn deal is 2043!
44
Great point.
btw, the FoxConn deal has jumped from $3B to $4.5B, so the break even date is back another decade.
They'll be out of business by then.
7
Pro sports is about child-minded adults, playing children's games, to entertain the child-minded masses, to enrich to the wealthy. Of course, it doesn't make sense...except to the wealthy who are enriched.
7
Well, look at the states that have booming economies, such as Indiana and Texas. They offer reasonable taxes and regulations to all, and both large and small businesses flock to their states. Why is this?
Well, if you offer tax incentives to one or two large companies, you have to sock it to everyone else. The large companies will come, and everyone else will leave.
In the states with favorable business climates, there will be synergies. Suppliers and supporters will be around on every corner. Experienced employees will be available. Business will beget more business, and both large and small companies will boom.
5
It's news to me that Indiana is booming. Not quite ...
Texas does well with fossil fuels (and, not surprisingly if you think about it, wind), but its wages and services are terrible. I'd call that a fake boom.
8
Ha! The boomiest of economies is deep blue California.
What exactly is a "favorable business climate" anyway? I would think part of that is good infrastructure, educated population, good infrastructure. All cost money and typically available in "blue" area's.
There is more to life than "low taxes".
2
Sometimes the lack of posted comments reflects the public awareness or lack thereof about a specific topic.
Not all tax incentives should be lumped together. Arenas “may” create low wage jobs but they nearly all end up operating at a loss. And some are just urban blight. It has noted that the vaunted Barclays center arena in Brooklyn is now not profitable. If you can’t make money from a heavily subsidized project like that in Brooklyn you’re not likely to do it anywhere.
23
The interests of cities and state governments don’t necessarily coincide.
NY City has terrible schools. A transportation crisis. A housing crisis. And yet, there is a record population right now. People see opportunity here.
The state NY movie and television tax credit supports a major industry that is for the most part operating within the 5 boroughs of NYC.
The tax dollars collected are in the billions. Do these monies reach services in NYC? That’s worth an investigation.
7
Because this is all malarkey. People want to live in NYC because it's hot, trendy, has lots of other young (high wealth) people, high paying jobs and endless entertainment. Nothing else matters to young workers, especially those with no family or dependents. They want to have fun, date, hang out, do bar or club scenes, etc.
They apparently DO NOT CARE that the transportation is wretched, slow, costly and unreliable. They DO NOT CARE that the housing is so expensive, even high paid workers must live in tiny, wretched overpriced apartments -- or have roommates into their 30s and 40s. They DO NOT CARE one bit about awful, badly run, racially segregated schools. They do not care about homelessness or poverty either, as it never touches them in their hipster enclaves.
I just read that NYC sold a "film & television studio" they built for millions for $1, because they couldn't get anyone to pay to use it. Movies that are set in NYC, today are filmed in Toronto or Cleveland. Look it up, it's true!
1
Oh, one more thing. If you saw the last episode of this season's "Silicon Valley," you see the obvious (ok, and over-the-top) response to a city giving away the store to attract jobs.
A summary (spoilers!). Hooli wants to build their new Box product and ends up deciding to build it in the US, in a town in North Carolina. Gavin Belson, the head of Hooli, extracts beyond-onerous concessions from the city, concessions with which the mayor is clearly uncomfortable, but for the reasons stated in this article he goes along with the plan.
Then we see a meeting between Belson and his lieutenants about the status of the project. "The factory burned down." "Why wasn't the fire put out?" "Cuts to emergency services and the roads meant no fire department could get to the building." "How did the fire start?" "Safety services were eliminated and we think that the fire started because of some flammable material in the building." "Can't we move the parts and build elsewhere?" "All of the parts were on site and are now destroyed."
At the end there is the implication that someone in the town deliberately set the fire in the factory, knowing that emergency response was not available and it would be destroyed, just like how Hooli destroyed the town.
9
The whole calculus of tax incentives to attract businesses to cities is bonkers. Sure, City, instead of having the businesses help fund necessary services (like education, roads and public safety), let the companies reduce the tax base and starve the city.
It's ridiculous. When asked, these companies will say that they are attracted to a city because of the people -- a pool of potential employees with necessary skills. And that leads to the obvious: what attracts that type of person to the city? Let's see, in no particular order, good schools, good cultural attractions, reliable transit options, affordable housing stock, others, I'm sure. The tax incentives are really just gravy that city leaders think they have to offer.
And when a city slashes services because they allowed a new company to not pay its fair share to support them, how does that make a city attractive to those potential employees? Nobody is moving to Kansas because the schools and services are non-existent. None of it makes any sense, and that's been shown to be the case in pretty much every instance of these giveaways.
Oh, I didn't even mention that sometimes the city will give up all of the tax revenue and a big infrastructure build-out in exchange for a company relocating and hiring a few dozen employees -- only to have that company leave town in two or three years.
39
As ever:
“No one in this world, so far as I know—and I have researched the records for years, and employed agents to help me—has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby.” H.L. Mencken, 1926
10
About a decade ago, Lenoir County in NC offered Google about $260 million in incentives to locate approximately 210 IT jobs in eastern NC. With an average salary of about $50,000 per job, NC's investment of $260 million in incentives would have a payback period of about 25 years, based on just these two data points.
Payback Period:
($50,000 pay/1 Job) x 210 Jobs = $10,500,000; so:
[($260,000,000 in Investment Incentives)/(($10,500,000 in Pay)/1 year )]= 24.8 years.
Such a long payback period illustrates how highly valued tech jobs were a decade ago. Simply to capture a part of this growing IT sector was the force impelling NC officials to offer such an expensive lure. As measured by the NASDAQ stock market's growth relative to the overall economy, IT and NASDAQ's betas have each grown disproportionately. The IT sector continues to attract "big money."
Thus, since the IT sector garners a large proportion of these publicly financed incentives, the employment data recently released by many Silicon Valley firms are a cause for concern. Generally, the data showed poor representation for women, blacks, and other minorities in these companies in this sector and require remediation in order to continue to justify spending the public's tax dollars to create incentives for such disproportional representation of its taxpayers.
[JJL 6/8 F 1:15p Greenville NC]
5
I'm the author of this book. And we actually talk about Google incentive in the book!
1
People vote largely on their emotions with little regard for logic or reason.
Consumers, not the wealthy or elected governments, create jobs. However, it feels-good to have your town/county/state announce the arrival of a business or sports team (albeit poached). Who cares about the implications or the costs - it just feels-good!
Elected officials exploit the voter's emotions with skill every day (or they don't get re-elected). Just make us feel-good about ourselves and we'll keep you in elective office.
10
Tax incentives are only one form of incentives.
1
Many people in Seattle want to blame Amazon and other companies for the major drop in life quality in the last 15 years, but this all about a government (city, county, state) that wreaks with incompetence and impotence. I grew up in NYC and when I moved to Seattle I thought I died and went to heaven. I watched and saw how this city and region had every opportunity to develop a mass transit system, to develop long range housing plans and to develop a revenue base. This place is pathetic. Self-rightious elitist WASPS on one extreme and raving communists on the other. There is no in between and there is no infrastrucure. The rich fly around in small planes making huge amounts of noise, the city council wants to milk whatever they can from the middle and upperclass without helping the poor. THe city is a transportation nightmare and each council member has three people on its staff. They have spent millions on bike lanes that few people use. And, we are expecting a humongous earthquake, so why would you want to move here?
21
Thanks for the realistic heads up about Seattle. I have family there, and I know its not the left-wing "paradise" that others often claim it is. Too many people and too much "success" have ruined a once lovely part of the country.
1
Not to burst the bubble of our favorite pointy-head economists but this is not a cooperative game. It is an Iterated Prisoner's Dilemma or perhaps's a Nash Equilibrium and cities are behaving perfectly rationally given the stakes.
You get several thousand jobs with all of their tax-paying salaries or you don't - you don't get bonus points and re-elected for congratulating the winning city.
6
I think the point is that cities end up offering incentives way above any benefit that will come to the city from the "investment". That is, the winner city doesn't necessarily make any profit, only the company does, saving on taxes.
5
Cities will lose out if they don’t compete. The only real solution is national legislation under the interstate commerce clause that forbids such competition. Incidentally although the US claims that it loses out to China because China subsidizes business development and US does not, this is clearly false. It’s just that the subsidies emanate from states and localities rather than the national government.
1
MR - if they offer a lower tax rate and they win then they get an incremental increase in taxes or in the worst case they get absolutely no new tax revenue.
If they don't compete then - guess what - they get absolutely no new tax revenue by definition.
So one contains the possibility of added tax revenue and the other guarantees no additional tax revenue at all - easy choice for me.
All of the states that engaged in these practices on a massive level (e.g., Louisiana) are now facing budget crises.
16
This system is analogous to the process of globalization. The difference is that voters don't like globalization but in this case they are powerless to stop it.
If manufacturing can be done anywhere it will be moved to where wages are lowest and regulation is least. So global jobs are in a race to the bottom. American voters might not like it but our politicians (eg Clinton, Obama) get paid plenty to like it.
2
Actually, both Clinton and Obama repaired economies that were deeply damaged by their predecessors (Reagan and Bush II) and restored public services.
Trump, on the other hand, is a monster without excuse. Kleptocracy and corruption, along with destroying our hospitable earth for profit.
Bush II, in particular: 2 unfunded wars, giveaways to the rich, a destroyed economy, and he gave away Clinton's savings to make himself popular. Shameless1
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Theoretically yes, but in practice -- wealthy, successful Germany DOES NOT offshore their manufacturing. They accept that paying slightly more (not as much as people think), you can keep factories and good jobs AT HOME.
The late Steve Jobs once said he make the iPhone entirely within the US with American workers -- but it would cost $40 more per phone, and he wasn't willing to lose the $40 (or raise the price). Ergo, he believed that the fanatically loved, adored phones would not sell at $740 each, even though they were selling like hotcakes at $700 each.
And all the jobs are now in China at Foxconn, done by slaves who need safety netting to keep them from killing themselves due to the awful working conditions. THANKS APPLE!
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Change a few names of people and places and this article could have been published forty years ago. (Probably a hundred, but I wasn't around to know for sure.) Nobody listens and the economic incentive racket continues as strong as ever.
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I first noticed books on this topic nearly 40 years ago.
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I'm the co-author of the book. And to be honest, we cite the first example of incentives as the year 1160. And the first person to get an incentive in the US was Alexander Hamilton. So I agree that we keep writing on this topic that seems to be never ending. But sometimes you feel the need to say the "emperor no clothes" even if you're not sure if anyone is listening. It is bad public policy.
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The rest of the public should not subsidize economic cannibalism to protect politicians' careers. All those incentives, giveaways, and subsidies should be included in the gross income of the recipient company. And that must include reduced or foregone taxes, as if the city or state gave the employer the funds to pay the foregone taxes. That is merely recognizing economic reality. This would also include the full value or cost, whichever is greater, of site improvements and so forth.
Further, such imputed income should not be offset by losses or credits. Only deductions directly attributable to the subsidies would be allowed. The recipient company should pay corporate income taxes at the highest marginal rate. That must include not using the new pass-through rate of 20 percent.
Former Chairman Camp of the House Ways & Means Committee would have taxed direct handouts. Only by going all the way can the rest of the public avoid subsidizing this economic cannibalism.
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This is done at the state and city level to attract jobs (i.e. New York vs New Jersey). Trump created full employment at the national level so we don't need regional competition. Much of it was just an excuse for advertising campaigns that made the incumbents look good.
3
You mean the Obama Recovery created full employment.
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Starting back in the 1960s, Southern states had to offer a lot of relocation incentives to catch up, after neglecting their economies for decades. Why did the concern start then? Supreme Court rulings made it more difficult to rig elections as they used, so they actually had to respond to voters.
Fortunately one of the side effects was that they had to clean up Jim Crow lies that disgusted outsiders.
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actually, the South grew off the backs of states such as New York , Illinois and Penna, where every dollar delivered to the Federal coffers came back in a few quarters, dimes and pennies. In contrast, places such as Mississippi and Alabama received dollars in subsidies. This was and has been a welfare state for the South to bring it up to civilized standards.
2
Somerville, MA, is part of Boston’s urban core, along with Boston and Cambridge. Somerville led a bid for Amazon’s HQ2 that was regional, with locations in Cambridge and Boston, but anchored in Somerville. It offered no incentives and is one of the finalists.
In fact, Somerville is generally anti-incentive, both in terms of its administration and its voters. Denver and Austin are not the most anti-incentive of the bidders, it seems.
The Mayor of Somerville has stated that he’d rather loose the Amazon bid that have to rely on incentives. It helps that the city and its proposal are also strong in the core characteristics that Amazon has stated it is seeking.
The voters agree.
Being nestled against both Cambridge and Boston during this biotech boom, rapidly increasing housing costs is already a major issue. Residents don’t want to be priced out of their homes by new arrivals at all, much less through should-be-unnecessary municipal bribery.
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