Friendly Competition?

Line in the sand over corporate welfare
Joseph Daniel Fiedler illustration

 

A recent move by lawmakers in the nation’s largest city in defiance of one of the world’s largest corporations drew diverse reactions around the country. New York City drew a line in the sand when, after being selected as a location for one of Amazon’s giant new operations centers, local lawmakers in essence told Amazon CEO Jeff Bezos to take a hike.

But for those who believe that the competition to lure employers has spun out of control, the action marked an about-time moment in the practice of using taxpayer-funded incentives as job bait.

In the past year, dozens of cities and states had engaged in a frenzied competition to land one of Amazon’s planned new centers, which held the promise of 25,000 new jobs. Along with touting resources such as their work force or transportation system, nearly every city that courted Amazon touted a bucket of financial incentives aimed at swaying the company’s location decision. (Louisiana offered Amazon more than $6 billion worth of incentives.)

Such competitions have become a fact of life for economic developers. All it took a few decades ago was for one state to succeed in luring a big employer by using giant tax breaks, and soon every economic development agency in the country was jumping in. The incentives, which ranged from tax breaks on property, equipment purchases or payroll to work force training and outright grants, became integral components of just about every incentive package extended to prospective employers.

As Louisiana entered the frenzy, the state’s economic development agency became increasingly adept at designing incentive packages. New Orleans also learned to deploy its limited financial tools in courting employers.

There’s no question that such incentives can work. The primary reason that movie makers bring many big-name stars to Louisiana annually, for instance, is the targeted tax incentive program the state designed. The program actually spurred the development of a billion-dollar industry that barely existed in Louisiana previously. The city of New Orleans meanwhile, has repeatedly used such mechanisms as payments in lieu of property taxes, along with state-provided incentives, to draw such employers as tech company Accruent, DXC Technology and data services company iMerit, which are bringing hundreds of jobs.

Despite such “wins,” some taxpayers have become disenchanted with lavish business incentives. For one thing, companies that are shopping for new locations have come to see lucrative tax breaks not as bonus perks, but rather as boiler-plate benefits of agreeing to sink roots in a given locale.

Over time, the total value of incentive programs has soared. Louisiana’s industrial tax exemption program alone, which is one of the oldest business incentives in the state, cost $1.9 billion in foregone property taxes in 2017, according to the citizen advocacy group Together Louisiana, which said the break reduced funding for local school districts by $720 million.

Another issue is accountability. While Louisiana is doing a better job than in the past of monitoring companies to ensure that they do, indeed, hire as many people as they promise, both the state and the city of New Orleans largely rely on companies to self-report their hiring activity. Together Louisiana complains that some 1,400 companies that received public subsidies from Louisiana during the last 20 years have actually cut their net employment by 26,000 jobs.

The New York decision to defy Amazon’s plan to build in Long Island City swept nearly $3 billion in incentives off the table. Many New Yorkers who hoped to benefit from Amazon’s New York project cried foul over the city’s move. But some who believe economic development incentives have spiraled out of control are hoping New York’s action will embolden other jurisdictions to rein in incentives that many consider as nothing more than corporate welfare.


 

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