It’s like the Olympics for corporations: Cities all over the country have put themselves into the running to be the home to Amazon’s planned second headquarters, and many of them are offering huge tax breaks and other incentives. But just like the Olympics, cities may regret making such a deal, and several places vying for Amazon’s attention have apparently not learned important lessons from themselves and others that were overly eager to court a new corporate HQ.
Pew’s Stateline blog recently took a look at the costly incentive packages many states and cities are using to attract Amazon and its jobs, and how those expensive benefits could backfire.
According to a request for proposals [PDF], the future home of Amazon’s second headquarters should be near a “significant” population center, have access to major highways and an airport with frequent flights to major cities, access to good schools, and an “overall high quality of life.”
Sounds like a lot of cities in the U.S. and Canada, no?
In order to set themselves apart from the rest of the pack, many cities have offered to provide the company with free land, low taxes, and other hard-to-turn-down benefits.
But according to researchers, offering these so-called “megadeals” could cost the cities and their residents more in the long run.
A Large Cost
Stateline, citing a recent report from non-profit group Good Jobs First, notes that in many cases the cost-benefit ratio for these megadeals isn’t great.
While states and cities might be happy to create jobs for their residents through these packages, experts note that it doesn’t come free.
“There’s no fairy godmother paying for them,” Timothy Bartik, senior economist at the W.E. Upjohn Institute for Employment Research, tells Stateline.
In fact, Good Jobs’ analysis of 386 megadeals worth at least $50 million struck between cities or states and large since 1976 have often been more costly than expected.
For instance, the group found that the average cost per job created for these deals was $658,427.
That’s a pretty steep figure, and it’s one the group contends cities and states will never recoup.
Not As Expected
Stateline points to a deal between New York state and aluminum producer Alcoa as an example of a megadeal falling short.
New York provided the company with a 30-year discount on electricity — a benefit worth about $5.6 billion — nearly a decade ago if the business would keep 900 jobs in the state.
Just a few years into the deal, however, Alcoa’s employment roster fell to 750 jobs, and the company was in need of financial help.
The state stepped in once again, providing the company with $73 million in power subsidies.
Similarly, in Louisiana, Stateline reports incentive packages including property tax abatements has cost local governments more than $7 billion in five years.
Why Go For It?
Despite the limited success of some incentive deals in New York and Louisiana, Stateline reports that Albany, New York City, New Orleans, and other cities in the states are vying for Amazon’s headquarters.
In Louisiana’s case, the state has taken some steps to rein-in incentive packages that have in the past cost so much money.
Stateline reports that Gov. John Bel Edwards signed an executive order last year that required companies to adhere to strict requirements, including hitting job creation goals and creating new manufacturing plants.
Those requirements don’t apply to Amazon, a rep for Louisiana’s Economic Development agency says, and the agency plans to use offer incentives to attract the company.
Don Pierson, secretary for the agency, said the state just likes to compete, and incentive packages are one way to do that.
He likened megadeals to professional athletes receiving bonuses if they make playoffs or other milestones.
Of course, bringing jobs isn’t the only reason states and cities offer these megadeals, sometimes it’s all about the ego boost.
“There are major political benefits to presiding over a ribbon-cutting ceremony and a press conference to announce you have created or saved all these jobs,” Bartik tells Stateline.
Still, when that politician moves on and the deal goes sour, it inevitably will cause problems for city and state leaders, as well as employees and residents.