Amazon, NYC, subsidies and YOUR town: “Tightening the parameters whereby cities can give out subsidies is a way to nudge us closer to that reality.”

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My social media feed was interesting last week. So many of you were angry: why would anyone NOT feed public money to a colossal monopolistic entity and fail to WELCOME its arrival to further squelch competition, fluff the oligarchs and concentrate amassed capital even further?

Me, for one. Sayeth a writer at The Nation:

The absurdities of the Amazon deal, which enraged New Yorkers and motivated them to fight back, are globalized absurdities present in every factory, every office, every farm, and every export-processing zone across the planet in which people are treated like cattle, offered by their governments to Amazon and other world-striding corporations as a cheap resource to be exploited. This outward-looking, supranational view is already implicit in New York’s anti-Amazon movement, which, much to the company’s displeasure, broadened its perspective to encompass Amazon’s general attitude toward unionization, corporate welfare, and immigration policy. In other words, the movement’s was a holistic critique: rejecting Amazon’s values for a wholly different idea of the kind of world we want.

Meanwhile Strong Towns shrinks the analysis to the micro, i.e. communities like ours and what we’re willing to give away in the name of “economic development.” There are other ways, though they’re not always effective in building the personality cults of big fish in small ponds.

What Local Government Should Do in the Wake of Amazon’s HQ2, by Charles Marohn (Strong Towns)

 … How Baseball Resembles Economic Development
Last week Amazon announced that they were pulling out of the deal they had made with a handful of power-brokers in New York to build a new headquarters there. The traditional practice of negotiating these bad deals in private and then forcing them through the various approval processes based on sheer momentum is undermined by today’s populist mood. For those aspiring to political power, there is less to be gained by going along and being a good soldier. We live in interesting times.

I also don’t think it is lost on Amazon executives—or those of other major tech companies—that prior populist movements in the United States coincided with massive levels of wealth inequality and eventually led to the breakup of anti-competitive monopolies. Our grandchildren may study Amazon’s HQ2 shakedown as a turning point in the Gilded Tech Age.

I admit that I was confused about New York offering so much subsidy to Amazon. By my sense of how economic development works, if there was any city in North America that did not have to bribe a business to love them, it would be New York City, a highly-skilled workforce replete with tech workers with all the cosmopolitan amenities to attract the best workers in the world. New York has done all the up-front work; why not just sit back and let the deals come to them? It’s what they did with Google, which just announced a $1 billion expansion and 7,000 new jobs (without any subsidy).

Nowadays incremental local ecosystem improvements don’t seem to be the strategy calculated to get you re-elected.

My hope is that cities would ultimately evolve to be like MLB teams: they would start to see that their resources would be better committed to growing their own talent within, to incrementally improving their own economic ecosystem instead of paying for free agents to pretend you’re their favorite team. It’s not happening, and I’m doubtful that it will, for reasons that MLB teams sometimes struggle with.

I love this idea of a citizen advisory group purposefully purged of usual suspects.

Establishing Ground Rules for Business Incentives
For state governments looking to strengthen their cities, I’m on record already as saying I would dramatically expand the municipal toolbox, but I’d limit the city’s annual debt service to 10% of locally-generated revenue. It’s a mechanism to prevent short-term thinking from blowing them up. I’d add to that some provisions on tax subsidies that allowed cities to be competitive, but limited how deep they could go. Something like:

  • Set the maximum length of any deal to something less than seven years to keep current leadership from imperiling future leadership,
  • Set the maximum annual dollar amount of any deal to something less than 2% of the city’s locally-generated revenue to keep any mistakes from damaging the system, and
  • Set the maximum amount of a rebate to 50% of the amount of revenue generated from the deal, so that the new business has skin in the game.

If every city had to live by these rules—which would function, essentially, like a salary cap—it would limit the capacity of businesses to play local governments off against each other, at least within a state. I’m aware it would also limit how much smaller cities could give away to compete with larger cities—something many would call unfair. But I’ve worked and lived in small cities all my life; what they need most of all is enterprises scaled to them, not something vastly disproportionate that is only preying on their weakness.

Ultimately, what we all want is for the right business to be matched with the right city for the right reasons. Tightening the parameters whereby cities can give out subsidies is a way to nudge us closer to that reality.

And for populist advocates on the left and right who dislike these kind of deals, here’s how to be more effective. First, I recommend you educate yourselves on how these tax subsidies actually work. I’ve heard many advocates out there undermine their own credibility by suggesting things like, “We can use this money saved on schools and solar panels.” In fact, you didn’t save anything, you just didn’t collect any of the money you would have given away in subsidy. These kinds of corporate incentives come out of future taxes the company would otherwise owe, not from money that’s available up front.)

Then, I think you should advocate for two things in your community:

First, your city should have a set of values for when giving out tax subsidy is a good fit and what kinds of things would disqualify an applicant. Having such a document in advance, something that can be discussed community-wide, will counter the blindness that passion can create during decision-making.

Second, I’d recommend a broadly representative advisory group to study tax subsidy deals and make an independent recommendation before the deal gets to the city council. Some prominent business people that aren’t in the get-rich-quick game—more like an established banker than a real estate agent—along with someone from the school system, neighborhood groups, maybe a member of the clergy…. Just not the regulars. This group should be trained on how tax subsidy deals work. When a package is put together, they should be empowered to review it and report, not to the city council, but to the community at large, prior to any vote. The staff supporting them should not be the same staff that put together the deal.

Subsidies aren’t going away, but the failure of this Amazon deal—on multiple levels—should prompt us all to re-examine ways to improve our own local approach.

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