Amazon Gets Billions While State And Local Government Budgets Collapse

Congress’ new Covid-19 stimulus package has no additional funds for state and local governments, according to Forbes’ Sarah Hansen, even though the pandemic is causing them major revenue problems.  But while their budgets are squeezed, a new report from watchdog Good Jobs First (GJF) finds they’ve collectively given Amazon

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over $3.7 billion in taxpayer subsidies.  This is especially galling at a time when Amazon just announced a 37% increase in year-over-year sales.

GJF is the nation’s expert on state and local subsidies, working tirelessly to expose the huge and often ineffective tax breaks given in the name of economic development and jobs. For FY2019, GJF has identified over $20.1 billion in revenue lost to tax abatements, warning the number is low because states and localities often don’t fully disclose these data.  

GJF’s critique of subsidies is echoed by economists of all political stripes. Conservative scholars at George Mason University’s Mercatus Center find “sub­sidies have little to no effect on where companies choose to invest.”  And progressive economists Alan Peters and Peter Fisher conclude that subsidies work at best 10% of the time, “and are simply a waste of money the other 90%.”

Public budgets are infested with these huge, wasteful subsidies.  In 2018, Donald Trump attended a ground-breaking ceremony in Wisconsin for the electronics giant Foxconn, lured there by then-Republican Governor Scott Walker in a deal potentially costing over $4 billion in subsidies.  But all that sits on the site is a building “1/20^th the size of the original plan,” which one reporter said is “little more than an empty shell.” 

And subsidy failures are bipartisan.  New York Democratic Governor Andrew Cuomo pushed hard for the “Buffalo Billion,” committing over $2 billion to projects in the troubled upstate region.  But the spending didn’t come close to promised job creation goals.  And the Governor’s designated project leader was sentenced to 3 ½ years in federal prison for bid-rigging associated with the funding.  (The Governor was not found to be involved in any corruption.)

But corruption, while worthy of punishment, isn’t the main problem with subsidies.  Instead, it is their routine use by governments with little or no accountability.  They drain state and city budgets of vital funds that might actually help local economies—education and customized job training, infrastructure, environmental cleanup, and extension services to small and medium-sized firms.

Economist Tim Bartik, one of the nation’s top experts on local economic development, says governments should be placing “less emphasis on incentives, and more emphasis on public services to businesses.”  And the federal government can “encourage reforms by capping incentives.”

So if economists—left, right, and center—all say incentives are a bad bet, why do they persist?  Although companies like Amazon and Foxconn don’t really make location decisions based on incentives, they will certainly demand them and blackmail governments to get them.  Public officials fear bad publicity if they don’t actively bid for companies.  More cynically, they can get good publicity when the deal is announced, and probably not be in office years later when the subsidies fail to pay off.

There is a major lack of democratic transparency with subsidies.  When Amazon dangled its second headquarters to cities—“HQ2”—it required closed bids accompanied by a non-disclosure agreement.  This in effect blocked civic groups and in some cases elected officials from knowing how much their city was offering.

Greg LeRoy, GJF’s President and a tireless fighter against subsidy rip-offs, says the $3.7 billion going to Amazon likely understates total subsidies going to the company, because companies have become more sophisticated in hiding the true total amounts.  And GJF notes there are real losers from big subsidy packages, as communities “have had to make budget cuts or raise taxes on working families and small businesses.”

Some communities are trying to control subsidies through the use of Community Benefit Agreements (CBAs), promoted by the Partnership for Working Families and other progressives.  CBAs are agreements legally committting firms to specific targeted outcomes, with subsidies either doled out over time based on targets or “clawed back” if targets aren’t met.

CBAs aren’t a magic solution (clawbacks turn out to be very difficult in practice.) But they do engage community stakeholders and make companies agree to specific benefits and periodic monitoring and reporting, a major step forward in the murky world of subsidies.

State policies also need reform and transparency.   Governments should appoint expert watchdogs like Forbes contributor Madeline Janis, a member of the governing committee of the California Competes Tax Credit Program.  Janis tells us many tax proposals for businesses “stand to create more harm than good” but company threats often produce support for unwarranted tax breaks.

CBAs and government subsidies should should require strong labor standards—good jobs for local residents and excluded groups, unionized whenever possible.  They can specify small business supplier goals, with special emphasis on minority and women-owned companies.  Other goals also can be negotiated, such as real targeting on distressed communities and assuring that essential public spending is not compromised by losing revenues to subsidies.

So as state and local governments plead with Washington for necessary funds, they also must rein in wasteful subsidies to companies.  Amazon, Foxcomm, Tesla

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, and other highly profitable firms are getting money they don’t need.  And when governments lose that tax revenue, they have trouble providing basic services and financing intelligent investments that might actually help their economies and people.