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After Amazon's HQ2 hunt, some states target corporate tax breaks

NYC, Amazon will be fine without each other
Why New York City and Amazon will be just fine without each other 03:32

Amazon's announcement last week that it would abandon a planned New York City headquarters after a drawn-out bidding process has vindicated community activists who criticize the types of tax-cut deals the retail giant secured.

Now, some states are moving to do away with this type of corporate tax break altogether.

Seven states, including New York, have introduced or are considering legislation that would curb the sort of high-profile corporate-location hunting that Amazon engaged in over the past year-and-a-half. The bills forbid states from giving out special incentives to companies that are located in a state or considering moving there.

Amazon's aborted plan for a campus in New York's Long Island City neighborhood is just the latest high-profile project to sour after winning large financial incentives.

Foxconn, which secured a record $4 billion incentive package last year to build a high-tech factory in Wisconsin, wavered on the project -- saying it might be smaller than expected and might not create the type of manufacturing jobs the company initially promised -- before reversing itself. The project is lagging on its job-creation goals, according to reports. In Boston, GE abandoned several building projects that it had planned for a new headquarters and promised to repay $87 million in incentives to the state.

A short-lived honeymoon

Amazon conducted a 14-month hunt for its second headquarters, getting 238 proposals before picking what many called the obvious choices of New York City and Northern Virginia. The honeymoon was short-lived. Activists and politicians in New York questioned the nearly $3 billion in tax breaks the company had secured -- roughly the same amount it promised to invest in the project -- and Amazon responded by dumping the city last week, on Valentine's Day. 

Now, some politicians want to keep this type of nationwide bidding war from breaking out again.

"Corporate welfare does not work. It works for corporations, but it doesn't deliver a benefit reciprocal to communities," said Julia Salazar, a New York state senator who's sponsoring a bill to end corporate subsidies. "We really want to put an end to the practice in New York of trying to give billions in tax subsidies and tax credits to corporations like Amazon."

Said Assembly member Ron Kim, the bill's sponsor in the state Assembly: "We should be cooperating with each other to set the terms of when a mega-corporation like Amazon comes to New York City, instead of being exploited by Amazon." He pointed to the European Union, which has outlawed tax incentives (and has ordered Amazon to repay illegal tax breaks the company received).

Whether this could actually become law is unclear -- Gov. Andrew Cuomo, who championed the Amazon deal and blamed the state senate for killing it, seems unlikely to sign. But Kim said he was optimistic that the legislation would let New York opt out of the interstate competition that many governors decry.

"Now we're giving him an option -- we don't need to compete [with other states]. This gives us an opportunity to be a real national leader," he said. "I recognize there's a deeper problem. This is not just about Amazon, but other multinationals that have done what Amazon has done," he said.

Mixed reactions as Amazon abandons HQ2 in New York 02:59

Similar bills have been introduced in Arizona and Illinois, while Connecticut, Florida, Massachusetts and New Jersey are also considering like-minded legislation, advocates say.

Do jobs really get created?

While it's common for corporations to seek tax breaks in exchange for moving to a particular location, Amazon's solicitation was unusual in how public it was. Corporate location experts say tax considerations are rarely a deciding factor in where a company chooses to locate. And it's not certain this type of interstate warfare creates genuinely new jobs. A 2013 report from the Institute of Taxation and Economic Policy found that incentives "are much more likely to reshuffle investment between geographic areas than they are to spur genuinely new economic activity."

A prominent example is Kansas City, which straddles the line between Kansas and Missouri. Companies routinely relocate from one side of the city to the other as the two states compete with each other for deeper subsidies. That had prompted a coalition of local businesses to write to both states' governors in 2011 to demand an end to the "economic border war."

Citizens are increasingly skeptical that these deals generate the jobs they promise -- or are worth the tax breaks. In Wisconsin, the public was consistently opposed to Foxconn's subsidized development. New York City residents were largely in favor of the Amazon campus in Long Island City, but were split on the issue of subsidies.

The legislative efforts to halt corporate subsidies aren't perfect. While they target only company-specific incentives, they still leave in place many business entitlements. In New York, for instance, all but $500 million of Amazon's tax breaks came from existing programs that predated the deal. Many other states have existing tax breaks for any company that moves in and creates jobs.

"I don't think the way [these bills are] worded right now would capture that," said Greg LeRoy, executive director of Good Jobs First, which is critical of tax subsidies. Nevertheless, LeRoy said the New York bill was a good step.

"I totally applaud what they're doing, the concept is right," he said. "It just needs more meat on those bones."

A demeaning fight over Amazon

While the best approach would be for many states to agree to such bans on incentives, preventing them from undercutting each other, LeRoy said even if just one state enacted such a law, it would make a difference. Most companies don't conduct multistate corporate searches like Amazon did, he said.

"The vast, vast majority of corporate movements are within the same labor market and even the same county, he said. "These high-profile multistate things are exceptions."

The "fight over Amazon" felt demeaning to Arizona State Sen. Juan Mendez, who said some of the bids -- one of which included a gift of a cactus -- seemed like jokes.

"It showed to me how people's values were really displaced, trying to give up so much of what we've collected, our collective tax monies," Mendez said.

Mendez introduced an anti-corporate subsidy bill in Arizona after learning about New York's efforts on social media. And while he doesn't expect it to pass this year, he plans to spread the word among his constituents and lawmakers in neighboring states. In his view, Arizona has wasted a lot of time and money trying to attract deals that wound up falling through, including bills to encourage blood-testing startup Theranos before the company was revealed to be a fraud.

"We have a history of getting into these kinds of relationship," he said, "and I would much rather have relationships with the states around me."

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