Amazon's $1 billion in tax breaks: Does it pay off for cities?

Twenty U.S. and Canadian cities are offering lavish tax benefits and incentives as they vie to become the new home for Amazon.com's second headquarters. But a new study raises questions about whether such tax incentives actually pay off for the towns and states that offer them.

Amazon.com (AMZN) has likely received $1 billion in incentives from state and local governments in 25 states where the online retailing giant operates 95 fulfillment centers, according to a new study by the left-leaning Economic Policy Institute. Yet those incentives may not have paid off, the study suggests. 

The massive Amazon distribution centers failed to boost overall employment in their markets within two years of opening even as they boosted distribution employment by 30 percent, the study notes. The authors, Ben Zipperer and Janelle Jones, suspect that's because workers are either shifting industries or the Amazon facilities are creating too few new jobs to make a dent in overall employment.

Amazon did not immediately return a request for comment. 

The study is attracting attention as Amazon employs a similar strategy, on a much larger scale, of seeking government incentives for a second headquarters beyond Seattle. The company named 20 finalist cities last month, setting off a debate about the use of economic incentives to attract businesses. Some policy experts and economists say such incentives do little for local towns or states other than cost them money

There's no question Amazon's proposed second headquarters, which promises 50,000 jobs across a broad range of skills and pay levels, is a very different animal from a distribution center with mostly low-wage jobs. Still, EPI's Jones said she hopes her study gives local government officials some pause as they build out proposals for Amazon.

Ironically, Jones notes, cities would have been better prepared to meet Amazon's requirements for local education offerings and transportation infrastructure had they spent less on tax incentives for prior deals and more on funding local infrastructure.

"What we know for sure is the millions of public dollars that will be given away," she said of the Amazon headquarters search. "What we don't know is the outcome -- what's the return on that investment. With fulfillment centers, we have a pretty concrete idea of what that return will be. We want people to stop and think: 'Do we know what it will be for HQ2?'"

The study adds EPI's voice to a chorus of skeptics including the nonprofit policy advocacy organization Good Jobs First and the bestselling author and urban-policy expert Richard Florida, who last week launched a Change.org petition with the headline "Support a Non-Aggression Pact for Amazon's HQ2."

The petition, co-signed by a broad range of economists and urbanists across the political spectrum, argues that business location incentives offered by local governments are often "wasteful and counterproductive" and that those in the works for Amazon could take the largesse to new extremes. It urges local leaders to "compete on the underlying strength of their communities -- not on public handouts to private business."

"While we are supportive of Amazon's quest to build a new headquarters, we fear that the contest among jurisdictions -- cities, metro regions, states, and provinces -- for this facility threatens to spiral out of control," the petition notes. "Already, at least four jurisdictions have proposed multi-billion-dollar incentive packages. This use of Amazon's market power to extract incentives from local and state governments is rent-seeking and anticompetitive. It is in the public interest to resist such behavior and not play into or enable it."

Jones, the EPI economic analyst, told CBS MoneyWatch she understands why it's difficult for local government officials to resist the urge to give away the store: Everyone loves to bring out a shovel to break ground and claim credit for new jobs.

She said EPI chose Amazon for its incentives study because there's a ton of of available data, but there are plenty of examples of similar deals with similar dubious value to local taxpayers.

"This is really just an example of this phenomenon of cities, states and localities being willing to give away everything -- millions, hundreds of millions of dollars -- to lure a business when you can't be sure you're actually getting the return you want," she said. "The point is that when states and cities give away millions to Amazon or anyone else, they're really forfeiting that money that could be used for so many other things, from Pre-K to public education to infrastructure."