Abu Dhabi, UAETuesday 18 June 2019

How Amazon's abandoned NYC hub turns a page on corporate welfare rights

As New Yorkers were absorbing Amazon’s decision, other major companies were retreating in other US states as well

According to experts analysing the e-commerce giant's sudden cancellation of plans to build a massive headquarters in New York City, Amazon's decision to walk away could scare off other tech companies considering moving to or expanding in the city. AP
According to experts analysing the e-commerce giant's sudden cancellation of plans to build a massive headquarters in New York City, Amazon's decision to walk away could scare off other tech companies considering moving to or expanding in the city. AP

More than a year of work to bring Amazon's headquarters and tens of thousands of jobs to New York City ended last week with a couple of phone calls.

Jay Carney, the company's top policy executive, told New York Governor Andrew Cuomo that the world's biggest online retailer would not go ahead with plans to invest $2.5 billion (Dh9.18bn) to build a second head office in the New York City borough of Queens.

Meanwhile, as New Yorkers were absorbing Amazon’s decision to abandon a new office hub after tangling over $3bn in tax breaks, General Electric was beating a retreat in Boston, canceling plans to build an office tower and promising to return $87 million in government incentives. In Wisconsin, Taiwanese manufacturer Foxconn was backing away from promises it made in exchange for billions in incentives.

Stoked by Amazon’s decision to turn its search for a new office hub into a nationwide reality show, a long-simmering backlash to corporate subsidies in the United States is coming to a boil. State legislators in Connecticut, Florida, Illinois and New York are targeting subsidies to individual companies. At the federal level, Senator Bernie Sanders last year introduced a bill that would tax Amazon, Walmart and other big employers whose workers collect public assistance.

Good government advocates have long complained that giving tax breaks and other incentives to lure corporations to states and municipalities was a wasteful practice.

When everyone else is offering, cities or states that fail to do so will tend to lose out on opportunities.

M. Ray Perryman, a consultant who has worked on incentive deals for American Airlines and FedEx

Despite the costs, the political logic behind such deals was simple. Though companies might move to get closer to talented workers or important customers, incentives allow government officials to claim credit for attracting jobs, according to Nate Jensen, a professor at University of Texas-Austin. Lawmakers in locations with little chance of landing a corporate target have a more perverse incentive to make rich offers.

For the most part, deals got done quietly, keeping opponents in the dark. Amazon’s pageant changed that, as did the election of Donald Trump, who turned the recruitment of industrial companies like Foxconn into key examples of his pro-manufacturing policies, according to Bloomberg.

The attention may have helped corporate locators win richer incentives, but it meant more people were watching to make sure the companies held up their ends of the deal. That hasn’t always been the case.

Foxconn, which won a $4.5bn incentive package from the state of Wisconsin, indicated last month it was reconsidering whether it is economically feasible to develop liquid-crystal displays in the state, as it promised. The state economic development agency said the company deserves “flexibility” after it changed the fundamental terms of its contract and missed its first-year hiring target.

In Buffalo, New York, where Elon Musk once promised to build the largest solar panel factory in the Western Hemisphere, state deal-makers acceded to a series of amendments lowering the number of factory jobs Tesla needed to create under its $750m incentive contract, with no penalty to the company.

"There’s a reason Europe bans subsidies like this, we should take a hard look at whether we should do the same thing. If we can inspire the nation today to have that conversation, then we will have done a good thing," said Michael Gianaris, a New York state senator at the heart of the opposition to Amazon, at a February 14 press conference.

Mary Donegan, an urban and community studies professor at the University of Connecticut, said the local resistance to Amazon’s headquarters search gives other communities a blueprint for fighting big tax break deals, and may convince states to stay away from high-profile mega-deals.

Seen another way, Amazon just proves that the economic development game is gaining steam. The company received 238 bids from state and local agencies. It’s unlikely that another company will publicise its own hunt for subsidies in the way that Amazon did, but absent a federal ban on deals there’s no reason to expect that the whole thing will go away.

“For the first time ever, the American public got a look behind the curtain, at the dark underbelly of the tax-break industrial complex, and they don’t like what they see,” said Greg LeRoy, executive director of Good Jobs First, a Washington-based organisation that opposes the subsidies, in an interview with Bloomberg. “People got angry and organised and moved their public officials, who were out endorsing the idea of the project before, to reject it.”

Yet by some measures the decision was months in the making, as community opposition signaled to the company that it was not entirely welcome.

Seattle-based Amazon captivated elected officials across North America in September 2017 when it announced it would create more than 50,000 jobs in a second headquarters dubbed HQ2. Cities and states vied desperately for the economic stimulus, with New Jersey offering $7bn in potential credits and the mayor of an Atlanta suburb promising to make Mr Bezos mayor for life of a new city called "Amazon".

A backlash began in earnest when Amazon announced two winners to split the offices last November: Arlington, Virginia, and New York's Long Island City neighbourhood, with New York offering incentives worth $1.53bn to Amazon. The company could apply for $900 million more, too.

New York State Senator Michael Gianaris and City Council Member Jimmy Van Bramer said that day that it was "unfathomable that we would sign a $3 billion check" to one of the world's most valuable companies considering the city's crumbling subways and overcrowded schools, according to Reuters.

City Council meetings in December and January showed Amazon executives who showed up the stern opposition they could expect from some elected officials and labour organisers.

Protesters interrupted the meetings. A television report showed people unfurling signs saying, "Amazon delivers lies", and "Amazon fuels ICE deportations" - a reference to the company's cooperation with the US Department in charge of Immigration and Customs Enforcement (ICE).

Amazon felt that a small number of local and state officials had no desire to collaborate on a path forward, the company later said, despite what it said was strong popular support for its project.

Tension ratcheted up earlier this month, when Mr Gianaris was nominated to a state panel set to vote in 2020 on whether to approve the financial terms for Amazon.

"Amazon never showed willingness to look seriously at the concerns that were raised," he said.

Still, up to the moment of the announcement that Amazon would not open a second headquarters in New York, there were signs that the parties could work together.

“When everyone else is offering, cities or states that fail to do so will tend to lose out on opportunities,” said M. Ray Perryman, a consultant who has worked on incentive deals for American Airlines and FedEx. “In an age where a company can dangle a carrot of jobs and have communities falling all over themselves to win a location, you can bet incentives will be around.”

Updated: February 17, 2019 03:03 PM

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