Amazon’s recent announcement that it would be “accepting proposals” for a secondary headquarters has set off a predictable–and unfortunate– competition by cities all over the country.
“Pick me! Pick me!” Even Indianapolis and Fishers have teamed up for the hunt.
The Brookings Institution gets the dynamics right.
In the world of state and local economic development, Amazon is a whale. The possibility of 50,000 highly-paid jobs for professionals at a new $5 billion development is too tempting to pass up for any metro area with even the slimmest hope of courting one of the largest and most profitable companies in the world. Amazon’s unsubtle hint that tax incentives will play a big role in its decision helps ensure it will receive one of the biggest packages in history. Already, cities and states have rushed to announce their hope to entice Amazon with their distinct value proposition, and—in all likelihood—breathtaking handouts.
This begs important questions about the wisdom of state and local economic development strategies and their ability to remain focused on addressing the real challenges American communities face today.
Amazon’s shameless invitation to see who will offer the biggest bribe does indeed raise “important questions” about standard economic development practices–practices which assume a zero-sum competition to entice employers to relocate to the redevelopment officer’s city or state.
That competition is expensive for bidders, most of whom have no real prospect of securing the prize, and even more expensive for taxpayers of the eventual winner. As the Brookings article points out, Amazon undoubtedly narrowed its choices to two or three locations before it ever announced its search for a headquarters site.
Amazon’s faux competition will lure one otherwise enviable place into handing over a huge amount of its taxpayers’ money to a fabulously wealthy corporation for something that place could have gotten for free.
As anyone who has ever been involved in one of these efforts can attest, cities will waste significant staff time calculating and crafting proposals, time and effort that could have gone into solving other problems.
It is past time to revisit economic development policies that center on these expensive efforts to lure employer A from location B to location C. Instead, we need to take a hard look at the strengths and weaknesses of our local economy, and determine what measures would help us grow the employers who are already here.
What are the jobs that are open? Why aren’t they being filled? Are there “skill gaps” keeping jobless Hoosiers from filling them? If so, what can we do to provide unemployed workers with the necessary skills? Is the problem transportation–the inability of workers to get to the places they are needed? Can we improve public transportation to solve that problem?
In other words, what are the unmet needs of Hoosier employers and workers, and how can we meet those needs?
Political figures love to cut ribbons and announce that manufacturer A or retailer B is moving to town and hiring X number of employees. Those announcements rarely include enumerations of the costly enticements (bribes) that accompanied the decision to locate here: tax abatements, infrastructure improvements, training grants and the like.
Efforts to grow the industries and other enterprises that are already here would not only be more cost-effective, they would also be fairer. These are employers who are already part of our community, after all–already paying taxes, already hiring local residents. They may not be as glamorous as Amazon, but in the real-world scheme of things, they’re much more important.
Amazon may be a whale, but we don’t have to emulate Ahab.
Remember what happened to the United Airlines Maintenance facility? Politicians cannot resist running after “fairy dust.”
It seems most communities are not honest with themselves during such a process either. Cities that short changed investment in public transit, parks, spaces, and education never had a chance. At least this should be a lesson of sorts of how to be attractive to the new economy.
“Instead, we need to take a hard look at the strengths and weaknesses of our local economy, and determine what measures would help us grow the employers who are already here.”
Contrary to news reports lauding the low rate of joblessness nationally; Indianapolis needs to resolve internal problems regarding its rate of those actually unemployed and why they remain unemployed. It must also take a close look at the vacant business sites and abandoned houses in too many areas causing rising crime rates. It is NOT the “possibility of 50,000 highly-paid jobs for professionals” that is the end result of harpooning the Amazon whale, or any other major business; it is what happens once they are set up and on a working basis sustaining THIS CITY that needs to be thought through and seriously considered as beneficial or detrimental to the entire state of Indiana surrounding Indianapolis and Fishers. Those 50,000 highly-paid professionals need somewhere to live and to have access to all life-needs to provide for families.
Another consideration which needs to be taken into account is the overall appearance and current poorly functioning infrastructure with residential areas and quality sustaining businesses such as food markets and shopping outlets which will not shut out the vast majority of Indianapolis/Fishers/Marion County residents already in economic decline…the actual “trickle down” effect of this Republican government.
I worked for 20 years downtown for the City of Indianapolis government; it was a beautiful and primarily well maintained city to be proud of. I had occasion a year ago and again last week to ride downtown from the east side via Michigan and Washington Streets and was appalled at the tacky, shabby, ugly, cheapness of areas leading to downtown Indianapolis which can only mean a lack of zoning ordinances or lack of enforcing current ordinances by City government. My trip to the court system in the City County Building deeply saddened me; the once beautiful bricked streets and sidewalks around the CC Building and the City Market was simply dirty and stained with trash scattered and areas of dangerous upheaved sections of bricked sidewalks. These are issues which businesses can, will and do take into serious account before considering locating in all cities.
Local government needs to decide if this city needs and has the ability to sustain a major international business before wasting more millions putting together a bid package to seek Amazon or any other major business to locate here (remember the wasted tax dollars spent on the 2nd bid for the Super Bowl). Also remember the promised renovation of east side areas before the Super Bowl which still hasn’t been fulfilled. I worked as secretary to one Deputy Director of the Department of Metropolitan Development and as records secretary to the Metropolitan Development Commission when they were making carefully thought out, well planned bids to new businesses and/or accepting viable bids. I was also there when the system was destroyed from within by Goldsmith and replaced with selling off, leasing away or awarding contracts to outside businesses, primarily in Ohio, putting “economic development” money in their pockets rather than sustaining the local economy.
Amazon did not become the major business it is today by making poor decisions regarding their locations. Where exactly would Indianapolis get the vast amount of bribe money to pay Amazon to even be on their short list? We know the answer to that question and the answer is not one residents will support…but we won’t even be considered in making the decision, we will simply be further taxed to pay for the bid to begin with and do you see any chance of it being accepted?
JoAnn,
Terrific analysis. You know what you’re talking about.
Pat; what happened to the United Airlines Maintenance Hub at the airport? That was one of Mayor Hudnut’s accomplishments; along with Thomson Electronics, Circle Centre Mall and at the same time the USPS hub at the airport was brought here. I left Indianapolis in 1994; when I returned in 2001, the Hoosier Dome was the RCA Dome, Circle Centre Mall was struggling (still is), Thomson Electronics and United Hub were gone (I don’t know about the USPS hub at the airport). I have often described the Goldsmith administration as a Nixon microcosm; it was also the forerunner of the Trump administration we are suffering through today. Just as Trump, Pence, Ryan, McConnell, et al, are determined to destroy everything the Obama administration accomplished due to racism; Goldsmith was determined to destroy every accomplishment by Mayor Hudnut due to personal hatred. That was well-known by all City employees and is why Goldsmith’s first order to City departments was to destroy all files and paperwork from the Hudnut administration; huge wheeled trash bins were brought into all offices to accomplish this. I’m sure the shredders throughout the White House and government offices were smoking as soon as Trump left the stand after being inaugurated.
Colorado Springs , CO made the same bend over offer to Focus on the Family. Focus promised jobs, jobs, jobs, but ended up bringing their executives over from California and hiring, basically, letter openers at minimum wage. The city literally gave them prime real estate north of town, a huge cut in utility rates and exemptions from city taxes.
Focus did nothing for the community. It didn’t even offer day-care for its employees; indeed stated that single mothers who dated were whores.
Be careful what you ask for.
What sane community wants a corporation that bribes (also known as cheating) moving into town? What makes you think that after they move in they will not continue to bribe and cheat?
I’m with Vernon. “Be careful what you ask for.”
Indianapolis should have learned all it needed to know from United Airlines. Even with the contractual obligation to repay the state if the job umbers fell short, United was always aware that reorganization under the bankruptcy laws would negate all of those obligations first.
Reminds me of the time, I expressed my opinion to an O’Bannon Dept. of Commerce Director. I postulated that it was a zero sum game to have Indiana units entice businesses to relocate from one unit to another with state/local money and tax incentives. I thought it was an intellectual discussion. He reacted as though I had offended his manhood. Now that I think about it, he had small hands.
Sheila mentioned the employers we have who complain about unfilled jobs. Those jobs go unfilled because the employers are demanding highly skilled workers and want to pay them around $12/hour. Many of those employers also don’t offer benefits. It costs a lot of money to gain the specific skills those employers demand, yet the employers don’t seem willing to put any of their own skin in the game regarding training assistance. Why should people take out loans to be trained for jobs so specific that those skills are not transferable. It is too risky.
Does anyone know when this scheme of bribery to obtain jobs was put into place by EDCs? Who came up with this idea and why did it gain traction?
Pat; this is copied and pasted from a May, 2003, NBC report. The Hub operated for 12 years, is that really “fairy dust” when apparently the failure began due to the new airport. $690,000 annual rent for the land and $34 MILLION dollars in penalties is a lot of “fairy dust”.
“On April 11, Mayor Bart Peterson said it was “inconceivable” that the airline would resume operations at the base that had employed 1,500 workers, including 1,100 mechanics.
UAL Corp., United’s parent company, said it filed a motion Friday in a Chicago bankruptcy court “to reject its lease at IMC (Indianapolis Maintenance Center) in order to make permanent the closing of the facility” along with a second repair base in Oakland, Calif.
United had issued a temporary closing order for Indianapolis’ facility on April 6.
Friday’s decision came in stark contrast to the celebration a dozen years ago when state and local leaders landed the base — what was then one of the nation’s largest economic development projects.
United pays the airport $690,000 annually to lease land under the base.
“We will definitely pursue any legal claims with respect to rent and other payments. We are looking at any potential claims we have,” said Melina Kennedy, the city’s director of economic development.
Though United is abandoning the hub, the building still can be used by another company. Indianapolis Mayor Bart Peterson said several businesses are interested.
“It’s not going to be in the next week or two when we make any kind of an announcement, but I am confident that we will end up being able to get another tenant — or more than one tenant — into the facility,” Peterson said.
The city and airport also will continue to conduct audits to make sure United doesn’t leave with more than $30 million in tools and equipment purchased with economic incentives that state, city and Hendricks County officials used to land the maintenance facility.
United already has paid the city $34 million in penalties for missing the first round of employment targets. The base was to employ 7,500 workers by 2004 under terms of a $300 million incentive package by state and local governments.
United is on the hook for a total of $100 million in penalties, although it’s unclear how bankruptcy court will treat that claim.”
one BIG problem with Indianapolis is the obsession with keeping downtown and other areas on life support. Let downtown wither and die if it can’t support itself. We have helped enough and it clearly is NOT working. Union Station has been “saved” many times, as has the Eastgate Mall police station, the Broad Ripple parking garage, etc. We don’t need to subdizize Amazon as well. Consider also subtle assistance. Amtrak arrives / departs DOWNTOWN, yet many customers do not want to be downtown. Better to stop at the airport which has many advantages, except that doesn’t help DOWNTOWN. Same with those weird electric cars of dubious legality, the bizarre residential zoning that HURTS downtown, and many more. Wonder how many law firms will leave downtown due to e-filing? Spend our money in Vegas so we have another “sure thing”, and CERTAINLY don’t add more inept zoning.
Spot on! What will it take to get states, counties, and cities to stop playing this game?
Apparently the city learned nothing from attracting the Colts-or maybe it was only about ribbon cutting and corporate welfare anyway. I wish I were wealthy enough to qualify for public assistance.
I have blogged many times that the bankruptcy statute should be reformed, and especiall Chaper 11. United or any other corporation will take bribes to locate and then if things sour, run off to bankruptcy court with a Chapter 11 petition in hand, The purpose of filing under Chapter 11 is to enjoy the protections of bankruptcy without actually “taking” bankruptcy and the court is required to look first at saving the petitioning corporation’s survival by ending or modifying the corporation’s obligations to workers, vendors and those who have paid bribes in order to have them come to town in the first place. The court has the power to disavow union contracts with its workers, reduce pension liabilities etc. all in the name of saving the corporation. Often vulture corporations (a la Mitt Romney) come into the game via cannibalizing and/or selling off the assets of the petitioning corporation or trying to make it viable again after the court decides to try to salvage the petitioner for another go. Those who have bribed such corporations to come to town often find their claims to be far down the list on both secured and unsecured creditors’ lists and are out of luck (as are the taxpayers who provided the wherewithal for the bribery). The way to get businesses to come to town is to build an educational, transportation and modern infrastructural environment which will appeal to such businesses for location or relocations sans bribes, and are things we should be doing for our own pleasure, comfort and efficiency in any event.
Gerald; this is an excellent collection of legal loopholes which favor the wealthy, keeping their money safe, and victimizing all others. Including the judicial system itself by baring its lack of justice for all…but the wealthy. Entire cities are also victimized by the quirks, twists and turns with apparently no set rules to follow.
I am beginning to wonder if our faith in Robert Mueller is safe from Trump’s entourage of loophole specialist attorneys for the wealthy. It is all a game to them; probably why we never see Trump walk into view without lustily applauding himself, he appears to be assured of the outcome.
JoAnn – Bankruptcy judges must follow the laws as written and it is the Congress which writes the laws. I am sure that many bankruptcy judges hold their noses when applying the laws as written but such findings are appealable if they do try to do equity to all irrespective of the restrictions of the applicable sections of the statute. You can bet your life that vendors, corporate workers, pensioners and the like would join me in insisting on reform of ?the bankruptcy act. It is a horrendous expression of “public policy” since, in my opionion, it legitimizes fraud and false dealing. Furthermore, as I have written, it removes incentives to bargain in good faith with employees. Why bother, for instance, in bargaining in good faith with corporate
employees when you know you can file a Chapter 11 petition and have the court modify or even reject such an agreement? You are right to suggest a breach of the Equal Protection Clause since there is no corresponding right of corporate workers to the relief granted to their employers by the Bankruptcy Act, an act, along with the internal revenue code, badly in need of reform. Parenthetically, the world’s foremost bankruptcy expert, one Elizabeth Warren, is my choice for president at this point.
What I learned after serving four years as Marion County Assessor is that the more exceptions we create for charities, tax increment financing, and abatements, the less fair our system of taxation becomes. It devolves to a system of picking winners and losers through legislation and economic development policy. Any more it looks a lot like raiding the coffers for your buddies.
Why should local businesses, their employees, and other local taxpayers pay MORE taxes to attract and subsidize their potential competitors? That’s what happens with economic development incentives. Newcomers’ taxes are shifted to the rest of us.
We have empty schools, manufacturing plants, shopping center strips, and Union Station in Indianapolis- all with established infrastucture and easy transportation access to major highways and one or more with immediate access to rail transportation. We have a ready supply of trucks and drivers to deliver goods to customers. We are centrally located and within a day’s drive of most of the U.S. population. Indianapolis needn’t give away the store to acquire another. We have many natural advantages, and if Amazon doesn’t appreciate them, let’s put our advantages to use right here at home with the locals.
Indiana has already given one tax break after another to local businesses but Indiana’s wages are remain woefully low. In fact, some businesses used their tax breaks to move jobs to Mexico (Carrier comes to mind). I’d rather give tax breaks to those who already created GOOD paying jobs here in Indiana. Then at least there would be some accountability and assurance that the tax breaks actually rewarded those who created livable-wage jobs.
The business community is very vocal about accountability for everyone else. It’s time that accountability was applied to those who get tax breaks but don’t create or sustain the jobs for whom the tax breaks were created.