When I was in City Hall, in the late 1970s, the use of tax abatements to lure employers to Indianapolis, or to blighted areas, was relatively new. Back then, applicants for those abatements were expected to demonstrate that “but for” the tax break, they wouldn’t make the move–that the incentive made the difference between an economically viable move and one that otherwise wouldn’t make economic sense.
I recall several quibbles about whether this or that business had actually met the “but for” test.
Over the years, of course, we’ve heard less and less about cities justifying the various incentives being doled out to entice employers, with the result that the whole country sometimes seems engaged in a zero-sum game (after all, when factory A moves from state B to state C, jobs may come to state C, but they’re lost to state B. Total economic activity rarely increases.) Incentives have come to look more and more like bribes; larger enterprises looking to move or expand pit “bidders” against each other to extract the largest concessions.
“Who will pay me the most to come?”
Those of us who have looked askance at the evolution of this competition have long believed that these enterprises would move to locations that made business sense without the incentives/bribes. And now we have evidence.
Remember when AOC and many others blocked the three billion dollars in subsidies that New York offered Amazon? Amazon is moving to New York anyway. Without the subsidies.
“The giant online retailer said it has signed a new lease for 335,000 square feet on the city’s west side in the new Hudson Yards neighborhood, where it will have more than 1,500 employees,” The Wall Street Journal reported. “Amazon is taking the space without any of the special tax credits and other inducements the company had been offered to build a new headquarters in the Queens neighborhood of Long Island City, the company said.”
“The new lease represents Amazon’s largest expansion in New York since it stunned the city by abandoning those earlier plans. Amazon pulled back after facing a backlash from some politicians and activists over the roughly $3 billion in financial incentives the city and state had extended to woo the company and the 25,000 new jobs it had pledged to create,” The Journal explained.
Clearly, a New York location made business sense for the company. That being the case, the massive subsidies it extracted during the competitive process were gravy–and taxpayers were supplying that gravy.
The politicians and activists who had blocked the original offer had argued that it was unnecessary. They were clearly correct. There is no way that Amazon could have passed a “but for” test.
The money being spent on these high-profile efforts could be used instead to grow local businesses–why not, for example, create a fund that would finance promising mom-and-pop startups that can’t get conventional financing? Or use that money to make local retail districts more attractive and accessible?
Bribing employers to relocate is not “economic development”–and as Amazon has just demonstrated, it’s usually not necessary.
AND – can we please stop building publicly financed play pens for sports?
That has been proven to be a WASTE of scarce public funds.
If they need a new play pen, let THEM BUILD IT. It is that way in CA.
It needs to stop. If grown men want to play with balls for a living, let them.
But do not take money away from hungry children and schools for that purpose.
Bringing new business to the City of Indianapolis or the State of Indiana is always beneficial; even a temporary benefit, but not always beneficial to our residents or current businesses hoping to reap new income. The “but for” basis is expected to make money for both sides or the offer wouldn’t be made…or accepted. An example of local loss is the lure of the millions spent to present a packaged offer to Amazon, which was a loss of our tax dollars. And the two packaged offers to bring the Super Bowl here which cost millions are temporary examples of loss; the Super Bowl actually held here did not reap expected benefits to local businesses as outlying areas offered better deals to those coming to attend and spend their money. Loss of our tax dollars on both lures using our tax dollars. Apropro to this blog; maybe yes, maybe no but they are elements of promises made using and losing our tax dollars. “but for” those lost millions we might have tax dollars to put to better use such as wages for school teachers.
Potential employers are not the only recipients of those tax incentives. The tax incentives offered to out-of-state developers to gentrify those blighted areas of our city appear to benefit the developers but who reaps the benefits when gentrification is begun and ultimately at its conclusion? “Who will pay me the most to come?” Regarding those gentrification areas the question should be “Who will pay the most for them to come.” The answer to that is those who are arbitrarily removed from their homes and businesses in those areas; such is the upcoming case of 222 South Downey Avenue, the home of a large number of low-income, senior and disabled Indianapolis residents, many of whom whose tax dollars originally paid for and supported the area.
Please note that the jobs created in NY by Amazon went from 25,000 to 1,500.
In southern Indiana, a major employer promised hundreds of new jobs if it got incentives to build. In fact, once construction was complete (most of which was done by out of state contractors) the promised jobs went to transfers within the corporation. Local hiring was for far fewer maintenance and janitorial jobs paying a lot less. Yes, jobs were created but not for the people who were supplying the subsidies of their tax dollars.
All of the new development in Glendale/Broad Ripple (Indianapolis) makes no sense when there are all too many empty business locations in the immediate area. Many of these properties have been empty for years. They become eyesores when neglected by out of state owners. Trash and graffiti mark them as virtually abandoned. All we hear about are plans to bring large overpriced apartments with retail on the street level. With so much empty retail, except for bars and restaurants that turn over about every 6 months to a year, who wants to live with all the traffic, trash and crime. To shop, you have to drive miles past all the empty buildings to the chains or big box stores in the suburbs. TIF is just another word for fraud in its current iteration. In the meantime, access to goods and the service jobs they require are moving further and further away from those who need and want them. Sad to watch and costly for the taxpayers.
Although I agree with the point of today’s column, from what I have read about the matter, the new facilities in NYC will not be as large and the number of employees not as large, as would have occurred had the original plan been approved. But still, the benefits dangled in front of the city were probably exaggerated, so letting Amazon go somewhere else
was probably a net gain for the city.
Can anyone point to a case where the expected benefit actually occurred?
I wonder if Fox News “Socialist Brigade” will be fighting the economic incentives received by large corporations like Amazon.
#Doubtful
Pooling our taxes at the government level so we can have a single buyer of healthcare services is socialism. Using our pooled taxes at the government level so it can be passed along to corporations as incentives is part of the free-market capitalist system. (eye roll)
You’ve got to love the hypocrisy at the national, state, and local levels.
Indiana is so opaque with their economic development that they’ve privatized the operation so it doesn’t have to answer to a free press if we had one in Indiana.
As the first several posters and Shelia points out, it’s very rewarding for the dealmakers to give away other people’s money. Create a TIF district and you can do even more damage by leveraging future revenues to give away even more monies to Oligarchs while robbing the schools and libraries of tax dollars.
Let Indiana residents NEVER forget President ELECT Trump and Vice President ELECT Pence making a special trip to this state before their inauguration to save Carrier by giving them $6 MILLION to maintain the jobs at their location. The “but for” deal was sealed and within three months all but about 300 jobs had been sent to Mexico. Representatives from the area of Mexico where those jobs were going came to Indianapolis to BLOCK the deal; the low salary to be paid to workers would barely cover their basic living expenses so local businesses would NOT benefit by the relocation. Frivolous spending of tax money nation wide by Trump and his minions has added to the $23 TRILLION deficit. “but for” that waste the economy might be as great as Trump’s lies claim it to be.
patmcc- Right On!!!
The other side of the coin, is other companies and the people must make up the difference, when Corporate Welfare is handed out to a selected company. The companies not receiving Corporate Welfare are expected to fund the “Commons” such as schools, libraries, parks, and public transportation as an example. The “Commons” will be starved for funds.
if your in that area, rents just went up, and cost of living also..if NYC has this underway, as a trucker, and the rep that goes with any NYC metro area, we dont do the northeast…traffic, tolls, and people who are not, very nice anytime of the day..imagine, crossing the VNBridge,and paying $105 bucks to cross into NYC,from Jersey..now the fun begins, traffic, finding the offending buisness that wants you to drop everything for their needs, including a restroom..appointed time to arrive,,,10 minutes late,and your rescheduled,meaning possibly,2/3 days parking 100 miles away to wait,and your sitting on a electronic log, and get no pay for not driving miles…of course,if they, decide to want your load,you wait for them to decide how long,and where,and most times,bribe,of pay someone to take off your truck..most times,when you pull from the dock, goodbye…no parking,get out..even if your electronic log has runout, due no reason on your behalf. now your in violation, and thats a federal record now,kept for 7 years..i forgot, your gonna have to drive out of the METRO area to find a truckstop, or parking, usually a few hours there too. imagine the container freight from the docks too,,, nightmare,but what the heck, your smiling because you ordered it,and its in your hand pronto.. even if it took alot of money out of someones pockets,to get it there..this is trucking at its worst,and why, the smart truckers wouldnt even get within 100 miles of jersey…
im from there,,and if ya wondering why i do not live there..
A better approach – https://research.upjohn.org/cgi/viewcontent.cgi
Patmcc makes a good point, and from an overall point of view, whether such moves are beneficial to the national economy in large part depends upon whether it is a move of an old business or if it is a new business. If a new business one can argue that it is good from such standpoint, though even here such a new business will be partly funded by its taxpaying competitors already there in addition to taxpaying citizens who are told their money is going toward police and fire protection, filling in chuckholes etc., not to charter schools and corporations who may be choosing a location and looking for the best deal from local politicians with their (the taxpayers’) money.
If, on the other hand, it is an existing corporation with relocation plans that truly depend upon the largesse of the city and/or county, then from the standpoint of its effect on the national economy nothing changes inasmuch as the new jobs promised are offset by the jobs lost if they do in fact relocate, and even here there may be (as one contributor noted) fewer jobs for the new locals if such corporations bring along workers from the old location.
So what advantages accrue to the members of the community in return for their tax giveaway to relocating corporations? There will, of course, be an increase in traffic, crime, carbon monoxide and other and usual negative conditions associated with increasing urban congestion, and if the taxes paid by the relocated corporation and its new employees do not cover the costs of such negatives, then taxes will have to be raised on general taxpayers (including the relocated corporation’s competitors) and community members who have no skin in the game to pay for police and fire protection, filling in chuckholes etc.
I have written on this topic before and have concluded that we have this arrangement reversed; that it is the corporations who wish to relocate who should approach the community, hat in hand, for permission to come to town. Bad for business? A loss of income to the community? Try to sell that to the vast majority of the town’s taxpaying residents who gain nothing but grief from such shenanigans.
All forms of rent seeking from public coffers should be illegal.
Subsidizing businesses with tax payers funds is rarely a good idea. The infiltration into government by business interests loyal to only make more money now regardless of the impact on any others ever is just too great.
Any proposal to do it should be viewed with great skepticism.
Cities should invest in municipal improvement instead of investing in migrating companies. Make the city so attractive that companies will offer incentives to the city to be allowed to locate there.
People lambasted AOC at the time, but her constituents didn’t want it. She was carrying out their wishes, not caving to the pro-business wishes of the powers that be. As it turns out, she was right.
I have heard corporate leaders stating they are going to be more concerned with all the stake holders not just their share holders. I don’t believe it. I have been watching Frontline’s documentary on artificial intelligence and robotics. It looks like truck drivers will soon be disenfranchised just like the workers in manufacturing because self-driving trucks are much more cost effective. This, of course, further erodes the middle class. At this rate, one day the state of Indiana is going to find it has little to no tax revenues because so many Hoosiers are unemployed. Maybe then they will have to stop giving corporations so many tax breaks so they can pay unemployment salaries. The young CEO’s like Zuckerburg display a severe inability to look at harmful as well as beneficial consequences of their technologies.
I agree with patmcc that we should stop using taxpayer money to build sports stadiums. What a waste of our money. Oh, and I believe the NFL should be taxed. There are football fanatics who remind of religious fanatics, but football does not really qualify as a religion, hmmm, or does it?
Various tax abatements and incentives have the additional disadvantage of costing more than they return to taxpayers. Time after time governments have been so desperate to create jobs that the huge incentives are unlikely to ever be repaid by the tax revenues of the corporation and employees COMBINED.
Often new business development ADDS costs at exactly the same time abatements lower property tax and other revenues. When new, large auto plants located near Lafayette and Fort Wayne, local schools had an influx of new students needing more classrooms and teachers at the same time property tax revenues declined with the abatements.
State and local governments should get together to end abatements altogether.