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REGIONS AMERICAS


INCENTIVESCANSERVE ASAPOWERFUL TOOL IN THE SITE SELECTION PROCESS – BUT BY NOMEANSARE THEYASILVER BULLET


Doincentivesmatter? I


THE AMAZON HQ2 AND FOXCONN DEBACLES SHOW INCENTIVE PACKAGES MUST MAKE ECONOMIC SENSE. NAOMI GALLAGHER REPORTS


n2019,NewYork Citybecameacen- tre of controversy when Amazon reversed a decision to locate its sec-


ond headquarters, HQ2, in Queen’s Long Island City neighbourhood. The move was sparked by a local backlash to the nearly $3bn in tax breaks offered to the e-commerce giant. “When Amazon, who doesn’t need themoney, is squeezing the gov-


ernment for billions of dollars just to show up, we’ve got a problem,” said then New York state senator Michael Gianaris in a statement. The tax incentives granted to private


investors have struck a major nerve in US pol- itics for years. Often at the crux of these ten- sions is what Joseph Parilla, a fellow at the Brookings Institution Metropolitan Policy Program, calls the ‘but for’ question: would a company have selected a location ‘but for’ the state’s tax incentives? In the case of Amazon’s HQ2 decision, New


York looked like a safe bet: at first glance, the city needed neither introduction nor to offer incentives. Yet other states tried to lure the com- pany with appealing packages — Amazon reportedly received $7bn in tax breaks from New Jersey and $8.5bn from Maryland — lead- ing NewYork officials to join the bidding war. The subsequent popular uproar convinced


the company to withdraw to Arlington county, Virginia, adding a contentious new chapter to the national debate on the use of public subsi- dies in economic development and invest- ment promotion.


Aprisoner’s dilemma The US Governmental Accounting Standards Board made it compulsory in 2015 for state gov- ernment and local governments to report tax abatements in their annual financial state- ments, specifying, in particular, the amount of revenue reduced or foregone as a result of these tax abatements. The total amount of fiscal revenue lost


annually nationwide to tax abatement pro- grammes is put at between $14.5bn and $17bn in 2017–19, then fell to $7.3bn in 2020,


54


according to data from Good Jobs First, a Washington DC-based non-partisan group tracking subsidies and promoting accountabil- ity in economic development. The state of NewYork has reported by far the


highest amount of foregone fiscal revenues, at an average of $4.3bn every year between 2017 and 2020 – about two thirds went to New York City alone – followed at some distance by Texas ($1.4bn), Louisiana ($0.67bn),Michigan($0.66bn) and Pennsylvania ($0.59bn). New York City has drawn benefits fromthis, confirming its role as the choice of preference for foreign, as well as US-based investors between 2017 and 2020, fDi Markets figures show. However, the Amazon HQ2 debacle had observers questioning why a city renowned for attracting businesses without the use of tax breaks should be offering them. Greg LeRoy, the executive director at Good


Jobs First, tells fDi howpublic officials are often put in a ‘prisoners dilemma’ by site consultant agencies. “They knock on the door and say, ‘I might have 500 jobs for you. But what have you got for us? Showus your incentives.’” He says despite the bidding wars that often


see states vying for a company’s presence with competitive incentive offers: “Public officials don’t know that the only reason that conversa- tion is happening is because they are already an inherently profitable location for the company. They’ve got the business basics. They’ve got the workforce, they’ve got access to the rawmateri- als, the proximity of customers, the infrastruc- ture and the quality of life — whatever it is that gives the companywhat it needs.”


Better targeting The furore caused by Amazon HQ2 was not just about offering private companies tax breaks. Many local officials and members of the sur- rounding low-income communities considered it wrong to hand over public money for a pro- ject they would see little benefit from, since it was likely to offer mostly white-collar jobs and to risk inflating local rent levels. As the national debate around incentives


deepened to consider not only the sheer size of the tax break, but also the quality and


www.fDiIntelligence.com June/July 2021


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