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At what cost? Debate swirls on ‘giveaways’ after Amazon HQ deal

At what cost? Debate swirls on ‘giveaways’ after Amazon HQ deal

WASHINGTON: As the winners of the biggest
corporate prize in decades — the new Amazon headquarters — relished their
victory, debate was still raging over the billions of dollars in incentives
offered to attract the fast-growing US technology colossus.

The new Amazon “HQ2” with an estimated $5 billion investment creating
50,000 new jobs will be split between the Long Island City district in New
York and Crystal City, a Virginia community across the Potomac River from the
US capital Washington.

Officials in both communities welcomed what they said would be a major
economic boost from Amazon in creating jobs, new facilities and
infrastructure, and that the plans would be positive for public coffers.

But critics warned that tax incentives and investments from state and
local governments — up to $3 billion in New York and $2.5 billion in
Virginia — may outweigh the economic benefits from Amazon’s investments.

Amazon’s search for incentives — derided by some as a “Hunger Games”
competition — is a common practice in the United States.

A Brookings Institution report, based on New York Times data, estimates
some $90 billion given annually in corporate incentives from state and local
governments.

– Do incentives work? –

Michael Farren, a George Mason University research fellow who specializes
in corporate relocations, said these kinds of incentives rarely make the
difference in a company decision.

“Corporate relocation decisions are made on the basis of things that have
deeper impact on the business’ bottom line, like the availability of a
skilled workforce,” he said.

“So why do they do this? It’s because otherwise politicians couldn’t claim
credit for the deals.”

Farren noted that Amazon could have won even heftier tax benefits if it
had crossed the Potomac into Maryland which offered a package worth more than
$8 billion, or chose to locate west of New York in Newark, where $7 billion
was being offered.

Still, the deal has faced criticism from those claiming Amazon does not
need what some describe as “corporate welfare.”

“One of the wealthiest companies in history should not be receiving
financial assistance from the taxpayers while too many New York families
struggle to make ends meet,” New York Democratic Senator Kirsten Gillibrand
said on Twitter.

Alexandria Ocasio-Cortez, a progressive Democrat elected to Congress from
a district that includes part of Queens, voiced similar concerns, tweeting
that, “We need to focus on good health care, living wages, affordable rent.

Corporations that offer none of those things should be met w/ skepticism.”

The deal has been hit from the right as well, with conservative economist
Veronique de Rugy writing in the National Review: “I can’t believe I’m saying
this, but Ocasio-Cortez is mostly correct on this matter, and her
conservative critics are wrong. Handouts like this to Amazon and other
prominent companies are appalling in their cronyism, pure and simple.”

Farren said subsidies distort the economy and that instead of betting on a
specific company or industry, cities should focus on improvements to
education and infrastructure that make them attractive places to live and
work.

– ‘Taxpayers protected’ –

But Tom Stringer, a corporate real estate advisor with the consulting firm
BDO, said critics of the Amazon deal may not be reading the fine print.

“Both states are getting terrific deals if things come to fruition,”
Stringer told AFP.

Stringer said that the agreements are structured as “pay as you go
programs,” and that “if Amazon does not deliver they are not getting the
benefits. Taxpayers are pretty well protected.”

Nonetheless, the question of public subsidies has come into sharper focus
with deals concerning Amazon and Foxconn, a Taiwan-based electronic firm that
produces for Apple and other major firms and agreed to build a factory in
Wisconsin.

The $3 billion in incentives for Foxconn — projected to grow to $4
billion — to create 13,000 jobs amounts to a subsidy of more than $200,000
per job, compared with around $20,000 per job for Amazon.

Stringer said the Foxconn deal, which was announced by President Donald
Trump, had some “highly unusual” elements compared to Amazon’s.

“There are a lot of political implications with Foxconn that are very
different from what’s on display with Amazon,” he said.

– Wisconsin boondoggle? –

Wisconsin Governor Scott Walker, who negotiated the Foxconn deal, lost his
re-election bid this month amid concerns over the rising costs and estimates
for lower job creation.

Even some companies have begun to acknowledge problems with the tradition
of public subsidies.

Walt Disney Co. sent a letter to the city of Anaheim, California, earlier
this year asking for an end to tax breaks, saying they created an
“adversarial climate.”

But Stringer argued that incentives remain “critically important” as a way
to lure businesses and spur economic development.

“Everybody is kidding themselves if they think incentives don’t make a
difference,” he said.

Darrell West, head of governance studies at Brookings, said that “it is
important (for officials) to be hard-nosed about negotiations so that both
sides benefit from these deals.”

He also acknowledged that companies like Amazon and Foxconn “had clear
bargaining advantages because of the size of their possible investment.”

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