As states compete to attract 50,000 high-paying jobs promised at Amazon’s second headquarters, one thing is all but certain: the windfall won’t be cheap.
The company’s announcement induced a frenzy among states vying for sustained economic development and tax revenue, but they may have to give steep tax breaks in return.
“The initial cost and ongoing cost of doing business are critical decision drivers,” Amazon’s request for proposals states.
So far, incentive deals are being kept close to the vest as Illinois puts together its final plans for Chicago and the metro-east.
“We haven’t revealed any incentives … actual or prospective,” Hud Englehart, a spokesman for Gov. Bruce Rauner, said in an email. “All will come out the week of Oct. 16 as bids are being submitted.”
Illinois’ recent history with incentives does not show great evidence of return on investment, according to an editorial by union leaders that was published in the Chicago Tribune on Oct. 4. The state promised Sears $150 million in 2011, but now it’s talking about going out of business. Motorola Mobility was given $118 million but later cut workers. And a $3.7 million grant to Mitsubishi did not prevent the company from closing a 1,200-person factory in Normal.
The editorial also raised concerns with how rising house prices could affect working-class neighborhoods. High salaries mean prices could rise, and the tax incentives spent on Amazon could instead be spent instead on communities that are already here, they write. They suggested requesting Amazon commit to a community benefits agreement that would make up for some of the disruptions HQ2 caused to those communities.
Not everyone believes incentives are bad, however. In fact, some in Illinois argue that incentive deals are crucial, especially in the wake of the General Assembly’s decision to raise corporate income taxes by 33 percent. Instead of “picking winners and losers,” Illinois can “counteract the negative effects of the tax hike,” the BGA wrote. More than $500 million were spent on incentives in the recent fiscal year.
One way to limit the size of state handouts is to limit their size based on the number of workers the company’s expect to bring in, according to Greg LeRoy of Good Jobs First, a development policy organization. Some government programs already follow this approach, capping incentives at $50,000 per job, but if this same approach were applied to Amazon’s second headquarters, then the total pot would come to $2.5 billion.
Steve Chapman, an editorial writer at the Chicago Tribune, also sought a middle ground in leveraging his city’s appeal to Amazon.
“A locality that complements its natural advantages (location, climate, culture, safety) with responsible governance, reasonable taxes, modern infrastructure, good schools and cost-effective regulation will prosper over time without paying ransom to corporate giants. A locality that neglects such essentials — I’m looking at you, Chicago — will struggle.”