In 2017, one of the largest companies in the world, Amazon, announced a decision that had the potential to transform any city in North America—they were looking for a second headquarters. The announcement immediately set off a fierce bidding war among cities and states for the grand prize consisting of 50,000 jobs and economic opportunities galore.
Amazon, however, was not offering this prize for free. In its Request for Proposal (RFP), the Internet giant asked for outlines of incentives cities and states would offer to offset construction costs, land acquisition, relocation fees, permits, and more, as well as the types of tax breaks and credits they would be willing to provide. Cities got creative in the types of packages they proposed, with Tucson, AZ shipping a cactus to Amazon’s Seattle headquarters and Stonecrest, GA offering to annex part of the city to the corporate giants and officially rename itself “Amazon, GA.”
After a lengthy process, Amazon ended up selecting New York City and Arlington, VA as dual winners of the new headquarters, as well as choosing Nashville for a new operations center. Just three months later, Amazon ended its plans to build part of their second headquarters in New York. What happened is part of a larger trend unfolding in cities, suburbs, and towns across America with increasing regularity in the past few years: pushback to development incentives, largely due to fears of resultant economic inequity in local communities.
While the new headquarters in Northern Virginia and the operations center in Nashville are still in development, the New York proposal was criticized for a litany of reasons. Some viewed the $3 billion incentive package from the state and the city as too much, especially because New York state itself, which was offering $1.7 billion as part of the deal, was facing a $2.3 billion shortfall. Others opposed Amazon moving in because of its anti-union stances and concerns about gentrification and increasing real-estate prices that would come as a result of the arrival of 25,000 white-collar jobs.
New York’s debacle with Amazon is far from the only controversy surrounding incentive packages offered to large corporations. In 2017, the state of Wisconsin offered $3 billion in incentives to Taiwanese electronics manufacturer Foxconn in exchange for a massive factory that was promised to bring $10 billion in investment and over 10,000 jobs. Such was the massive promised investment that President Donald Trump and House Speaker Paul Ryan attended the groundbreaking ceremony of the plant in 2018.
Two years later, the state of Wisconsin declined paying the first round of subsidies, as Foxconn had only hired a portion of the targeted workforce through 2019 and invested a fraction of what it had promised by that point. Furthermore, Foxconn downsized the project scope and changed its manufacturing capacity while its outposts and innovation centers throughout Wisconsin sat empty, failing to spur predicted job growth.
This has not come without punishment. Governor Scott Walker, the chief architect and salesman for the promising deal, did not bring it up in his announcement for re-election in 2018, while his Democratic opponent, Tony Evers, attacked Walker’s role in the Foxconn deal in his very first campaign ad. Evers claimed that at its current pace, it would take Wisconsin taxpayers 25 years to break even on the deal. Evers would go on to defeat Walker by less than 30,000 votes to become Wisconsin’s 46th Governor.
Incentives have not only been used by governments to lure new companies, but have also been used by companies themselves to hold local and state governments hostage. In 2016, the San Diego Chargers of the NFL threatened to leave the city if voters did not approve a tax increase that would fund a brand new stadium for the team. Later that year, the vote to increase taxes failed, and just two months later, the Chargers announced their departure up I-5 to Los Angeles and into a new stadium that is part of a $5 billion development plan.
Development incentives are also receiving pushback at the grassroots level due to concerns about them taking tax dollars from government agencies, therefore leading to inequity. Kansas City, MO has offered hundreds in millions in incentives to everything from federal government agency relocations to convention hotels in the past decade. However, concerns about budget shortfalls as a result of the COVID-19 pandemic and increasingly unaffordable housing has led to a number of budget-saving measures being taken by the city.
One current proposal submitted by councilmembers is aimed at capping tax incentives to 50% of generated taxes over a 10-year span. This comes as Kansas City Public Schools report losing over $2,000 per child due to city budget holes coming from property tax abatements. This massive loss was much greater than losses suffered by surrounding school districts with far smaller populations of students of color.
Another proposal, which has already been passed and signed into law, would require apartment developers seeking municipal incentives to set aside 20% of all units for affordable housing. This emulates a single, stand-alone deal agreed to two years earlier by city officials and developers. It set the terms for the development of over 100 affordable apartments in return for generous incentives for a new luxury apartment tower down the street.
While affordable housing units serve as a solution to offset the incentives that luxury apartment developers often demand, they are not always welcome. From cities like Richmond to suburbs such as Eden Prairie, MN, affordable housing proposals have been fiercely opposed by many community members out of concerns surrounding zoning conformity and fears over home values. This opposition disproportionately harms people of color, continuing America’s history of denying minorities access to the same resources which have uniformly benefitted white Americans.
All these anecdotes and various criticisms of development incentives large and small lead back to the ugly breakup between Amazon and New York. A once-in-a-generation opportunity was passed over because of concerns of affordable housing, diverted funding from education, potential for broken promises, and rapid change in the makeup of the community. While Brookings identifies that incentives remain a core aspect of local economic development policy, they acknowledge that the tide is shifting.
If cities and states are to maintain the trust of their constituents while also attracting and keeping some of the best and brightest in business and entertainment, the incentive process needs a new mindset and approach. Community input that was missing in New York, Wisconsin, and Kansas City will be crucial to building a business landscape that is pro-community and a community landscape that is pro-business. If new partnerships can be developed that support the well-being of both private industry and the public good, the next round of massive economic investment similar to that of Amazon’s search for HQ2 will not result in controversy and cancellation, but rather in compromise and strengthening of community.
The views expressed above are solely the author's and are not endorsed by the Virginia Policy Review, The Frank Batten School of Leadership and Public Policy, or the University of Virginia. Although this organization has members who are University of Virginia students and may have University employees associated or engaged in its activities and affairs, the organization is not a part of or an agency of the University. It is a separate and independent organization which is responsible for and manages its own activities and affairs. The University does not direct, supervise or control the organization and is not responsible for the organization’s contracts, acts, or omissions.
Your comment will be posted after it is approved.
Leave a Reply.
Virginia Policy Review
235 McCormick Rd.
Charlottesville, VA 22904