Amazon has a big target on its back these
days, and because of its size, scope and impact on local business,
critics are right to look closely at tax breaks and other subsidies they
receive. There is nothing wrong with digging into these breaks to see
if they reach the goals governments set in terms of net new jobs. But
Amazon isn’t alone here by any means. Many states have a big tech
subsidy story to tell, and it isn’t always a tale that ends well for the
subsidizing government.
In fact, a recent study by the watchdog group, Good Jobs First, found
states are willing to throw millions at high tech companies to lure them
into building in their communities. They cited three examples in the
report including Tesla’s $1.25 billion 20-year deal to build a battery
factory in Nevada, Foxconn’s $3 billion break to build a display factory
in Wisconsin and the Apple data center deal in Iowa, which resulted in a
$214 million tax break.
Good Jobs First executive director Greg LeRoy doesn’t think these
subsidies are justifiable and they take away business development
dollars from smaller businesses that tend to build more sustainable jobs
in a community.
“The “lots of eggs in one basket” strategy is especially ill-suited.
But many public leaders haven’t switched gears yet, often putting
taxpayers at great risk, especially because some tech companies have
become very aggressive about demanding big tax breaks. Companies with
famous names are even more irresistible to politicians who want to look
active on jobs,” LeRoy and his colleague Maryann Feldman wrote in a
Guardian commentary last month.
It doesn’t always work the way you hope
While these deals are designed to attract the company to an area and
generate jobs, that doesn’t always happen. The Apple-Iowa deal, for
example, involved 550 construction jobs to build the $1.3 billion
state-of-the-art facility, but will ultimately generate only 50
full-time jobs. It’s worth noting that in this case, Apple further
sweetened the pot by contributing “up to $100 million” to a local public
improvement fund, according to information supplied by the company.
One thing many lay people don’t realize, however, is that in spite of
the size, cost and amount of real estate of these mega data centers,
they are highly automated and don’t require a whole lot of people to
run. While Apple is giving back to the community around the data center,
in the end, if the goal of the subsidy is permanent high-paying jobs,
there aren’t very many involved in running a data center.
It’s not hard to find projects that didn’t work out. A $2 million tax
subsidy deal between Massachusetts and Nortel Networks in 2008 to keep
2200 jobs in place and add 800 more failed miserably. By 2010 there were
just 145 jobs left at the facility and the tax incentive lasted another
4 years, according to a Boston.com report.
More recent deals come at a much higher price. The $3 billion Foxconn
deal in Wisconsin was expected to generate 3000 direct jobs (and another
22,000 related ones). That comes out to an estimated cost of between
$15,000 and $19,000 per job annually, much higher than the typical cost
of $2457 per job, according to data in the New York Times.
Be careful what you wish for
Meanwhile states are falling all over themselves with billions in
subsidies to give Amazon whatever its little heart desires to build HQ2,
which could generate up to 50,000 jobs over a decade if all goes
according to plan. The question, as with the Foxconn deal, is whether
the states can truly justify the cost per job and the impact on
infrastructure and housing to make it worth it?
What’s more, how do you ensure that you get a least a modest return on
that investment? In the case of the Nortel example in Massachusetts,
shouldn’t the Commonwealth have protected itself against a catastrophic
failure instead of continuing to give the tax break for years after it
was clear Nortel wasn’t able to live up to its side of the agreement?
Not every deal needs to be a home run, but you want to at least ensure
you get a decent number of net new jobs out of it, and that there is
some fairness in the end, regardless of the outcome. States also need to
figure out the impact of any subsidy on other economic development
plans, and not simply fall for name recognition over common sense.
These are questions every state needs to be considering as they pour
money into these companies. It’s understandable in post-industrial
America, where many factory jobs have been automated away that states
want to lure high-paying high tech jobs to their communities, but it’s
still incumbent upon officials to make sure they are doing due diligence
on the total impact of the deal to be certain the cost is justified in
the end.
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