by James Devereaux, Activist Post:
Amazon’s second headquarters has created a lot of hope and speculation since it was announced. Cities put together bids listing the benefits their areas could provide, including large tax breaks. One bid reportedly offered $7 billion in total benefits. The winners, Crystal City, Virginia, and Queens, New York, offered nearly a combined $2 billion in public funds ($2.4 billion when accounting for the late Nashville addition). This has generated a fair amount of public backlash.
Yet, as Veronique de Rugby explained, these dollars weren’t necessarily the deciding factor— local workforces, infrastructure, and access to other companies all played a more important role. Indeed, not only are other factors more important, but these costs—the subsidies and tax breaks meant to entice—do not benefit these cities in the long run. The influx of new jobs from Amazon is about what is expected without their contribution. These are areas already blessed with economic growth; jobs are created, and local economies flourish regardless of these special economic favors.
Sadly, Amazon is but one example of local governments bestowing special favor on the few at the expense of those less able to petition for tax dollars. At times, popular support rallies behind these bad deals because they appear beneficial on the surface. And since the costs are diffused and the benefits concentrated, political opposition is more difficult to rally. Some even believe they will reel in the benefits of property values or a growing economy.
A few examples of this local cronyism come to mind. In 2012, a long-standing local business, Central Radio, fought the City of Norfolk after the city seized their property for Old Dominion University, one of the largest, most notable presences in the area. Central Radio, which repaired and built ship radios, found that location particularly advantageous due to the proximity of local ports and other businesses, which allowed for better customer service. In other words, their location helped create a comparative advantage.
After the city attempted to seize their property, the owners protested with a banner on the wall of their building. The city responded with a citation for violating the local sign code. This prompted a free speech lawsuit represented by the Institute for Justice, which noted a multitude of examples of the same sign code violation that had gone unenforced. The city lost the case.
The city seized a whole neighborhood, where Susette Kelo resided, in order to entice new development. Today the lot stands empty.
Similarly, the infamous eminent domain case Kelo v. City of New London arose from a potential deal with Pfizer, which was shopping for a new location to accommodate potential expansion. The city seized a whole neighborhood, where Susette Kelo resided, in order to entice new development. Today the lot stands empty.
Eminent domain is not the only method of distributing favors at the local level. Community development is often the rationale for government subsidization, as Orem, Utah, demonstrated in 2014. A proposed expansion of the local shopping mall included financial support approved by the local tax authorities, which “provide[d] the company with post-performance tax increment financing of $51.5 million to aid the redevelopment of infrastructure, buildings and other necessities within the University Mall site.”
Those tax breaks supposedly encouraged a $100 million improvement to become a $500 million investment—quite the incentive for local politicians to approve the tax break to be reaped over 20 years. Unfortunately, cities often project greater returns after the tax breaks expire or expect subsidies to be returned in later tax revenue, but this is optimistic at best. By projecting higher property values or sales receipts well into the future, cities frequently overestimate future returns. More important than whether the city eventually collects is that those who are already economically prosperous are offered tax rates and subsidies unavailable to the average person.
Perhaps in second place for scandalous subsidies, next to Amazon, are those granted to sports teams to remain in an area. They are mostly given to build stadiums and other venues.