The States: Expert weighs in on Amazon deal, Tom Price resignation and more
The Amazon deal: Illinois’ checkered history and some perspective
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Before we get to a States’ first — an email interview with an actual expert (you know, reporting!) — let’s set the table with some news and perspective on the Amazon deal.
Every one of The States is hoping to get in on the Amazon action in the form its so-called second headquarters. Each has its own unique challenges, but Chicago is as good a place to start for context. The Windy City has made it clear it’ll pretty much do what’s necessary to make Amazon fall in love — and that’s making some nervous. (Capitol Fax’s Rich Miller has compiled all of the Illinois gubernatorial candidates responses on how they would handle Amazon.)
The Illinois state minority leader, Jim Durkin, doesn’t want to see a Foxconn-esque deal where the state allows the company to ignore environmental regulations, give it a pathway to clear any legal hurdles and gives it a boatload of money without proper assurances taxpayers won’t be left on the hook.
It’s happened before.
As the Chicago Reader notes:
The most infamous case was Republic Windows and Doors. In the 1990s, the city gave Republic more than $10 million in tax increment financing money to build a factory on Goose Island that would employ at least 610 people. In 2008, Republic closed the factory but got to keep the TIF cash.
Of course, the city can put “claw back” provisions in any deal with Amazon. That means Amazon would have to return part of whatever subsidies the city pays if it falls short of 50,000 jobs. But in its request for proposals, Amazon writes, “please also describe any applicable claw backs or recapture provisions for each incentive item.” Translation: if you want the headquarters, don’t bother with claw backs.
WBEZ noted several other times when companies given taxpayer money failed to deliver:
- In 2012, Sears & Roebuck threatened to move out of the state and got $275 million in incentives to stay. The company promptly laid off 100 workers. The company remains on life support with far fewer jobs than company officials promised.
- Mitsubishi’s auto plant in Normal firmed up a $29 million deal in 2011 but pulled the plug on its plant in 2015, laying off 1,000 workers. It was unclear whether the state could recoup part of the investment it had already paid out.
- Motorola, which closed its Libertyville plant after getting $117 million out of state lawmakers, moved to downtown Chicago with no new tax incentives in 2015. Soon after, the company laid off 1,400 employees nationwide and didn’t qualify for additional tax breaks.
Those experiences had state leaders wary of the tax incentive game and promising to use them more sparingly as of 2015, according to the Chicago Tribune.
For a more global, and contrarian view on this issue, Greg LeRoy, executive director at Good Jobs First, at City Labs breaks down why many hate the economic incentives game, viewing it as a zero-sum opportunity for the country as a whole.
The States asked Hayes Holderness for some insight. He’s a University of Richmond School of Law assistant professor and tax law expert — and a friend of the pod as the kids say. If you have specific tax incentive questions or want to argue with the professor, direct questions to hrh@richmond.edu.
THE STATES: What do you think of Amazon publicly asking for states to bid for them? Smart move?
HH: Definitely a smart move on Amazon’s part; they’d probably be foolish not to ask. States and cities have proven themselves willing to compete for smaller fish than Amazon, and by letting everyone know its plans, Amazon will ramp up the public pressure on politicians to deliver. Amazon has little to fear as far as taking a PR hit — the message it is sending out is that it is bringing jobs and investment, not that it is looking for subsidies from taxpayers.
THE STATES: I think it’s pretty much widely acknowledged that state and local governments don’t recoup their tax incentives when they try to woo companies. But isn’t employing people who otherwise wouldn’t have jobs incentive enough?
It’s true that many states and localities haven’t seen the returns they hoped for after offering tax incentives, and there are a few reasons for that. Sometimes companies over-promise and underperform, and unfortunately it is very hard for states to clawback the incentives once they are out the door. Other times, the business would have come to the state anyway, so the tax incentives were unnecessary, though it is difficult for the state to know that in advance.
The problem with tax incentives isn’t that they don’t create or preserve jobs; they probably do. The problem is that the state has a choice: (1) spending the forgone revenue on things such as infrastructure, education, or lower tax burdens for all, or (2) hunting “corporate whales” (as one of Virginia’s gubernatorial candidates puts it) by providing targeted tax incentives. The first option avoids picking winners and losers in favor of helping businesses grow organically in the state; the second brings in investment and jobs from an established company. How do you win a World Series: bring a Kris Bryant up through your farm system or go pay for a Jason Heyward in free agency? Both can work, if done right. (Ed. Note: The States appreciates any Cubs analogies in its tax incentive discussions).
THE STATES: Given the $3 billion for Foxconn in Wisconsin what can we expect for the Amazon deal? Is this an arm’s race?
I can’t even begin to estimate what Amazon might get. It has promised to invest billions and employ 50,000 highly paid workers. Landing Amazon might bring in other tech firms, and has the potential to change the fabric of a city. Foxconn has said it might one day employ 13,000 people at an LCD screen factory. Foxconn’s promise is certainly nothing to scoff at, but in my opinion, the two deals aren’t in the same ballpark. I don’t think we have any precedent for the Amazon deal.
THE STATES: What’s considered in academic circles the best state/local tax incentive deal and why?
Many advocate dropping tax incentives all together and spending the money on things like schools and infrastructure. To the extent tax incentives are offered, they should be broadly available, not targeted to one company. Such actions would allow for all types of business to grow in the state, rather than allowing politicians to pick winners and losers.
THE STATES: If you could be a king for a day and blow up the way we do these state tax incentives, what would you change and why?
Assuming states are going to provide tax incentives targeted to specific companies (which I think is a pretty safe assumption), I have advocated for anchoring the incentives to the local population, for instance by giving consumers sales tax or income tax breaks for doing business with the targeted company. (Ed Note: Now this is something that could get overtaxed Chicagoans on board…maybe) This method is a little more complex than traditional incentives, but it still gives the company the competitive advantage it wants while also “sharing” the incentives with taxpayers. This sharing has the potential to increase taxpayers’ awareness of the incentives and can lower the danger of the company failing to live up to its end of the bargain.
THE STATES: Anything else we should know?
The value of a targeted tax incentive is tricky to measure, so be careful when thinking about how effective they are. The company isn’t only bringing its own jobs to the new location, it’s also creating indirect benefits for the local economy: construction workers and materials are needed for new headquarters and infrastructure, local service industries benefit from the company’s new employees’ increased disposable income, related companies might move to the area, etc.
The state also has a new income tax base from the wages earned by the employees. The multiplier effects of the initial investment can be quite large.
That being said, often tax incentives are viewed as wasteful because it’s difficult to attribute a company’s location decision solely to tax incentives. Often there are much more important things to the company, such as having an educated workforce, natural resources, or good infrastructure. Tax incentives might make a marginal difference, but if they do, you have to worry about the company picking up and moving again when the incentives run out, which can be very painful for a community that has come to rely on the company.
One last point I’ll make is that tax incentives tend to work best when luring highly mobile companies — ones that don’t particularly need to be in any location. Because these firms are such great targets, you can expect a high level of competition for them, driving up the cost to states. …
But Amazon is not truly mobile in the sense that it doesn’t care where it is; the company has said it wants things like good infrastructure and amenities for its employees. In fact, I wouldn’t be surprised if Amazon already knows where it wants to go and is looking for some additional benefits for going there — additional benefits that it is sure to get.
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Chicagoan David Axelrod in the ‘burbs
Charlie Meyerson interviewed Obama’s former political guru in Oak Park. Both are charming in front of their suburban crowd, a former home of Axelrod’s. At one point, Axelrod says of Obama: “I liked him so much because he listened to me so little.”
Speaking of lawyers…
A Pro Publica investigation found “two overlapping groups — debtors in the South and black debtors — disproportionately file under Chapter 13. About half of Chapter 13 cases are dismissed, usually because debtors failed to make their payments. This can leave them worse off than before they filed because they’ve paid court costs and attorney fees while falling further behind on their debts.”
There is a boom of such bankruptcies in and around Chicago. Why? Traffic tickets.
Pro Publica’s map shows just how disparate the bankruptcy Chapter 13 practice is, especially in Georgia and other poorer black areas in the South.
But the upshot is that as people struggle, the lawyers generally get paid — and because they direct them to file for Chapter 13 bankruptcy instead of Chapter 7, debtors are much less likely to ever recover.
President Trump is, yes, a bit of a genius.
His comments about firing a “son of a bitch” who doesn’t stand for the national anthem — referring to NFL players — has successfully divided the nation in half. Even to the point where someone as seemingly as intelligent and accomplished as Michigan’s state police director, Col. Kriste Kibbey Etue, apparently didn’t think twice before posting a meme signed “we the people” that disparaged NFL players, reports Paul Egan of the Detroit Free-Press. The meme read, in part:
Dear NFL: We will not support millionaire ingrates who hate America and disrespect our armed forces and veterans.
The opioid epidemic is putting thousands of Ohio children into state foster care,Dina Berliner of the Athens News reports. She has a wonderful narrative but here are some of the stark numbers: “around 15,000 children are in the state of Ohio’s foster-care system while only 7,200 families are registered to take them in.” Ohio AG Mike Dewine is hoping to change that:
…his office initiated changes he said should make the process simpler. Those changes include a webpage and email address specifically for foster families and $1 million in grants to fund staff and recruit foster families in “hard-hit counties.”
In its 2016 annual report, Athens County Children Services (ACCS), which is the agency that has worked with the Browns, reported a total of 36 foster homes licensed with the agency compared to 47 homes in 2010.
During that same time period, the number of children in ACCS custody has increased. From 2015 to 2016, the children in the agency’s care rose from 146 to 179 — nearly a 23 percent increase.
When activist Bree Newsome pulled down the Confederate flag from its pole in front of the South Carolina statehouse in 2015, she was part of a long-simmer spark — still going — that raised awareness of racial inequality in America. Because of a North Carolina state rule barring those convicted a crime from speaking, a public school in Asheville, N.C., was forced to rescind an invitation to Newsome,according to the Asheville Citizen-Times.
A member of City Council responded with pretty much the perfect quote:
“Based on what I know about the rule, some of the most iconic activist in the world, living and passed, would be unable to speak at the school — Rev. Dr. Martin Luther King Jr., Rosa Parks, Mahatma Gandhi, Ella Baker, Nelson Mandela, Desmond Tutu, Rep. John Lewis and Rev. Dr. William J. Barber just to name a few,” Ramos-Kennedy said. “Does Asheville City Schools have no discretion in applying the rule?”
This is why local journalism matters…even on national stories
Politico led with the bombshell detail about Health Secretary Tom Price’s taxpayer-funded private jets that led to his resignation. But largesse is kind of his boss, President Trump’s thing, so it’s hard to imagine that he’d be forced to resign solely on the private jet issue, What would bother him? As Jim Galloway of the AJC reports, Price failed to build alliances — something he struggles with his entire career — and the thing that more likely cost him his job as Price’s lack of relationships may have contributed to the demise of the latest Affordable Care Act repeal efforts.
New to The States? Subscribe! I’m Jeremy Borden, an independent journalist based in Chicago. The States will tell us where we’re headed. Each week, I keep track (or try — tips help, please!) of what’s happening in Michigan, Minnesota, Ohio, Wisconsin, North Carolina, Virginia, Georgia (which will be a swing state soon enough). I’m adding my home state of Illinois, the home of the Midwest’s urban epicenter, Chicago, which sits in the middle of America’s urban-rural divide.
Let me know how I’m doing and tips/ideas at borden.jeremy@gmail.com and follow Untold Story for more.
