This is a special edition of Boondoggle that is being co-published with The Daily Poster, a grassroots-funded news organization. It’s my most complete look yet at the totality of Amazon’s subsidy scheme. I hope you like it, and hope you support both The Daily Poster and this newsletter in our efforts to hold corporations accountable.

In 2017, Amazon launched a much-hyped search for a new office, which it dubbed “HQ2,” setting off an unprecedented wave of city and state officials crafting incentive packages to win the corporation’s favor. More than 200 cities ultimately submitted bids, promising Amazon hundreds of millions, and in some cases billions, of public dollars in return for the supposed investment and job creation that hosting HQ2 would bring.

Many critics believed at the time that this supposedly open competition was rigged from the very beginning: Amazon executives knew where they wanted to go, but wanted to maximize the public funds they received and collect data on scores of cities in which they never intended to open a corporate office. 

That view was bolstered when Amazon chose to split HQ2 between the New York and Washington, D.C., metro areas, placing itself in the world capital of finance and the nation’s capital, two places where it had significant interests that had nothing to do with incentive monies.

Further confirmation that the HQ2 search was a sham comes from journalist Brad Stone’s recently published book, Amazon Unbound. Stone reported that while Amazon’s selection committee did the work of assessing the various HQ2 bids and settled on Chicago, Raleigh, or Philadelphia, they were kiboshed by Amazon executives for ludicrous reasons.

Share

For example, current Amazon CEO Jeff Bezos — who reportedly only made the HQ2 search so public because he was jealous of the subsidies Elon Musk received for his various business ventures, such as Tesla and SpaceX — was supposedly told by his “gut” that those finalist cities were no good. Incoming Amazon CEO Andy Jassy, meanwhile, didn’t want to go to Philadelphia because he’s a fan of the NFL’s New York Giants, bitter rivals with the Philadelphia Eagles.

Those reasons may be especially dumb, but they’re indicative of a far wider truth about Amazon that extends beyond its HQ2 search: The company wants to collect loads of public subsidies from communities all across the country as a way to build a competitive advantage over other large retailers and the small businesses on its platform. In order to receive those dollars, it’s sold local leaders a myth that subsidies are necessary to drive its expansion and influence its investment decisions, even though every action it takes proves that its subsidy drive is about power, not economics.

Wasted Public Subsidies

Overall, Amazon has collected more than $4 billion in subsidies from state and local governments dating back to 2000, according to data compiled by Good Jobs First. The bulk of the subsidies have been to build out its distribution network, the warehouses and distribution centers that hold the goods sold by Amazon and the many so-called third-party sellers who use the Amazon platform to hawk their wares.

In addition, The Intercept recently reported that Congress may create a special $10 billion bailout fund for Bezos’s space company, as Bezos gets ready to fly up to space himself. 

Much like with HQ2, Amazon promises communities across the country — from major cities to tiny towns and hamlets — that giving the company tax breaks and other favors in exchange for new distribution facilities will boost local economies. But as with HQ2, those handouts have very little to do with where Amazon chooses to locate.

As Good Jobs First detailed on this set of maps, Amazon builds its distribution network where there is a concentration of Amazon Prime subscribers, residents with disposable income, and access to major transportation infrastructure such as highways and airports. Those all make good business sense: They enable Amazon to get goods faster to those with the most money to spend and the highest likelihood of spending it on Amazon’s platform. Public subsidies have little to do with the equation.

Share Boondoggle

To prove that point, Amazon has recently built several distribution centers and warehouses with no public assistance at all: one in Nueces County, Texas; one in Tucson, Arizona; another in Danbury, Connecticut; one in Fort Bend County, Texas; and one in Visalia, California. Amazon didn’t draw much public attention to these developments, but by tracking local press reports, it’s possible to see that the corporation is taking subsidies where available, but not actually making them a prerequisite for its endless expansion.

The Danbury example is particularly instructive because, at about the same time, another Amazon facility in Windsor, Connecticut, received $8.8 million in public subsidies. What was the difference between the two Connecticut locations? Nothing, it seems, except the willingness of community leaders to pay.

Indeed, the divergent experiences of the chosen HQ2 cities illustrate that elected officials and taxpayers have far more power than they know. After a concerted outcry from residents and New York officeholders such as state Sen. Mike Gianaris and U.S. Rep. Alexandria Ocasio-Cortez, D-N.Y., Amazon pulled the plug on its HQ2 plan in New York. The corporation then quietly expanded operations in the Empire State anyway — because of course it wants to have a presence in such an important city.

Leaders in the D.C. suburbs in Northern Virginia, meanwhile, did not listen to the advocates and activists who said providing Amazon some $750 million in subsidies for HQ2 was a raw deal. The new office is expected to price at least 10,000 lower-income residents out of the area, a process that is already underway. (The proposed building, meanwhile, looks like a poop emoji.)

By handing taxpayer money to Amazon, local leaders are buying into a scam from top to bottom, and in the process harming their own bottom lines, their local businesses, and their local workers. The facts show Amazon doesn’t need your money. The company’s executives just want it, ask for it, and too often get it.

Share

UPDATE (WITH A REQUEST): The bill to update New York’s antitrust laws that I mentioned in last week’s edition passed the New York State Senate on Monday. This is a huge deal! Here, again, is the explainer my colleague Matt Stoller and I wrote on the bill, as well as an interview Matt did with Sen. Mike Gianaris, its sponsor.

Now for the request part. The bill still has to pass New York’s Assembly, and the state legislative session ends tomorrow. So if you’re a resident of New York State, please call your Assembly Member’s office and ask them to ensure that this bill — which is Assembly Bill 1812A — receives a vote and is passed before they close up shop.

This is a huge opportunity to dramatically improve the ability to rein in corporate power in New York, and will hopefully serve as a model for other states to follow. So if you’re from New York, please do take just a minute to call your Assembly Member. It could make a big difference.

Thanks for reading this edition of Boondoggle. If you liked it, please take a moment to click the little heart under the headline or below. And forward it around to friends, family, or neighbors using the green buttons. Every click and share really helps.

Share

If you don’t subscribe already and you’d like to sign up, just click below.

Finally, if you’d like to pick up a copy of my book, The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, go here.

Thanks again!

— Pat Garofalo

This is Boondoggle, the newsletter about corporations ripping off our states and cities. If you’re not currently a subscriber, please click the green button below to sign up. Thanks!

The Texas legislature earned a lot of pixels in the political press recently for the quick rise and sudden demise of a bill full of voting restrictions, which was only defeated thanks to Democrats in the statehouse literally walking out in order to run out the clock on the state’s legislative session.

As important as that victory is, though, it’s only the second-most surprising thing to occur in Texas’ statehouse recently. At the top of the list is the expiration of what’s known as Chapter 313, one of the biggest and baddest corporate tax incentive programs in the country. The death of Chapter 313 — named for its place in the Texas code — is an example of what can happen when the politics around a particular policy unexpectedly align, and people seize the opportunity.

Created in 2001, Chapter 313 is at the heart of some of Texas’ biggest corporate deals, including those for Samsung and Tesla in Austin. As I detailed here, it’s expensive, with costs in the billions of dollars, and is ultimately ineffective, as it isn’t the dealbreaker that bring corporations to the Lone Star State. As Prof. Nathan Jensen at the University of Texas at Austin found, 85 percent of firms that received Chapter 313 benefits to locate in Texas would have done so even without the money. Dick Lavine at Every Texan has a longer breakdown of the problems with Chapter 313 here.

Share

The current iteration of Chapter 313 is scheduled to expire at the end of next year, and since Texas’ legislature only meets every other year, an extension was on the docket this session. Without it, no more Chapter 313.

The easy bet would have been on an extension passing without much debate, as the program has had the staunch support of governors, big business, and many lawmakers, and has been renewed several times without much fuss. But while the state House passed a two-year renewal by a healthy margin, the state Senate just … didn't. When Chapter 313 expires at the end of 2022, that will be that.

So what happened? I’m no expert in Texas politics, but it looks like the confluence of a few things: First, some well-timed investigative journalism. The Houston Chronicle published a major examination of Chapter 313 just as the legislative session was headed toward its finish, pointing out the program’s huge costs and myriad abuses, and pegging its total outlays at more than $211,000 per job created. Several lawmakers said the piece put 313’s problems on their radar in a way other work simply hadn’t. Maybe that’s just a convenient excuse, but let’s take it.

Second, a marriage of convenience between liberal and conservative opponents of the program: Think tanks, activists, labor unions, and NGOs from the right and left united behind a push to end Chapter 313, which they hadn’t done before. They certainly don’t agree on everything, but they agree on this and, from what I understand, had a pretty good advocacy machine up and running once they sensed an opportunity to put a real dent in a program they despise.

This was actually one of the themes in my book: There’s space for a left-right coalition to be built against corporate handouts. Both sides have different reasons for their opposition, but who cares? Let’s fight over what to do with the money we save another day. As proof of that case, you can certainly do worse than what happened in Texas.

Share Boondoggle

Third, the legislature got bogged down by stuff that has particular political salience in this post-Trump presidency period. Lawmakers in red states are trying to garner favor from the man himself and his supporters in order to secure their political futures, which means moving on voting restrictions and culture war issues, not economic development. Up against a deadline, legislators in the Senate spent time trying to rush voting restrictions through — they had to do their part to keep the Big Lie alive! — so Chapter 313 fell by the wayside.

Finally, a 10-year renewal and expansion of the program was also on the table during the legislative debate, and reportedly drew attention to the program’s expenses in a way previous renewals hadn’t. Proponents of Chapter 313 overreached and it wound up backfiring, with Republican and Democratic lawmakers alike questioning the need to keep throwing massive subsidies at major corporations in a world of post-pandemic budget realities. The program’s proponents were too secure in their belief that nothing had changed, when something actually had.

This was one of those rare moments in politics when the stars aligned and made something that looked impossible suddenly very possible. The combination of serious work exposing the program’s flaws, opposition who threatened to extract a political price from lawmakers who continued their support, and the simple realities of a time crunch and lawmakers looking out for their political livelihoods caused the unthinkable: Chapter 313 went out not with a bang or even a whimper, but because one house the Texas legislature simply never got around to the task of renewing it.

Reading this post-mortem from The Texan conveys how the program’s opponents were surprised by the anti-climactic conclusion of their fight. “Every member was aware of what 313’s were and I really didn’t work it,” one said. “It just fell on the weight of itself.”

Now, this isn’t over. Texas Gov. Greg Abbott has threatened to call a special session of the legislature in order to pass the voting restriction bill, and it’s certainly possible that a Chapter 313 renewal makes it onto the agenda, too. Big business folks in the state are freaking out, and certainly mobilizing for any debate in a special session.

But if that happens, time and energy are now on the side of those who would see Chapter 313 permanently put out to pasture. So let’s bank the win and keep on working.

Share

SHAMELESS SELF-PROMOTION: I chatted with the New York Times’ Dealbook about an important bill to reform New York’s antitrust laws, which I also published an explainer on. I’ll have more on this significant piece of legislation later.

Also, if you missed my talk on Knoxville, Tennessee’s, proposal to publicly fund a new minor league baseball stadium a few months ago, it’s now available for viewing on Youtube here.

ONE MORE THING: Speaking of stadiums, as I noted in last week’s edition, and many before that, all of the independent analyses of sports subsidies show they don’t provide economic benefits to the local community. J.C. Bradbury at Kennesaw State University has added one more cool study to the archive. He examined the new Atlanta Braves stadium in Cobb County, Georgia, to see if its presence improved property values.

Short answer: Nope.

J.C. Bradbury @jc_bradbury

My latest study examines the effect of the Cobb baseball stadium on county-wide property values. Surprise! No impact. papers.ssrn.com/sol3/papers.cf…

May 27th 2021

8 Retweets20 Likes

Thanks for reading this edition of Boondoggle. If you liked it, please take a moment to click the little heart under the headline or below. And forward it around to friends, family, or neighbors using the green buttons. Every click and share really helps.

Share

If you don’t subscribe already and you’d like to sign up, just click below.

Finally, if you’d like to pick up a copy of my book, The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, go here.

Thanks again!

— Pat Garofalo

This is Boondoggle, the newsletter about corporations ripping off our states and cities. If you’re not currently a subscriber, please click the green button below to sign up. Thanks!

In 2016, the now Las Vegas Raiders received the largest stadium subsidy in American history — $750 million — to ditch their previous home in Oakland and move to Sin City. That $750 million to build Allegiant Stadium was approved by the state legislature, but ultimately came from Clark County, home to the unincorporated town of Paradise, Nevada, where most of the Vegas Strip, including the Raiders’ stadium, is actually located.

Clark County raised the money by selling bonds, which would, according to the plan, be paid back by taxes levied on hotel rooms. But things are not going according to plan.

For the second time in six months, Nevada’s Clark County has to pull millions of dollars from reserve funds to meet a payment on the Las Vegas Raiders’ one-year-old stadium.

The county disclosed in regulatory filings that it will make an unscheduled draw of $11.7 million from one of the reserve funds backstopping the $645 million in bonds issued in 2018 that helped finance Allegiant Stadium.

Clark County also had to dip into its stadium reserve fund to cover $11.6 million in bond payments in November.

Share

The issue is that the pandemic has decimated the tourism industry, so the hotel taxes that were supposed to cover payments on the stadium debt aren’t being collected in high enough amounts, because few people are staying in hotel rooms. While the city hasn’t had to dip into its general fund yet to cover bond payments, that possibility — though remote — always exists. And including interest payments, the total cost to Clark County for these bonds is going to be about $1.3 billion. That’s some real money! (Overall, states and cities have spent tens of billions of dollars on professional sports stadiums.)

There were those of us who warned at the time that Vegas’ bet on football wasn’t going to pay off — and was also ridiculous, given that shortly before the Raiders received their publicly-funded stadium, the Las Vegas Golden Knights of the NHL started playing in an arena that was paid for with private money, right down the street. There was clear evidence sports in Vegas was an enticing enough business proposition for investors to get involved without public support, yet the Raiders received their money anyway.

Now, you may be saying, “Pat, this isn’t really fair. No one expected a pandemic to shut down tourism for a year or make it impossible for people to attend sporting events in person.” And while it’s true that there was a massive, unanticipated interruption in the business Clark County was counting on to juice revenue, that’s also the point: The climate for a particular business changes all the time for reasons legitimate and nefarious, external or internal, and thus long arrangements between a particular business and the government are always going to be risky for taxpayers.

Vegas’ plan for football being an economic driver is very dependent on it increasing tourism, since the population there is a lot smaller than that of most metro areas that host pro sports teams. Any change in tourist proclivities, due to external events such as a pandemic or simply changing interests, could render the deal a much worse one than it was on paper. The bonds aren’t fully paid off until 2048, which is plenty of time for things to go completely sideways.

Share Boondoggle

Don’t believe that tourist interests can change enough to turn a previous hot spot into an economic wasteland? Just ask Atlantic City how things are going.

Then there’s this kicker, per Bloomberg News: “If the county does end up needing to back the bonds, any financial blow to Clark County will be eased by an infusion of federal aid for municipalities from the Biden administration’s American Rescue Plan.” So we’re all in this huddle together.

The saddest thing about this, to me, is that for a while Vegas did things right when it comes to stadium subsides, while most of the rest of America was doing it all wrong. Not only did Vegas refuse to put taxpayers on the hook for the Golden Knights’ arena, a coalition of concerned citizens and elected officials there blunted a push to build a publicly-funded Major League Soccer stadium in downtown Las Vegas proper. (I detailed the particulars of that debate and some of the people involved in my book, for those who are interested.)

Instead of sticking to that principle and potentially using the same increase in hotel taxes to cover $750 million worth of something worthwhile, Clark County went ahead and made the same mistake so many other cities made, betting on sports as an economic driver when all the evidence shows they are no such thing.

Legislators there forgot what recent history has shown us: Elected officials and taxpayers have more power over sports leagues and owners than they think.

And once the spigot is open, everyone wants a piece. Exhibit A: The ownership of MLB’s Oakland A’s has been visiting Vegas and talking about a new stadium, with local press already suggesting ways it could be funded by taxpayers.

This could very well just be a stalking horse to get Oakland to fund a new ballpark, but could also be serious. Time will tell. But if the A’s are intent on moving, paying for a baseball stadium would be another roll of the dice Nevada really can’t afford.

Share

SHAMELESS SELF-PROMOTION: I spoke with Walt Hickey at Numlock News recently about, well, a little bit of everything: Apple, Foxconn, Memphis, how Congress may have accidentally given us a tool to fight corporate incentives. You can read the transcript or listen to the conversation in podcast form here. And subscribe to Numlock, because it’s excellent.

ONE MORE THING: Louisiana is one of the nation’s worst purveyors of corporate handouts, and while it made some progress a few years ago by implementing reforms I quite liked, it’s been backsliding ever since. The latest thing legislators there are doing is trying to change public records law so that information regarding the wages paid by corporations that receive incentives is no longer publicly accessible.

Wage information is key because it lets outside folks assess whether the jobs corporations are creating after they receive subsidies are good ones, or whether they’re gaming the system by, for example, putting a couple of high-paying jobs alongside a bunch of low-paying ones, while pointing to an average to claim they’re doing right by everyone.

As one local reporter in Louisiana put it:

Sam Karlin @samkarlin

As someone who has pored over these tax break documents, the wage information is usually a really helpful tool for understanding if companies are paying good wages to their workers after taking millions of our tax dollars #lalege #lagov lailluminator.com/2021/05/24/hou… via @IlluminatorLAHouse passes bill that would hide corporate tax break data from the public - Louisiana IlluminatorHouse lawmakers passed a bill on Thursday to change the public records law to hide certain corporate tax incentive records from the public.lailluminator.com

May 24th 2021

40 Retweets56 Likes

The bill in question passed the state House, but hasn’t yet come up in the state Senate.

Thanks for reading this edition of Boondoggle. If you liked it, please take a moment to click the little heart under the headline or below. And forward it around to friends, family, or neighbors using the green buttons. Every click and share really helps.

Share

If you don’t subscribe already and you’d like to sign up, just click below.

Finally, if you’d like to pick up a copy of my book, The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, go here.

Thanks again!

— Pat Garofalo

This is Boondoggle, the newsletter about corporations ripping off our states and cities. If you’re not currently a subscriber, please click the green button below to sign up. Thanks!

During the 2020 presidential campaign, businessman Andrew Yang, of all people, was the most explicitly anti-corporate tax incentive candidate in the field. He literally had a policy page on his website calling to “End Bidding Wars for Corporate Relocation.”

But now that Yang has morphed from presidential long shot to front-runner in the New York City mayoral race, he’s gotten weird. His transformation shows how local politics screw up the debate over corporate incentives, and candidates who know what the right policy choices are.

During the 2020 race, Yang pegged his criticism of corporate handouts to the nationally embarrassing effort to win Amazon’s HQ2, rightly noting that Amazon was going to do what it wanted to do, regardless of tax breaks.

“The recent circus surrounding Amazon’s HQ2 project should highlight how damaging the practice of allowing localities to ‘bid’ for investment from corporations can be to our country, and how important it is for us to find a solution to this problem,” he said. “Considering Amazon’s business, DC and NY were likely locations for HQ2 even before they received 238 proposals from cities across the country.”

Share

Yang called, specifically, for company-specific tax benefits to be taxed at 100 percent, rendering them worthless. “No more bribing companies to do something they were already planning to do. The only ones who win are the companies,” he said.

He had a clear articulation of the problem and a straightforward and plausible solution, the only instance I’ve seen of a national candidate directly calling for such a policy intervention.

Now, though, he’s trying to win votes in the place where a coalition of local activists and lawmakers chased HQ2 away, but where there is still a solid base of folks who believe that foregoing gifting hundreds of millions of public dollars to Amazon was a mistake. (I wrote here about why defeating the HQ2 push was the right thing for New York, if folks want a review.)

That’s led Yang to try to split the baby in a strange manner, as evidenced by how he responded to questions about HQ2 during an interview last month with TechCrunch, which I’ve excerpted below. Apologies for the length, but you need to see the full context to figure out what Yang is doing.

You recently said that letting Amazon and its 26,000 jobs walk away from New York City was not a good thing in reference to HQ2. But you, along with other Democratic politicians, have criticized the fact that they don’t pay federal taxes. If a company like Amazon were to relocate or bring a substantial number of jobs in New York City, how would you hold them accountable?

I guess there’s a difference between the local impact and the federal impact. I don’t think it’s a good thing that a trillion-dollar company doesn’t pay any federal taxes, but if you are a locality and someone comes along and it’s going to be good for your community, then you say, “yes.” I want to make the case that New York City loves business. It loves businesses big and small that are based here. And it wants more companies to know that New York City is the best place to build a world-class company and culture. So, that would be my stance as mayor, if a large tech company wanted to come to New York, and if there’s a large tech company that’s reading this right now or a small one or an entrepreneur, come to New York! Early next year, if I’m mayor, I’m going to be doing everything I can to help you.

A lot of the pushback that they were getting were around incentives. Is there a way to bring a company like Amazon into New York without offering that?

I don’t think it’s good when localities end up bidding against each other to try and bring in various companies. One of my proposals when I was running for national office was that we should actually make it impossible to do so by making any benefits that are provided to a company in that manner themselves taxable, at a rate of a 100%.

So, the entire thing becomes a non-starter and companies then would be based where they think it’s most advantageous to their organization to be based, not by pitting cities against each other as to who’s going to bend over backwards the most. I think that would be a better system and people were upset about the level of subsidies that were supposed to be directed to Amazon with HQ2, and that was legitimate concern.

And some of the local impacts were also of legitimate concern. But again, big picture, you cannot let an employer that’s going to create 26,000 high-paying jobs and probably an additional 100,000 or so service jobs walk away. You have to say New York City is the place for you.

Share Boondoggle

These answers, taken together, make no sense. First, Yang tries some sleight of hand, making it seem as if federal tax dodging was the issue with Amazon coming to New York, when it wasn’t. When the interviewer calls him on that, he circles back to his 2020 campaign position, but tries to square it with an assertion that you can’t say no to Amazon. So you have to say yes to Amazon, except the thing Amazon wanted was maybe bad, but you can’t let Amazon walk away, but the local concerns over incentives were legitimate, but in the end, you have to say yes to Amazon.

It’s gibberish.

Instead of this word salad, Yang could have said what is, in fact, true: The incentive package Amazon wanted for HQ2 was wildly expensive and unfair and Amazon is expanding in the city anyway, without it, so everyone’s a winner. He could credibly say he was right all along, and that he wants to work on building up the advantages New York has over other places, rather than resorting to handouts and giveaways.

Alas, that’s not what he did. So why the verbal gymnastics? Here’s my theory: Yang is ahead in polling of the Democratic primary race for mayor so far, and the Democratic nominee will almost certainly win the general election. He has his signature policy that he really cares about — a universal basic income program — and on just about everything else, he’s simply trying to land in the middle and not make anyone too mad, thereby protecting his lead.

He knows there are important constituencies on both sides of the HQ2 debate — Rep. Alexandria Ocasio-Cortez, State Sen. Michael Gianaris, and the activists who beat back Amazon on one side, with Mayor Bill deBlasio, Gov. Andrew Cuomo, and business interests on the other — and he’s trying to keep them all if not happy, then at least not mad enough to come at him over corporate handouts.

This same approach has led him to support other pro-corporate economic development junk, such as a tax credit for forcing workers to stop working remotely and an expansion of casino gambling. He’s placating business interests with a hodge podge of stuff, while trying to not fire up the forces that caused Jeff Bezos to turn tail and run.

Leave a comment

His actions makes sense politically, I guess. He’s ahead and trying not to blow it, and more corporate dealmaking can lead to good local political outcomes for those who engage in it. But it’s leading to nonsensical policy positions.

Which is too bad, because New York City has serious issues with corporate handouts. As John Mozena noted in City Journal recently, New York lost $3.8 billion to tax abatements in 2019, enough to fund the fire department and department of corrections entirely, with a few hundred million dollars left over. There’s no reason for New York — the financial capital of the world! — to shell out that kind of cash to entice corporations to come there.

Yang watering down his position to render it meaningless is a perfect example of how corporate handouts warp our politics. Someone who has thought about the problem and clearly knows better still feels compelled to at least nod in the direction of outsized handouts out of electoral necessity.

That’s why it’s imperative on folks like you, and me, and Odessa Kelly, and everyone working on the interstate compact, and on and on to upend the politics here. Otherwise we’re just going to see an endless parade of folks doing what Yang did: Getting it right until winning an election requires them to get it wrong.

Share

ONE MORE THING: Speaking of mayors, St. Louis Mayor Tishaura Jones took office just a few weeks ago, and is already challenging the city’s over-dependence on corporate handouts to spur development. She vetoed two new tax incentives last week, saying that the developments slated to benefit from them would have happened without tax breaks.

Mayor Tishaura O. Jones @saintlouismayor

I also vetoed two tax abatement bills for developments in the Central Corridor. I do not oppose new development, but I do believe the City needs higher standards to protect our public schools and prioritize the needs of St. Louisans. This is why I rely on the "but-for" test.

May 8th 2021

4 Retweets45 Likes

Seeing an elected official cite the “but-for” test — as in, questioning whether a particular project would have happened “but-for” the tax breaks — is great to see. More of this please!

Thanks for reading this edition of Boondoggle. If you liked it, please take a moment to click the little heart under the headline or below. And forward it around to friends, family, or neighbors using the green buttons. Every click and share really helps.

Share

If you don’t subscribe already and you’d like to sign up, just click below.

Finally, if you’d like to pick up a copy of my book, The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, go here.

Thanks again!

— Pat Garofalo

This is Boondoggle, the newsletter about corporations ripping off our states and cities. If you’re not currently a subscriber, please click the green button below to sign up. Thanks!

One of the major problems with communities doling out tax breaks and other favors to large corporations is that doing so disadvantages their own, local, usually smaller, businesses. After all, those monetary favors lower costs for the big guys, making it easier for them to “compete” against smaller entities that don’t receive public largesse.

What corporate giveaways do accomplish, though, is building political capital for the politicians who dole them out, as they get to stand next to some big-name corporate executive and extol the virtues of their actions, pointing to the jobs they supposedly created and the economic activity they initiated, getting their face on local news and in the paper, while sending out glowing tweets and Facebook posts.

Share

In a fascinating new paper, Manav Raj of the Stern School of Business at New York University ties all of these strands together. He found that states with more competitive legislatures hand out more corporate largesse, and then see more small businesses fail to succeed against larger, incumbent firms.

As Raj explained in the paper (and many thanks to him for sharing a copy with me), “When legislative competition is high, well-connected incumbent firms are better able to leverage familiarity, access, and influence to take advantage of this opportunity and transform the institutional environment. Policy rewards to well-connected incumbent firms may have negative consequences for younger, less-connected firms and implications for the entrepreneurial environment.”

Essentially, more politicking is better for big corporations seeking handouts and worse for new businesses trying to make inroads against dominant competitors. Here’s Raj’s chart on how this effect can be seen broadly across legislatures.

Share Boondoggle

Prior academic work has shown that corporate handouts help politicians with their re-election campaigns, which is why their use at the state level goes up in years in which a governor is up for re-election. So it makes sense that high levels of legislative competition — meaning tiny majorities for the party in power, and a higher likelihood that a legislative chamber can flip from one party to another — make handouts to incumbent, dominant firms more likely. In those instances, legislators on the margins need more political capital to win re-election and have more power to extract concessions during legislative debates because their votes are more valuable.

Why are their votes more valuable? Well, when a majority is tiny — like in the U.S. Senate at the moment — each member has the power to put their vote up for sale in a way that lawmakers who are part of a massive majority can’t, since in the latter situation the party in power can afford to lose votes and still enact its agenda. To continue with the U.S. Senate as an example, because Democrats need Sen. Joe Manchin’s vote on everything they want to pass, he becomes, only somewhat jokingly, President Manchin. And, of course, business interests know the situation in a particular legislature, and make the most of it.

Raj also found corporate handouts increase alongside increases in political donations by businesses, creating a toxic stew of back-scratching that entrenches those corporations that play politics best, even if they don’t provide the best service to customers or do very much in the way of innovating. It makes more sense for them to spend money on political campaigns and lobbying shops than R&D.

All of this is bad for small firms. They already have an array of obstacles placed before them without having to worry about their larger competitors getting the government to cover a percentage of their operational costs. And indeed, Raj found that states that hand out more incentives see more new business fail to launch.

As he wrote, “The findings indicate that increased legislative competition creates an institutional environment that favors entrenched incumbents over younger firms, and thereby increases young firm mortality.” New businesses just can’t keep up with the political power of entrenched incumbents.

Leave a comment

Raj’s important findings add to the evidence showing that the corporate giveaway issue is a political problem, not an economic one. Elected officials are using incentives to juice their vote totals, not local economies.

Of course, you could read his study as a case for one-party rule: Less competition, fewer corporate handouts, more small business success. Viola! But that’s not really what I’m going for here.

What’s needed is to flip the current political incentive structure on its head, making it more politically valuable to disavow handouts than to take them — or finding ways for more responsible leaders to join together to eliminate incentives without any one person having to pay the political price. That’s the motivation behind the interstate compact against corporate giveaways, for instance.

As Raj’s study makes clear, doing so is not only about preventing the waste of taxpayer money, but ensuring that small, local firms have a chance to get off the ground and thrive.

Share

SHAMELESS SELF-PROMOTION: I had a piece in Mic last week on the power wielded by tax prep corporations Intuit and H&R Block and why it makes paying taxes more painful than it has to be. You can read it here.

UPDATE: Last month I wrote about how the latest coronavirus relief bill passed by Congress included a provision that could help block new state and local corporate handout programs. On Monday, Treasury released its full version of that rule, and a Treasury spokesperson confirmed it does apply to state and local incentives.

Lauren Loricchio @LaurenLoricchio

States and local governments can’t use federal funds in the American Rescue Plan Act to offset reductions in net tax revenue resulting from new business tax incentives, a treasury spokesperson tells me. #taxtwitter

May 10th 2021

2 Retweets6 Likes

Hive fives all around! If Treasury enforces this, it could be a really big deal for cutting back on the sort of stuff I write about in this newsletter every week.

ONE MORE THING: Nashville’s city council last week approved a deal to bring a new Oracle campus to town. The agreement stipulates that Oracle will spend $175 million on building some public infrastructure, including a pedestrian bridge and a park, and will receive 50 percent of its property tax payments back until that $175 million is repaid.

As these things go, it’s not the worst, though it is a little weird to outsource public infrastructure to a private corporation. There are also very legitimate concerns about residents being displaced around the new campus. The city says it will spend revenue raised by the deal on affordable housing, but we’ve heard that one before.

The reason I’m bringing all this up, though, is that a local activist who is running for Congress named Odessa Kelly talks about these deals the way I wish more political folks would. This is from a press conference before the agreement was approved:

Oracle isn’t the prize, Nashville is the prize. If we set expectations, the companies that are coming here are going to meet those expectations because they want to be in Nashville. Don’t make this the other way around, as if we’re going to lose something if Oracle or all these other companies go somewhere else. There’s a reason they chose Nashville.

“Oracle isn’t the prize, Nashville is the prize.” Right on. You can watch more here.

Thanks for reading this edition of Boondoggle. If you liked it, please take a moment to click the little heart under the headline or below. And forward it around to friends, family, or neighbors using the green buttons. Every click and share really helps.

Share

If you don’t subscribe already and you’d like to sign up, just click below.

Finally, if you’d like to pick up a copy of my book, The Billionaire Boondoggle: How Our Politicians Let Corporations and Bigwigs Steal Our Money and Jobs, go here.

Thanks again!

— Pat Garofalo