Sugary incentives harmful to economic health
I’ve enjoyed following the drama surrounding location of Amazon’s second headquarters and, make no mistake, drama it certainly has been. Amazon probably missed an opportunity by simply issuing a request for proposal rather than turning it into a reality TV series available exclusively on Prime. Tucson tried to give Jeff Bezos a cactus. Stonecrest, Georgia, offered to rename part of itself Amazon. Birmingham has set up stories-high Amazon boxes around town.
To recap — in case you’ve been living under a rock — Amazon announced in early September it would build a second headquarters. It expects the facility to cover up to 8 million square feet and employ up to 50,000 with an average salary of around $100,000. For comparison, the Panthers’ stadium is 1.6 million square feet, total employment in the entire state of North Carolina is a little more than 4.2 million, and the average salary in the state is $45,280. If we look at just IT jobs, $100,000 is about what people in North Carolina earn now.
Given all that, it’s not surprising North Carolina cities have been interested. It is indeed a lot of jobs, and highly paid ones. Just like scores of other cities across the U.S. and Canada, North Carolina municipalities have scrambled to prepare bids for this new Amazon HQ2.
And yet I find some points in the RFP extremely worrying and make me hope no North Carolina city will be burdened with winning this bid. First, in a section titled “Key Preferences and Decision Drivers,” we read that Amazon is looking for, “Incentives offered by the state/province and local communities to offset initial capital outlay and ongoing operational costs …” and “… incentive programs available for the Project at the state/province and local levels…(i.e. land, site preparation, tax credits/exemptions, relocation grants, workforce grants, utility incentives/grants, permitting, and fee reductions)…”
That’s at least eight different types of incentives from state and local governments Amazon wants to hear about.
And then, in the final page and a half of the RFP, under “Information Requested,” three of the nine pieces of information relate to incentives. It’s one-half page specifying all of the details the company wants from the expected incentives. Amazon even goes so far as to say, “We acknowledge a Project of this magnitude may require special incentive legislation in order for the state/province to achieve a competitive incentive proposal.”
This sounds pretty audacious from a company worth $483.5 billion, with revenue of $136 billion in 2016. The entire North Carolina GDP last year was $517.9 billion, only slightly more than Amazon is worth. And yet it wants such a huge package of incentives to locate here we may well need special incentive legislation? No thanks. Count me out.
At least two notable cities have made such statements. San Jose and San Antonio have made it clear they won’t play this game. San Jose’s mayor, a Democrat, said the city wouldn’t offer incentives, “because they are a bad deal for taxpayers.” San Antonio’s mayor, a non-partisan progressive, likened the incentives to “blindly giving away the farm.” They’re both right.
North Carolina’s local governments should follow the lead of San Jose and San Antonio and refuse to engage in this kind of nonsense. The General Assembly should do the same. North Carolina is a fantastic place to do business. We have a well-educated workforce, top universities, and an improving tax and regulatory climate. We’re growing fast, proving that we’re an easy place to attract talent. We shouldn’t be giving enormous incentive packages to extremely wealthy corporations to try to bribe them into coming here.
Instead, we should look at examples like PlantResponse, a Spanish biotech company that announced in mid-October it would open a North American headquarters in the Triangle. It’s small — just 20 employees — but it’s growing. And it didn’t ask for incentives. The company found a location with good infrastructure, a talented workforce, and the sort of support services the company would need. It’s not as flashy as Amazon, but it’s the sort of sustainable, organic growth that makes for strong, long-term economic development.