Will backlash against Amazon's NYC tax breaks kill other deals?
Posted February 16, 2019 2:28 p.m. EST
CNN — Is the Amazon-New York City split up on Valentine's Day the start of a new trend?
Critics of the deal think so. They say it's the beginning of the end of state and local governments showering companies with billions of dollars in tax breaks and other incentives.
"Anything is possible: today was the day a group of dedicated, everyday New Yorkers & their neighbors defeated Amazon's corporate greed, its worker exploitation, and the power of the richest man in the world," tweeted Rep. Alexandria Ocasio-Cortez after Amazon announced it was walking away from $1.5 billion in incentives it had been promised due to political opposition.
Part of the backlash in the Amazon case, and against an even more expensive deal given to electronics manufacturer Foxconn in Wisconsin, comes from the fact that unemployment is near a 50-year low.
There are more job openings than there are job candidates, and employers in Wisconsin and New York could be rightly concerned that they could lose workers they need due to a major new employer coming to town with the help of their own tax dollars.
"The labor market is as strong as it ever has been," said Mark Zandi, chief economist for Moody's Analytics. "I think this backlash reflects a 4% unemployment. If this was 2012, 2013, and we had more typical levels of unemployment, you'd have half as much opposition and their voices wouldn't be as powerful."
The Amazon deal in New York wasn't the only one that fell through recently. A small school board in Baton Rouge, Louisiana, recently turned down a $2.9 million tax break for Exxon Mobil, citing the budget crisis it was facing. The unemployment rate in Baton Rouge matches the national average. But that rejection of the tax break prompted members of the state legislature to introduce legislation that could stop local governments from blocking such incentive packages in the future.
The Foxconn deal is still going ahead, even though it's not clear exactly what the company will eventually produce on the Wisconsin site. The debate about the $4 billion incentive package there became a major issue in last year's governor's race, in which incumbent Scott Walker, the champion of the deal, was defeated.
"I don't know if it cost him the election," said Bartik. "It definitely wasn't the huge political plus he thought it would be. He thought it would get him re-elected."
But Tony Evers, the Democrat who defeated him, hasn't tried to pull out of the deal. And Foxconn has issued a statement praising the negotiations they've had with Evers since he took office.
Some experts say predictions these deals are a thing of the past might be premature, and that the opposition to Amazon's plans to build a headquarter in Queens was a unique situation.
"There's always a significant group that is critical of such deals," said Tim Bartik, senior economist for the W.E. Upjohn Institute for Employment Research. "But Amazon is unique. New York City is unique."
In the case of New York, there was also concern about straining infrastructure, such as subway lines, and driving up the price of already expensive real estate.
The Amazon failure in New York has also been blamed on the fact that Northern Virginia had approved up to $550 million in incentives for 25,000 new jobs — a third as much as New York promised.
During Amazon's very public process for finding a location for its second headquarters, it was reported that it had turned down even more expensive deals than those offered by New York and suburban Washington, DC.
That raised the age old question as to whether Amazon, or any company getting these kinds of deals, really need the breaks they receive.
Nathan Jensen, a professor at the University of Texas and a leading expert on such incentive packages, says at most 25% of the companies that receive these kinds of deals would decide against coming to that town or city without the breaks. It may be only half that many jobs depend on the incentives, he said.
But despite the questionable value of the deals to towns or cities, Jensen expects companies to keep asking for the breaks, and for most state and local governments to compete with one another to offer them.
"I'm a little skeptical there will be a big sea change," he said. "Amazon HQ2 is a unique event. In New York you had unions activity organized against it, other progressive organizations active in the fight. Not every city has that."