A rendering of Eightfold Development’s proposed Amazon HQ2 in Austin, Tex. Credit: Eightfold Developement
Every year, states and local governments give economic-development incentives to companies to the tune of between $45 billion and $80 billion. Why such a wide range? It’s not sloppy research; it’s because many of these subsidies are not public.
For the known subsidies, such as Maryland’s recent $8.5 billion incentive bid for Amazon’s second headquarters, the support includes cash grants for company relocations, subsidized land, forgiving company taxes on everything from property taxes to sales taxes and investments in infrastructure for the company. Maryland is even offering to give 5.75% of each worker’s salary back to the company, which is the maximum state income tax rate for individuals. Employees will pay taxes that will be routed back to Amazon.
To be clear, Maryland isn’t a model of transparency. Its offer is known not because the state made its bid public, but because these extreme incentives required special legislation. The legislature didn’t call it the Amazon Bill. They called it the Prime Act, which is a tortured acronym from “Promoting ext-Raordinary Innovation in Maryland’s Economy Program.” The bill was revealed only after an initial offer was made to the company.
Economic development all across the country is getting less open — and both Democrats and Republicans are doing it. In fact, in many cases, the politicians themselves aren’t even the ones negotiating for the public.
How do communities balance the tremendous opportunity of attracting a world-class company against the taxpayer costs, the pressures on our infrastructure and our struggles of providing affordable housing?
My city — Austin, Tex. — is a well-governed place that has taken a sensible path with tax abatement offers or other business subsidies. But its Amazon bid wasn’t even submitted by the local government; the Chamber of Commerce did it instead. That happened in several states, including Wisconsin. That means it isn’t subject to public-record laws. The offer was so secret that the members of our City Council — i.e., the people elected to govern the city — have complained that they don’t know what is being offered on our city’s behalf.
Yet this is bigger than a single Amazon headquarters investment. In Texas, we are notorious for our exceptions to public-record requests when we talk about economic development. Governments can be exempted from requests if they put companies or governments at a competitive disadvantage (with other states, for example).
This idea of economic development secrecy can be stretched to any end. The city of McAllen, Texas, shielded the amount it paid Enrique Iglesias for a concert using the argument that this would put the city at a competitive disadvantage. According to The Texas Observer, the legal precedent for this competitiveness argument has been cited in over 1,850 public records cases in Texas.
I recently made a request for details on companies that applied to the Texas Enterprise Fund, a program that provides corporate cash incentives. It was not only sent to the attorney general’s office, but it was also forwarded to the companies participating in the program. Forty-five companies challenged my request for their applications through in-house lawyers as well as law firms with expertise in challenging public records requests.
Many of these companies want to hide their proposed jobs and wages on the initial application — it’s an extremely effective way of making it impossible to evaluate if these companies kept their promises to create high-paying jobs in exchange for taxpayer dollars.
Other states are also secretive about economic development. Amazon’s brazen public call for proposals for its second headquarters reveals how far governments will go to keep these secrets. Some cities and states revealed their bids, including New Jersey’s $7 billion taxpayer-funded incentive. But the majority didn’t. In January, when Amazon cut down this list down to 20 locations, the finalists signed nondisclosure agreements to keep the rest of the process secret.
Even the cities that were eliminated by Amazon have refused to make their bids public. Minnesota and Washington both have reputations for transparency and received “leading” rankings from the Pew Charitable Trusts in their evaluation of economic incentives. But Minneapolis and Tacoma, Wash., submitted their bids through nongovernment entities and claim they don’t even have access to the cities’ pitches to Amazon.
Another strategy to avoid transparency in a competition like this is through complexity. The idea is to make economic development so twisted that it’s nearly impossible to figure out who is responsible for it. If governments aren’t submitting these bids, with taxpayers’ money, who is responsible for economic development?
In many states, companies are wooed by getting a break on paying local taxes. In some of these cases, local interests get overlooked — in particular, schools. There are school districts where economic developers were empowered to give away the tax revenues without the input of educators. The California Teachers’ Association supported a law to help stop giving away their tax dollars. Louisiana just allowed school districts to modify or decline these incentives.
In Texas, rather than cutting school districts out of the process, the rules were written to make sure districts always say yes to company incentive requests. Our program, called Chapter 313, allows a school district to forgive a company’s taxes, but the state pays the taxes to the school district. Even better, schools can request “supplemental payments” from companies, which in some cases exceed 40% of the company’s incentive benefits. Ironically, school districts make more money from companies that accept a tax incentive than a company that comes with no government support. As you can guess, in these cases, school districts say yes to every request, companies receive tax incentives, and Texas taxpayers are on the hook for billions of dollars.
Many activists hoped that the true costs of these programs would be revealed this year. The Governmental Accounting Standards Board, a private-sector group that sets generally accepted standards for governments, issued a rule that state and local governments must now reveal how much communities lose in tax revenues through business tax abatements. Unfortunately, half of local governments are simply not complying with this rule. In complex programs — like the Chapter 313 Texas tax limitation that is authorized by the school districts but paid for by the state — nobody seems to be reporting it.
The recent bidding war for Amazon and failure of communities to live up to the Standards Board reporting rule reveals that weak transparency laws can be further thwarted by using the complexity of these programs.
Maybe people are getting fed up with hypercompetitive incentives. In a new Elon University poll, only 14% of respondents felt that cities should offer as much as possible to lure HQ2 to their city. Rather than revealing the relationship between business and politics, elected officials have used the participation of private interests to shield economic development from their own citizens.
