Amazon-type 'sweetheart deals' often lead to kissing cash goodbye, group contends
Amazon’s recent announcement that it was searching for a new headquarters got interested cities across the country scrambling to put together incentives to lure the retail giant, according to Leanna Garfield’s article in Business Insider.
Under the headline “Amazon has triggered a $5 billion bidding war – here are the craziest proposals for its new headquarters,” the article details the online retailer’s pledge to hire 50,000 at its new facility and the competition it has sparked as community leaders vie for the supposed economic boost.
But a similar, less-publicized process is ongoing in Illinois and other states, as politicians and business leaders court one another to find common ground, according to an article on the Better Government Association’s (BGA) website. Beginning with a proposed deal in 2013 to court Archer Daniels Midland (ADM) to remain in the state, the article debates whether the enticements are truly valuable for the communities offering them.
The ADM deal touched off a high-stakes game of chicken between politicians and company leaders, the BGA article says. Democrats labeled the proposal coercion, and Republicans objected to the $30 million package in light of the state’s weak financial position.
While today little has improved moneywise for the state, the BGA notes that politicians from legislators to Republican Gov. Bruce Rauner “appear poised to embrace far more expensive incentives” to court the favor of Toyota, Amazon and other firms.
However, the statistics on the value of such deals are shaky at best, according to sources cited in the article. Research from the W.E. Upjohn Institute for Employment Research shows that in 2015 cities spent upward of $45 billion to lure companies but only 15 percent of such deals had actual influence on a firm’s decision to stay or expand.
A recent example of the investment some states are willing to make is the Wisconsin agreement with Taiwanese electronics maker Foxconn, which received a $3 billion basket of enticements to build a flat-screen TV factory in the state, the BGA said. The factory will bring in anywhere from 3,000 to 13,000 new jobs, and the state could recoup its investment – in 25 years.
Some of the most expensive deals have failed to materialize, at least in the long term, according to cases cited in the BGA article. For example, only six years after cellphone maker Motorola opened a 5,000-worker factory in Libertyville based on an Illinois enticement of $43 million, the factory closed. After Motorola reorganized, it again negotiated, this time for $100 million in tax breaks to stay. But as the article points out, it fired 1,000 employees only a year after the deal was inked.
Despite the questionable value of using sweetheart deals to lure business, some say they are likely to continue, especially given that the White House is encouraging their use to keep manufacturing stateside, the BGA article says.
“President Donald Trump has helped fuel the bidding war against states with his endorsement of incentives deals to keep manufacturing companies like climate control systems maker Carrier Corp., a unit of United Technologies Corp., from closing factories in the U.S. and moving production elsewhere,” the BGA article says.
One source quoted in the BGA story, Greg LeRoy, calls the negotiations between states and big business “a fool’s game,” citing research from the organization he directs, Good Jobs First, showing the return on investment is low for states offering to sweeten the pot for their corporate citizens.
"Don’t agree to any mega deals,” he said, according to the BGA. “Get back to the basics and pay more attention to small businesses."