The nation’s largest bribery scandal is playing out in real time, a brazen act of collaboration between government and a powerful corporation. This epidemic spans across cities large and small, in red states and blue states, in rural communities and established metropolises; it’s also happening in Washington, D.C., but incredibly doesn’t involve Donald Trump. Thousands of public officials are implicated, and they haven’t been particularly quiet about it. In fact, many of the attempted bribes are on video.
We won’t see a flurry of public corruption trials in this case, because the bribery has become accepted as a normal part of economic development. But the embarrassing orgy of corporate welfare directed recently at Amazon, for the privilege of hosting its new corporate headquarters, ought to be illegal. It’s a shakedown by a $500-billion company that’s pitting communities—out of desperation for jobs or prestige—against one another in a bleak competition. The gambit doesn’t even deliver the promised boon for localities, but officials have been so seduced by bad economics and threats of abandonment that paying corporate tithes has become a leading government service.
Earlier this fall, Amazon announced it would build a second headquarters (known as HQ2) and asked cities to submit requests for proposal. Amazon promised $5 billion in capital expenditures from the project, and that the headquarters would host 50,000 workers making an average of more than $100,000 per year.
Like any company, Amazon had preferences for a new location: a large population center with high quality of life, an educated labor force, and access to airport, highway, and mass transit infrastructure. But Amazon also told cities, “A stable and business-friendly environment and tax structure will be high-priority considerations for the Project. Incentives offered by the state/province and local communities to offset initial capital outlay and ongoing operational costs will be significant factors in the decision-making process.” The RFP spells out the incentives Amazon wants: tax abatements, land grants, workforce training funds, sales tax exemptions, permitting waivers, or fee reductions.
“As this is a competitive Project,” the RFP concludes, “Amazon welcomes the opportunity to engage with you in the creation of an incentive package, real estate opportunities, and cost structure to encourage the company’s location of the Project in your state/province.”
I don’t know how to describe this corporate-speak as anything other than a bribe. And Amazon is no stranger to seeking such tribute. Good Jobs First, an organization which tracks corporate subsidies, estimated last December that Amazon has received $854 million in awards for building distribution facilities nationwide since 2005. Amazon even hired a dedicated specialist, Michael Grella, to chase economic development incentives.
At first, Amazon framed the bribes as a bargain. The company developed its dominance in online retail by neglecting to collect local sales tax, keeping prices well below brick-and-mortar competitors. Amazon argued it could avoid sales tax if it held no physical presence in the state or locality. When states attacked the “Amazon loophole,” the company switched tactics, offering to collect local sales tax and place a fulfillment center in a particular state—as long as they won subsidies. Amazon had to build hundreds of warehouses to meet the promise of same-day Prime delivery anywhere in the U.S., and sales tax collection was rapidly becoming a legislative requirement. But cities and states paid the bribe anyway.
Amazon announced on Monday that it had received 238 proposals for HQ2, most of them U.S. cities and states promising fistfuls of cash. Worcester, Massachusetts offered a $500 million package that included 100 percent property tax exemptions for the headquarters’ employees. Philadelphia’s price tag was $2 billion. A developer in Irvine, California said he’d pay the entire $5 billion in construction costs himself. Newark, New Jersey upped the ante to $7 billion in tax benefits. Some cities, like Washington, created cringe-worthy promotional videos and performed publicity-seeking stunts. Stonecrest, Georgia tried to one-up all applicants by offering to create a 345-acre city in Amazon’s name.
Is it worth it to lavish Amazon with billions? Most existing studies argue that the short-term political benefit of “bringing jobs” to a region gets offset by a shrinking tax base and a questionable impact on overall economic development. Good Jobs First found in 2013 that corporate subsidies had “microscopic effects on state economies.” They’re worse than a zero-sum game between metropolitan areas; they’re net-negative, because the corporation extracts the subsidy while cities lose revenue that would otherwise go to education or infrastructure investment to benefit the common good.
It’s also not worth it because, as San Antonio Mayor Ron Nirenberg wrote in his letter declining to submit an Amazon proposal, “it’s hard to imagine that a forward-thinking company like Amazon hasn’t already selected its preferred location.” Thus, the public bidding war is just a ploy to squeeze out additional subsidies, to play cities off one another. “Blindly giving away the farm isn’t our style,” Nirenberg wrote.
The bribes for Amazon mirror the ones offered to other corporations (like the $3 billion Wisconsin just gave to Foxconn for a proposed manufacturing site), or sports teams who will only stay in cities with a publicly funded new stadium. This blackmail, as much as $80 billion a year transferred from local government to corporate treasuries, must end. That starts by telling the truth about these “incentives.”
Mark Funkhouser, the former mayor of Kansas City, proposed a solution in 2013. “We need a national law that prohibits corporations from extracting bribes from state and local governments and bans governments from donating tax dollars to private entities—a sort of domestic equivalent of the Foreign Corrupt Practices Act, which prohibits American companies from bribing foreign governments,” he wrote.
“Some will argue that such a law would damage America’s global competitiveness and drive companies to outsource even more of their work abroad. I think that, on balance, this is not so. America is a magnet for global talent because of the quality of life offered here, and current economic trends are damaging to that quality of life.”
Here’s an alternative solution: Means-testing for economic incentives. No wealthy American would ever be allowed to benefit from targeted government subsidies in means-tested programs like food stamps and Medicaid. Yet we constantly give taxpayer-funded incentives to corporations with virtually limitless cash reserves. Those incentives should be reserved for startups and young companies, helping to diversify the economy and perhaps even nurturing an Amazon competitor.
Amazon’s angling for government handouts flows directly from its dominance. As the economy consolidates in every sector, with fewer and fewer companies earning the spoils, cities must chase dwindling prospects for headline-grabbing corporate relocations. Projects like HQ2 become a holy grail, the one development that will turn the city around, and officials stop at nothing to attract them. But this is like panning for fool’s gold, and it breeds an intolerable corruption of tax dollars. Congress should ban the practice, and corporate behemoths should get used to paying their own way.