The Virginia response to the Amazon’s 1/2 HQ2 (half of the originally proposed second headquarters) announcement is not uniformly delirious. Here are a couple of responses landing in my in-box — one from the center-left Commonwealth Institute (CI) and the other from the center-right Mercatus Center that urge caution in approving $1.7 billion in subsidies and inducements.
Writes CI on its Half-Sheet blog:
It’s critical that elected leadership, media, and the rest of us take a careful look at the realistic benefits and drawbacks of the deal, including related public subsidies and the tradeoffs that come with adding thousands – or tens of thousands – of jobs. And regular folks deserve to know what’s in the deal when their public land or public tax dollars are on offer to private corporations. …
With the megadeal promising to add thousands, and eventually tens of thousands, of high wage jobs, it is likely to further exacerbate the housing shortages in the region. … Early details do not appear to show any required direct support by Amazon in the provision of affordable housing, instead relying on local governments to make some investments, although the projected additional housing units fall far short of the projected shortfall for the region. …
The new development will bring new long-term costs – more need for fire protection, more children needing a high-quality education, and more need for public roads and transportation. Avoiding deals that cost more than they will raise over the long term is critically important to make sure ordinary residents aren’t paying the price for subsidies to megacorporations.
Meanwhile, Mercatus questions whether Amazon really needed the inducements to reach its decision to locate in the Washington metropolitan area. A NoVa location, I might elaborate, provides access to one of the nation’s largest high-tech labor pools and to the federal government, which is an increasingly important customer for its cloud services enterprise. Writes Mercatus:
We find it implausible that Amazon’s corporate leaders didn’t already have a good idea of where they would locate HQ2 even before launching the competition between cities. The research on corporate location decisions finds that subsidies rarely affect the final decision, lending weight to our skepticism. It also suggests that any relocation subsidies would simply be extra icing on the cake that Amazon had already picked.
The general conclusion of academic research suggests that targeted economic development subsidies don’t lead to broad-based economic growth or improvements in community welfare when measured against comparison cities. Why? First, when government officials grant targeted tax cuts, they distort the market-determined prices that lead to the most efficient use of resources. Second, nearly every kind of tax causes additional price distortions and corresponding “deadweight loss”—a pure loss of economic value. This means that keeping taxes high for some businesses to give a subsidy to favored corporation causes further harm to economic efficiency—a better approach for economic growth would be a broad-based tax cut.
I have raised many of these points on this blog — good to hear that other people share the concerns. Amazon is a once-in-a-generation economic opportunity for Virginia. There are many reasons to welcome the deal. But CI and Mercatus both raise legitimate issues. When more than $1.7 billion in public subsidies are at stake, Virginia needs to give the deal a thorough airing. I would agree with CI’s admonition:
Community members, press, and elected officials should be provided time to absorb these details – and receive more details if some needed information is not available – before Virginia or its localities commit public dollars to a deal.
Meanwhile, up in New York… From CNBC:
Democrats from New York’s Queens borough slammed Amazon’s plan for offices in the area, setting up a potential political fight with one of the world’s most powerful companies. The criticism came even as Virginia lawmakers largely welcomed the e-commerce company’s decision to open up another facility outside Washington, D.C.
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