To the Teacher
In February 2019, community organizations declared victory when Amazon withdrew its plans to open a second headquarters (dubbed “HQ2”) in Long Island City—a neighborhood in Queens, New York.
After a nationwide search, the company had announced in November 2018 that Long Island City would be one of the sites for expansion. Amazon promised that its new offices would create thousands of jobs and generate billions of dollars in economic activity. But the project drew fierce opposition from local communities and some unions, who criticized Amazon’s record of poor labor practices, the billions of dollars in public subsidies, and the gentrification and displacement that could result from Amazon’s expansion in the neighborhood. They rejected the idea that taxpayers should subsidize a company that has the highest market value of any corporation in the world, and whose CEO and founder, Jeff Bezos, is the richest person on earth.
Amidst the controversy, city officials attempted to negotiate with Amazon around issues of subsidies, unionization, and gentrification, but on February 14, 2019, the company abruptly backed out of its plans for HQ2 in Queens.
The controversy raised important questions about the costs and benefits of public subsidies for corporate development projects. What was the nature of the deal between New York state and city officials and Amazon? What do cities gain, and what do they lose, when offering large subsidies and other incentives to corporations?
This lesson consists of two readings designed to explore the Amazon controversy. The first reading looks at community-based criticisms of Amazon’s planned project in Queens and examines the possible impact of Amazon backing out. The second reading considers the issue of subsidies more generally, asking whether cities should give large corporations incentives to locate in their area. Questions for discussion will follow each reading.
For more on the debate over Amazon and corporate subsidies in general, see our previous lesson on this issue, from June 2018: Corporate Subsidies: Should the Public Pay for Amazon’s New HQ?
Reading One: Amazon Backs Out of Queens
In February 2018, community organizations declared victory when Amazon withdrew its plans to open a second headquarters (dubbed “HQ2”) in Long Island City—a neighborhood in Queens, New York.
After a nationwide search, the company had announced in November 2018 that Long Island City would be one of the sites for expansion. Amazon promised that its new offices would create thousands of jobs and generate billions of dollars in economic activity. But the project drew fierce opposition from local communities and some unions, who criticized Amazon’s record of poor labor practices, the billions of dollars in public subsidies offered to the company, and the gentrification and displacement that could result from Amazon’s expansion in the neighborhood. They rejected the idea that taxpayers should subsidize a company that has the highest market value of any corporation in the world, and whose CEO and founder, Jeff Bezos, is the richest person on earth.
Amidst the controversy, city officials attempted to negotiate with Amazon around issues of subsidies, unionization, and gentrification. But on February 14, 2019, the company abruptly backed out of its plans for HQ2 in Queens.
Why would local communities and unions oppose the deal struck between New York state and city officials and Amazon? In a February 14, 2019, article for Vox, staff reporter Gabby Del Valle summarized the criticisms:
Opposition to Amazon’s decision to put half of its so-called “second headquarters” in New York City — the other half will be built in the Arlington, Virginia, suburb of Crystal City, which Amazon has seemingly rechristened National Landing — began as soon as the deal was announced. While New York Governor Andrew Cuomo and New York City Mayor Bill de Blasio lauded the deal as an opportunity to provide thousands of locals with high-paying tech jobs, other lawmakers decried the massive tax subsidies the city and state governments promised Amazon, which totaled more than $3 billion.
Even though neither the city nor the state was technically giving money to Amazon, critics said these tax incentives were essentially robbing local agencies like the New York City Housing Authority, which oversees the city’s deteriorated public housing, and the Metropolitan Transit Agency, which is responsible for the city’s crumbling subways and buses, of much-needed revenue.
But the fiercest opposition to the HQ2 deal didn’t come from politicians; it came from a coalition of local community organizations, including the immigrant rights group Make the Road New York, New York Communities for Change, VOCAL New York, the local chapter of the Democratic Socialists of America, and the Real Estate, Wholesale, and Department Store Union. These groups not only criticized the subsidies, tax breaks, and other financial incentives Amazon was promised but also expressed concern that the tech giant’s presence in the already heavily gentrified neighborhood of Long Island City would push low-income people out of the area.
Critics also lambasted Amazon’s staunch anti-union stance; the conditions in its Staten Island warehouse and other fulfillment centers around the world, where workers often complain of long hours, low pay, and unrealistic expectations; and the fact that the company once pitched its facial recognition system to Immigration and Customs Enforcement….
“We applaud the news that Amazon is pulling out of HQ2,” read a statement from a coalition of advocacy groups including Make the Road and New York Communities for Change. “This victory is a clear demonstration of the power of workers and communities across Queens and New York who came together and are fighting for a city that works for us and not for billionaires like Bezos.”
While many community groups celebrated Amazon’s departure, some politicians and labor groups were dismayed at the loss in potential new jobs. A day after the abrupt withdrawal, Hector Figueroa, president of 32BJ Service Employees International Union, wrote an op-ed in the New York Daily News arguing that progressives had made a mistake in pushing Amazon to back out:
Amazon’s opponents can claim that they “saved” some $3 billion in corporate welfare — but at the cost of about $25 billion in revenue for New York City in the coming decades. To put it in context, this is more money than the millionaires’ tax, a major progressive priority, would generate over the same period of time….
Let’s turn to the criticism that Amazon is anti-union. That’s true. Here’s a newsflash: that’s also true of pretty much every private sector employer in America, including the ones that have unions. You’d be hard pressed to find any large employers that actually prefer to have their workers represented by a union or that are even indifferent on the subject. Power isn’t something that corporations give to their workers, it’s something workers take from their employers by joining together and organizing….
Currently we represent thousands of those workers; we’ve made by far the biggest inroads in the New York-area airports. And our union was able to secure a commitment from Amazon that would have created thousands of permanent family-sustaining jobs with good wages and benefits for cleaners and security guards at HQ2.
There is a reason for that: New York City is where the labor movement already has the most density and the most political power. If there is any place where it would be possible to leverage the labor movement’s existing power to crack open the door to collective bargaining for Amazon workers, it is here….
What exactly do Amazon’s opponents have to celebrate?.... They have succeeded in eliminating billions of dollars in revenue to make desperately needed investments in public transit and affordable housing harder not easier.
Opponents of the deal, however, place blame on Amazon instead of community opponents. The Retail, Wholesale and Department Store Union (RWDSU) argued that it was right for critics to demand better of Amazon, but that the company refused to improve conditions for workers in its warehouses. Chelsea Connor, a spokeswoman for the union, told The New York Times: “Rather than addressing the legitimate concerns that have been raised by many New Yorkers, Amazon says you do it our way or not at all, we will not even consider the concerns of New Yorkers.”
New York City Councilman Costa Constantinides likewise criticized the process through which Amazon secured subsidies and spoke out against its refusal to negotiate with critics: “From the beginning, the process of luring Amazon to western Queens ignored the community and proposed a giveaway of $3 billion to a multi-billionaire dollar corporation,” he said in a statement. “It is no shock to anyone that this was a disaster from the start and bad policy. New York City has long-standing processes in place to ensure that any project — from a sidewalk cafe to a corporate headquarters — considers the community’s needs. Our objections were never answered and we rightfully opposed this bad deal. Today is the natural result of plugging your ears to the legitimate concerns of the people and bypassing them in favor of corporations."
State Senator Michael Gianaris was likewise dismissive, telling The New York Times: “Like a petulant child, Amazon insists on getting its way or takes its ball and leaves. Even by their own words, Amazon admits they will grow their presence in New York without their promised subsidies. So what was all this really about?”
The controversy will certainly affect future debate about public subsidies for economic development, and how community concerns are incorporated into the process.
- How much of the material in this reading was new to you, and how much was already familiar? Do you have any questions about what you read?
- What were some arguments for Amazon receiving major public subsidies to open its “HQ2” in Queens? Do you find these arguments persuasive? Why or why not? What were some arguments for Amazon not receiving these subsidies? Do you find these arguments persuasive? Why or why not?
- Many people were shocked that grassroots activists were able to reverse a major plan made by the world’s largest corporation in collaboration with the governor of New York and mayor of New York City. Does the success of these activists surprise you? Do you think it signals a shift in the relative power of activists and corporations?
- Community groups such as Make the Road New York argued that bringing high-paid tech workers into an already-crowded neighborhood would drive lower-income families out of their homes in Queens, displace small businesses, deepen inequality, and negatively impact communities of color. How should cities seeking to promote the creation of new jobs address concerns about displacement? What are some steps that you might take to address the concerns of local residents about such projects?
- Some community groups that were critical of the Amazon deal wanted the company to stay, but to negotiate better terms with workers and the city. However, others were happy to see the company leave altogether. What do you think? Explain your position.
Reading Two: Should We Subsidize Corporate Expansion at All?
In the competition for HQ2, New York City was far from the only metropolitan area to offer Amazon extensive incentives. An economic development group in Tucson, Arizona sent Amazon a 21-foot saguaro cactus. Stonecrest, a suburb of Atlanta, Georgia, offered to rename itself “Amazon.” And every city in the running offered some level of subsidies, some far larger than New York’s $3 billion.
The desire of cities to attract Amazon, and the controversy over the company’s proposed project in New York, has raised some important questions: Why do cities offer large subsidies to corporations to locate in their areas? What do they gain, and what do they lose, when offering such large subsidies?
The prospect of a new big box store, factory, or corporate headquarters moving to your city or region might seem beneficial, and the case for offering subsidies in exchange for new jobs might seem obvious from an economic development standpoint. But research demonstrates that cities and regions often benefit little in the long term from offering subsidies. In a February 21, 2018, article in The Conversation, Amihai Glazer, Professor of Economics at UC-Irvine, made the case for why incentives don’t work:
In my own research as an economist studying corporate welfare, I have found and reviewed much evidence on the effectiveness of tax and other incentives. My conclusion: Incentives just don’t work.
That’s in part because companies aren’t obligated to follow through on their promises. Just ask Boston.
In February, around the same time Amazon walked away from its NYC plans, General Electric announced it will cut back on jobs and investment in its new headquarters in Boston. Only three years ago, the company’s plan to relocate from Connecticut in exchange for $25 million in tax breaks was touted as a big deal for Boston.
Or consider General Motors, which in 2012 said it would build a new electric vehicle facility in White Marsh, Maryland, after receiving a subsidy of $105 million from the U.S. Department of Energy, $6 million in grants from Baltimore County and $4.5 million in state grants for economic development and job training. This past November, the automaker announced it will shut down the plant as part of a restructuring effort….
A 2016 study by economist Carlianne Patrick compared counties that won large new factories with those that lost out during the bidding process. She found that they typically did not generate more revenue for the local government than it spent on incentives, even if they did induce small increases in economic activity.
Another study by Patrick found that making it easier for local governments to offer aid to companies reduced employment in rural counties. And in 2018, the W.E. Upjohn Institute for Employment Research concluded that factories and offices that received an incentive had employment growth 3.7 percent slower than those that didn’t receive the inducement.
More than that, a review of 30 different studies by the Upjohn Institute found that incentives actually influence a company’s decision to invest in less than a quarter of cases. In other words, most of the time, a company would have made the investment with or without the tax break or other incentive.
Corporate demands for subsidies and tax breaks are not new. This process is repeated over and over again across the country. In a February 20, 2019, article in the New Yorker, staff writer Sheelah Kolhatkar explored just how widespread this practice is, quoting financial reporter David Cay Johnston:
“For years, big corporations have been getting tax forgiveness and tax abatements, as well as, in many cases, money to train workers, and, in some cases, outright cash grants or subsidized loans,” [said Johnston], the author of “Free Lunch: How the Wealthiest Americans Enrich Themselves at Government Expense (and Stick You with the Bill),” which explores corporate subsidies, told me recently. “The reality, unfortunately, is that this is going on all over the country.”....
According to Johnston, state and municipal governments have extended publicly financed benefits to corporations for decades, but the practice didn’t really take off until the 1990s, when major chain stores and developers of sports stadiums began to demand large tax breaks and construction financing in exchange for promises to create jobs and revitalize neighborhoods. In recent years, dozens of companies, including General Motors, Boeing, and Intel, have taken advantage of such deals. (The New York Times calculated, in 2012, that states, counties, and cities are giving away more than eighty billion dollars a year in subsidies to large companies.) In many instances, though, the promised jobs and other benefits to the community never materialize or end up being more modest than was initially suggested in flashy press announcements.
Johnston explained how the process typically works: “You come in as Walmart or Home Depot or Lowes and say, ‘I want to build a store on that land, and the guy who owns it doesn’t want to sell it.’” In its eagerness to entice the company to build there, the local government might seize the land through eminent domain and then sell municipal bonds—essentially borrowing money—against the lease on the store. The chain then builds its store and parking lot and employs local people to work there. The bonds that the government issued, meanwhile, are repaid not by the company but through residents’ sales taxes. “When you check out of a Walmart that has this deal, and you pay eight dollars and change in sales tax, that money does not go to cops, library, schools, or parks,” Johnston told me. “That money goes to pay the bonds.”
Approximately 90 per cent of Walmart distribution centers were built this way, according to Johnston. The situation is exacerbated by the fact that states, and even different municipalities within states, can compete with one another to offer the most generous subsidies and the lightest regulation, leading to an arms race of giveaways. “Often these things turn out to be complete frauds,” Johnston said.
Johnston was less critical of the Amazon deal than other projects that have gone forward with major subsidies in New York City, such as the Goldman Sachs headquarters in lower Manhattan, and Yankee Stadium in the Bronx. But it is clear that, by putting a spotlight on the issue of public incentives for private development, the Amazon debate has made it more likely that other deals will be more carefully scrutinized in the future.
- How much of the material in this reading was new to you, and how much was already familiar? Do you have any questions about what you read?
- According to the reading, what does long-term research demonstrate about how public subsidies affect local economies?
- Critics charge that when cities must compete with one another to offer ever-larger subsidies to corporations to move to their areas, it creates a “race to the bottom” that hurts everyone. What do they mean by the phrase “race to the bottom”? Do you find this argument convincing? Why or why not?
- Sometimes public subsidy contracts include “clawback” provisions, which say that a company must meet its promises to create a specific number of jobs, or else taxpayers will get some of the subsidy back. Would including a clawback provision in the contract between New York and Amazon affect how you felt about that deal? Why or why not?
- Has your community provided public subsidies to corporations in exchange for jobs? If so, was there community opposition? What was the outcome? If you don’t know, how could you find out?
Research assistance provided by John Bergen.