By Kenneth Thomas. Originally published at Angry Bear
A non-blogging friend points me to the announcement today of Maryland’s subsidy bidthat puts Montgomery County into one of the 20 finalist slots. Shockingly, Governor Larry Hogan (R-MD) put in a bid that would pay Amazon almost the entire cost of its facility, depending on what you think a proper discount rate should be now (hint: low).
“HQ2,” which Amazon has stated will amount to an eventual $5 billion in investment, will receive a subsidy package worth over $5 billion in nominal value (but not necessarily present value) from Maryland. The largest element in this package is a jobs tax credit of 5.75% of wages for up to 17 years, on salaries averaging $100,000 per year (minimum $60,000, maximum $500,000). According to the story linked above, Amazon would max out this incentive with just 40,000 jobs. To simplify the math, this element would pay up to $5750 per year to Amazon X 40,000 employees X 17 years, or $3.91 billion.
Other elements of the package include state and local property tax credits (local governments would be 50% reimbursed by the state for their share), a sales tax exemption on construction materials, and an unspecified amount of infrastructure. According to the linked story, there would be “billions of dollars” in transportation upgrades in the state, though the article does not indicate how much would be Amazon-specific and how much would go elsewhere in the area.
Why do I say this offer is shocking? 1) It normalizes not just billion-dollar incentive packages, but multi-billion subsidy awards. Foxconn got $4 billion last year from Wisconsin, according to the Good Jobs First Megadeals spreadsheet, October 2017 update. Now, Amazon has received at least three (see below for St. Louis) offers of over $5 billion. In the European Union, a $1 billion incentive is virtually impossible even in the poorest EU regions, and absolutely impossible in cities as wealthy as the 20 finalists here. Indeed, few if any of the 20 would be allowed to offer any subsidy whatsoever. 2) What is possibly even worse, it normalizes paying subsidies greater than the cost of the investment (100+ % aid intensity, in terms of European Union state aid rules). Seriously, if a government is going to pay more than the entire cost of the investment, it should have a legitimate, large ownership stake, rather than using “investment” as a euphemism for “subsidy.” 3) Have none of these cities noticed that unemployment is at historically low levels? That’s precisely a reason not to give away the store. Let’s look at the state unemployment rate for the 20 qualifiers in November 2017:
Texas: 3.8% (two finalists)
North Carolina: 4.3%
Pennsylvania: 4.6% (two finalists)
New York: 4.7%
New Jersey: 5.1%
Ontario: 5.5% (December 2017)
Washington DC 6.4%
Source: For U.S. states and DC, Bureau of Labor Statistics, Local Area Unemployment Statistics. For Ontario, Alberta Government Economic Dashboard, published 5 January 2018.
I’m not the only person who is shocked. Greg LeRoy, executive director of Good Jobs First, told Middle Class Political Economist: “As a Maryland taxpayer, I am aghast that Gov. Hogan would propose to subsidize Amazon’s new headquarters 100 percent with public dollars. I refuse to pay higher taxes for a company one-sixth owned by the richest person on earth.”
LeRoy also pointed out that the St. Louis bid was released to the public last week after the city failed to be named a finalist. According to the St. Louis Business Journal, a partnership of the state of Missouri, the city of St. Louis, St. Louis County, the state of Illinois, and Illinois’ St. Clair County offered Amazon $7.1 billion in subsidies, edging out Newark’s $7 billion bid as the largest offering known so far. As with the Maryland bid, this is shocking for all the same reasons. Indeed, Missouri had one of the lower unemployment rates in November 2017, a mere 3.4%.
The Maryland and Missouri subsidy packages are simply horrifying. I wrote over six years ago that state and local subsidies were “more out of control than ever.” In these six years, we have already seen five $2+ billion incentive packages, with at least one more on the way, and companies emboldened to request not millions, but billions of dollars of subsidies. I fear we are looking at a new ratcheting up of the investment attraction wars.
Montgomery county is the 10th richest county is the USA with a *median* income of 90K+. It is practically illegal to live there if you don’t have a postgrad degree. Most live off the government in some way. So if you regard Amazon as part of the oligopoly that will eventually replace the federal government, it kind of makes sense. I suppose Virginia’s bid was for Fairfax county?
Nah, I think it will be North Carolina, moving the Federal Copocracy to the South will rekindle the slavery/plantation construct.
Croatoan-That was hysterical thanks for the laugh!
Why do you need to move it further South?
Both Maryland and Virginia (and Delaware for that matter) are below the Mason-Dixon Line slave states.
Interesting fact: The western most point of Montgomery County is practically contiguous (it doesn’t touch but is only 5 miles distant) with Ft Meade, MD….HQ of the NSA.
Given the tentacles Amazon AWS (the only profitable part of Amazon) and Google (largest corporate lobbiest in 2017) has developed with the gov’t over the past decade (reminiscent of Goldman Sachs reach…), proximity to the I-95 power corridor around Washington DC would probably provide alot of perks….especially in the cross-pollination (i.e. the gov’ts revolving door regarding public-private partnerships and regulatory agencies).
I think the Washington area has an inside track. Bezos owns the Washington Post and is renovating a home in the Kalorama neighborhood of DC (Obama’s new residence). Besides the Montgomery County proximity to NSA Hq., Northern Virginia (Fairfax and Loudoun Counties) has a host of high tech companies, defense contractors, and is infested with USG spook agencies (Amazon has a $600M contract with CIA). In addition, Dulles Airport is one of the only east coast airports with room for expansion. Finally, Bezos may see a DC area location as an insurance policy against any future antitrust action by Uncle Sam.
When Apple, Google and others also set up their second HQs in DC, we would know it as the second Silicon Valley and what kind of government we will have.
I agree. I bet $100 that the D.C. area wins the bid. I wonder for someone like Bezos if it really is about making money anymore. Is it human nature that those who pursue mega-wealth will then transition to pursuing political power to satisfy whatever drives them in the first place? Though one could argue that political power makes grifting so much easier. Or it could be simply that the only real growth industry is the military surveillance complex. Either ways, MD (and VA?) could have bid a lot less and still won.
Whichever city get’s it, hits the jackboot. I wonder how those public sector worker pensions are going to be paid now?
Some here seem pleased that public sector pensions get eviscerated and looted and welshed on. Even though those pensions are deferred compensation, part of the pay package, much of it directly funded by deductions and the rest promised as part of the inducement to employees to stay with the job. A “contract term,” one might say. But of course “contracts” exist only if there’s a way to enforce them. like all the reat of our mope “rights.” And that enforcement almost always only works for the powerful and against the mopes. Binding arbitration, anyone? NDAs? Non-competes? Unionization and other daring collective behaviors?
I don’t see a lot of that same treatment of C-suite “deferred compensation,” and much more interesting scams, which I bet are at the same or greater order of magnitude in terms of dollars at issue if one aggregates across public sector employees nationwide on the one hand, and C-suite-ers who get the bennies as part of their golden handshakes, golden sh)wers while in position, and golden “parachutes” when departing — often under some pretty dark clouds and as a result of behaviors that ought to shame the hardest self-interested, or land them in jail, but touch them not at all.
But then yakking about this stuff is futile. Without organized power to take back the structures, or building locally to bypass them, there will be no change “for the better” for mope-dom.
They have fallen for the corporate propaganda.
The issue is that corporations have ended defined benefit plans and only executives get excessive compensation even when they are total failures at being CEOs.
I was channeling Yves comment next door.
As for the point of view that paying out the necessary pension contributions will harm the budgets of states and cities, it is remarkable that no one raises similar concerns when the same government entities give massive tax breaks to big box retailers and manufacturers to locate facilities in their jurisdictions. Academic studies have found that the companies have gotten so good at playing localities off against each other that these projects often make zero or even a negative net contribution to tax rolls, even allowing for supposed vaunted job creation.
Wherever Amazon lands, a crater will be the result. The net negative will be so large, I expect the government worker’s pensions in that hole will be vaporized. All twenty cities should have told Amazon to get lost, instead of sacrificing the peasants on Bezos alter of greed. One unlucky place is going to get it. Nineteen will be the lucky ones, and the voters in those locales should turf the politicians that offered them up, out on their ass.
a 5.5% unemployment rate in Canada is not the same as a 5.5% unemployment rate in the US due to the differences in the way the labour force is calculated. In the US, the labour force is defined much more strictly and removes the long-term unemployed, skewing the unemployment rate.
We unemployed in the US also pay a ridiculous amount of money for COBRA to maintain our health insurance, unlike Canadian unemployed, I presume.
the ACA is often a better deal than COBRA but yea ACA premiums aren’t necessarily cheap either.
COBRA? They named that one right. Because real-world cobras deliver one heckuva bite. A poisonous one too.
It makes me sick to see these communities all vying for the option to be Amazombied as what happened to Seattle.
Amazon coming to your town should be shunned, not provided tax incentives to ruin your quality of life.
As shocking and horrifying as these deals are, is it not more informative to discuss these offers as the internal colonization plans that they are? Using the language of “Investment” totally obfuscates the one-sidedness of these deals in that the implication is made that “we” are all in this together in one great enterprise. But the opposite is true. Politicians competing to give away local resources makes total sense when they are viewed as agents of a foreign power. In this case, Amazon. This is subjugation plain and simple under the guise of benign business expansion.
These lists of offers to Amazon are informative in another way. For those seeking a better, more just society can migrate to cities that didn’t fall into the trap. Physically moving might be easier than trying to change an entrenched political establishment. Those locations have a better political foundation on which to address the pressing problems of our near future.
Until the Orwellian doublespeak is rejected, colonization will continue apace.
I was thinking something similar. I am reminded of the actions of corrupt governments of “developing” nations making huge deals with the US FIRE sector. The president makes promises with the people’s money, takes his kickbacks and then leaves office or is routed out. And yet the “deal” lives on — a neoliberal bacterial infection that destroys the lives of the country’s people. One part economic hitman, one part greed. See Greece, for example.
I’d bet dollars to doughnuts that a significant slice of the city/state offerings will be kickbacks to politico pockets. One’s cynicism cannot be too great. It’s just, as the Russians call it, ‘bizniz’.
It’s like bidding for the Olympics. The prestige factor comes into play. There are plans for locating Amazon’s second HQ in the White Flint Mall Area. The White Flint Mall was a high-end mall that died a few years ago and was subsequently demolished. Only a stand-alone Lord & Taylor Department Store remains in the original mall development. The area covers 45 acres. The area was supposed to be converted to a mixed-use development full of high rise condos, shops, etc. (like Tysons Corner in VA) but nothing has seemed to panned out. Other areas in DC have developed much faster like the National Harbor, Tysons, etc. Traffic is already bad in the area (Rockville Pike and Wisconsin Ave). The subway stop is small and will have to be expanded.
What I don’t get at all is why does Amazon need a second Headquarters? I can’t think of any company that has a second headquarters within the United States.
Amazon is really 3 companies. One that delivers cat food to your door, another that is a cloud company, and then another that’s a media company. Arguably there is/is not synergy between those three.
Maybe Bezos is thinking 20 years down the road, and setting the foundation to break up the company before he retires.
The PR says that the department heads will choose where they locate. Seattle v HQ2. Smells like it’ll probably be a strong shove from Bezos.
You forgot the CIA adjunct company. Maybe there are some extra cubicles in Langley they can move in to…
For one…Seattle is a high-risk area for earthquakes and tsunamis.
at least I am happy to hear that L.A. is probably not going to get the Amazon headquarters, the Olympics – sigh well it is our cross to bear and all that.
I’ve got a flag somewhere that replaced rhe stars with corporate logos. Seems it was spot on. Governments exist to give nice things to corporations, the citizens not so much.
Oh, yeah. I have one of those too. Came from Adbusters, I think. A bunch of us weirdballs decorated up a Geo Tracker, got a couple of volunteers to wave two of those flags in the back, while I had corporate names running through a megaphone for the onlookers. We were second to last in the the July 4th Parade. Seriously. We were just behind a bowling team. Most of the cheers came from the over 50 crowd. Most of the jeers (and there were some scary people) came from the under 30 crowd. Those demographics surprised everyone involved. That was July 4th, 2001. Good times. We did not, however, enter the parade the next year – despite being invited by the city. Because: 1) July 4th, 2002 is after September 11, 2001. and 2) The city clamped down on – how did they word it? – untoward political speech.
Now, where did I do with that flag…
They forget without the citizens to buy the corps widgets they dont exist.
At first I thought it would be Texas all the way, regardless of subsidy packages from other areas.
But Amazon’s true cash cow is it’s cloud business. And Amazon Web Services is the largest cloud provider for the US Govt.
If Bezos is getting a campus for nearly free, why not Maryland. Bezos gets all the upside and won’t have to deal w/the negative effects (traffic, NIMBY-ism over denser development, higher taxes, etc)
So Fortune 500 companies get subsidies, “developing” economies get loans that put them into debt peonage. What’s the under/over on Hogan ending up with a cushy job on the Amazon board once he retires if Montgomery county wins the bid?
The largest element in this package is a jobs tax credit of 5.75% of wages for up to 17 years…
Since the income tax rate is 8% in most of Maryland (4% for the state; 4% for the county) the offer makes economic sense to me if you consider the property and sales taxes these people will end up paying as well.
Not necessarily. If the taxe revenue is less than the offsetting other revenue than it will be a net loss for the city.
Keep in mind that these bids then to overestimate the upside and underestimate the costs.
Also keep in mind that in the future, Amazon is likely to play the different counties against each other for more concessions under the threat of leaving. Witness Boeing for another example in Seattle.
Cities are used to paying a billion for a football stadium that gets used about 10x a year and has a lot of $12 an hour jobs, so maybe it’s kismet?
White Flint Mall as a site for Amazon’s 2nd HQ.
This is just so… amazing.
And another angle: I am far from rich, but I could “risk” 5% of my wealth on something that is pretty guaranteed to pay back. 5 billion is 5% of Bezo’s wealth. And even if he lost every cent it wouldn’t change a thing about his life, unlike me.
So not only does Amazon as a company not need the money, the head guy alone doesn’t need the money. One. Single. Guy. What does this say about the world we live in now? And how are we going to change it?
This has been posted before but it seems relevant here: “This City Hall, brought to you by Amazon” by Danny Westneat at the Seattle Times.
In the article he notes the innovative Tax Breaks like Chicago’s plan to let Amazon pocket workers’ taxes directly but the kicker was Fresno which offered no tax breaks at all only that 85% of all Amazon taxes would go to a special fund administered by Amazon and the city to be spent on Amazon-designated projects. To quote the article
why doesn’t Amazon build headquarters in every city? It’s all free for them
Hey I have an idea maybe seattle should pay amazon to leave, we have a history after all, the NBA still wishes they had a team in seattle but we said (family blog) off to our great credit, and now the basketball titans are all “ok ok we’ll pay for our own stadium, please please let us back in to your market, pleeease. Amazon can hike, good riddance and take your stupid amazon go store with you on the way out.
The precedent to give away the farm to attract or retain business is nothing new in Washington State where Bezos’ Amazon learned the trick. In 2013 Washington state gave Boeing what was dubbed the largest state tax-break deal to a private company in American history. Legislators handed out an $8.7 billion package of tax breaks to them with *no clawbacks* for jobs that were located overseas or out of state. The company has cut 12,655 jobs, or more than 15% of its Washington workforce, since that heady signing ceremony in November 2013. Our state is the poster child for the bad incentives we hand out like candy.
I suggest that a winning option would be to rename the lucky city to be the recipient of a big warehouse, something akin to what Truth or Consequences NM did in 1950, forswearing the former name: Hot Springs.
Big Warehouse, Md., Has a nice sound to it.
And watch the locals call it Big Whorehouse.
And how many of the politicians at the ceremony have received nice donations from Boeing or even moved into the company?
Bigger is better, right? Seems to be the rule.
Sorry small retail businesses, but you need to help pay for Amazon’s empire that is driving you out of business.
But wait! All your local customers who will ignore the price difference to patronize their local merchants will save the day, right? You know them from church, local clubs and associations, etc. and they are loyal customers, right?
We get what we deserve. And Ross Perot told us 25 years ago that we no longer own our government. Dwight D. Eisenhower sent the same message in his farewell speech about the military industrial complex.
We complain about the “too big to fail” bank execs who created our financial meltdown and were never held accountable, but how many of us have switched to local banks, giving up the credit card rewards of Chase, JP, Citi, or Wells? Stellar community citizens all, right?
We get the government that we deserve. Or as Pogo said it best, “We has met de enemy, and he is us.”
@Norb, I hope I made it clear enough that there is nothing “benign” about this process. These huge transfers from average taxpayers to rich subsidy recipients is a terrible thing in a country with inequality as high as ours is already.
Moreover, you are quite right that the language of “investment” is not at all appropriate. If governments were making an investment, they would have an ownership stake! Quite a large one, in most cases.
I’m not sure “colonization” is the right term, as usually governments still have some ability to make independent decisions. But the smaller the government, the more fully it can be “captured” by a single corporate entity or by financial interests (as in tax havens; see Nick Shaxson’s discussion of this in his book Treasure Islands.)
Amazing. We are at the level of unemployment where the Fed starts trying to suppress job creation, but let’s have multi-$billion giveaways of taxpayer money to create new jobs at one end while monetary policy kills jobs at the other end.
Louisiana’s got Marland Beat: ~6.5Billion$$$
Leave it up to one of the last ‘Democratic’ Governors in the South to undercut Social Services for the poor to attract Fn Seattle Valley YUPPIE Fs.
Oh and on Jan 11th the New Orleans City Council voted Unaminously for a Pro Human Rights Resolution.
Today, against the wishes of a packed public meeting, they voted Unaminously to rescind it.
All because of Arnie Fielkow and his crony Big Donors ahem *ISRAEL*. One phone call and the whole City Council does his bidding.
WTF, NOLA, AND ON OUR 300TH YEAR!*
*technically back to at least 1200 BC as Native American Tribes used the high ridge along the river as hunting and gathering grounds.
Amazon is so big it absolutely needs to have DC on its speed dial, I would argue it’s more than half the reason they are considering a second campus.
So, no way they go anywhere much outside the beltway, within that sphere, it’s just who offers the most..
Great article as always Yves.
But here’s the real payoff. Amazon builds their plants, hires a bunch of workers, and “joe the plumber” opens a sports bar across the street from amazon, where all the workers go for lunch and after work drinks. Joe becomes quite successful, as well as the party store next door and a few other businesses that provide convenience for the workers (rite-aid!, McDonald’s, etc, all of whom get a subsidy too, because they are corporate and Joe is not). Well now it’s election time! And the local state representative is a “grass-roots down home republican who understands the struggles of small businesses” (like the recent increase of property taxes to pay for *blank* that the state can not afford to pay for because it gave amazon $5 billion, but Joe doesn’t need to understand that connection. It’s really the fault of minorities and welfare receipents). And since joe is successful, he can help support republican candidate, who promises further tax cuts to help out struggling joe. And with the success of the election, our candidate can now start further cutting taxes and squeezing local governments to help joe. Yet since there’s no such thing as a tax cut, only a tax shift, the new tax scheme further depresses property values and employment opportunities in the greater area, causing a decline in spending and the overall population. This is blamed on high taxes and govt spending. So further cuts are made to services while taxes are cut for certain groups.
Sorry to run on. My point is that, first, this gets pro business candidates elected to further destroy the govt support system and tax base. But it also creates or converts upper middle income earners into diehard republican voters who have the financial ability to support republican candidates and keep them elected. I say republican, but this works for Democrats too.