INSUBCONTINENT EXCLUSIVE:
Amazon has a big target on its back these days, and because of its size, scope and impact on local business, critics are right to look
closely at tax breaks and other subsidies they receive
There is nothing wrong with digging into these breaks to see if they reach the goals governments set in terms of net new jobs
But Amazon isn''t alone here by any means
Many states have a big tech subsidy story to tell, and it isn''t always a tale that ends well for the subsidizing government.
In fact, a
recent studyby the watchdog group, Good Jobs First, found states are willing to throw millions at high tech companies to lure them into
building in their communities
They cited three examples in the report including Tesla $1.25 billion 20-year deal to build a battery factory in Nevada, Foxconn $3 billion
break to build a display factoryin Wisconsin and the Apple data center deal in Iowa, which resulted in a $214 million tax break.
Good Jobs
First executive director Greg LeRoy doesn''t think these subsidies are justifiable and they take away business development dollars from
smaller businesses that tend to build more sustainable jobs in a community.
The &lots of eggs in one basket& strategy is especially
But many public leaders haven''t switched gears yet, often putting taxpayers at great risk, especially because some tech companies have
become very aggressive about demanding big tax breaks
Companies with famous names are even more irresistible to politicians who want to look active on jobs,& LeRoy and his colleague Maryann
Feldman wrote in a Guardian commentary last month.
It doesn''t always work the way you hope
While these deals are designed to attract the
company to an area and generate jobs, that doesn''t always happen
The Apple-Iowa deal, for example, involved 550 construction jobs to build the $1.3 billion state-of-the-art facility, but will ultimately
generate only 50 full-time jobs
It worth noting that in this case, Apple further sweetened the pot by contributing &up to $100 million& to a local public improvement fund,
according to information supplied by the company.
One thing many lay people don''t realize, however, is that in spite of the size, cost and
amount of real estate of these mega data centers, they are highly automated and don''t require a whole lot of people to run
While Apple is giving back to the community around the data center, in the end, if the goal of the subsidy is permanent high-paying jobs,
there aren''t very many involved in running a data center.
It not hard to find projects that didn''t work out
A $2 million tax subsidy deal between Massachusetts and Nortel Networks in 2008 to keep 2200 jobs in place and add 800 more failed miserably
By 2010 there were just 145 jobs left at the facility and the tax incentive lasted another 4 years, according to a Boston.com report.
More
recent deals come at a much higher price
The $3 billion Foxconn deal in Wisconsin was expected to generate 3000 direct jobs (and another 22,000 related ones)
That comes out to an estimated cost of between $15,000 and $19,000 per job annually, much higher than the typical cost of $2457 per
job,according to data in the New York Times.
Be careful what you wish for
Meanwhile states are falling all over themselves with billions in
subsidies to give Amazon whatever its little heart desires to build HQ2, which could generate up to 50,000 jobs over a decade if all goes
The question, as with the Foxconn deal, is whether the states can truly justify the cost per job and the impact on infrastructure and
housing to make it worth it
What more, how do you ensure that you get a least a modest return on that investment In the case of the Nortel
example in Massachusetts, shouldn''t the Commonwealth have protected itself against a catastrophic failure instead of continuing to give the
tax break for years after it was clear Nortel wasn''t able to live up to its side of the agreement
Not every deal needs to be a home run,
but you want to at least ensure you get a decent number of net new jobs out of it, and that there is some fairness in the end, regardless of
States also need to figure out the impact of any subsidy on other economic development plans, and not simply fall for name recognition over
common sense.
These are questions every state needs to be considering as they pour money into these companies
It understandable in post-industrial America, where many factory jobs have been automated away that states want to lure high-paying high
tech jobs to their communities, but it still incumbent upon officials to make sure they are doing due diligence on the total impact of the
deal to be certain the cost is justified in the end.
