Is Chicago’s Billion-Dollar Offer to Amazon Worth It?
The contest to win Amazon’s second headquarters is beginning to look like Chicago’s bid to win the 2016 Olympics.
Except in this case, there seems to be no opposition.
Corporate subsidies have always raised eyes as governments across this country go broke and are forced to cut budgets that finance infrastructure, schools, parks, etc.
The companies say they need the government to pitch in as an “incentive” in order to set up shop and create jobs. In this case, the promise of 50,000 Amazon jobs, a big boost to anyone’s economy.
So Chicago is now offering up to $2.25 billion in incentives, money that it tells its residents it doesn’t have when it comes to its public schools, public transportation and other public entities.
And the mainstream media, ever the cheerleaders when it comes to big government plans to fight foreign wars, are mostly on board. No one, outside indefatigable veteran journalist Ben Joravsky from the Chicago Reader, has taken a critical look at the deal. Joravsky pointed out that companies like Republic Windows promised jobs and never delivered, and it was the Chicago tax payer who was screwed in the end, but no consequences (the workers had to refuse to leave the premises before they could collect their last paychecks).
Chicago Tonight’s political correspondent Paris Schutz said it is folly for anyone to question this deal because the city has the opportunity to earn future money it doesn’t have only if this deal goes forward.
It’s the same argument made about the TIFs, tax increment financing that takes future tax earnings in a certain area of the city and puts them into a separate pot that the mayor controls and can dole out to developers to build in blighted areas that otherwise would never be developed.
“$2.6 billion + offer of incentives to Amazon includes AT LEAST $650 million from city – strong statement that there could be MORE on the table from City Hall,” Tom Tresser, who fought the Olympic bid, wrote in an email.
Tresser, a TIF expert who wrote the book Chicago Is Not Broke, said people should tell their aldermen to vote no on the 2018 Chicago budget and sign an online petition at https://petitions.moveon.org/sign/vote-no-on-chicagos-2018
“Mayor Emanuel has heaped about $2,000 of regressive taxes and fees on EVERY household in Chicago since he took office in 2011,” the petition reads. “The Mayor has repeatedly taken out expensive debt – sticking the taxpayers with the bill. This includes borrowing $1 billion that will cost us one hundred percent interest – $1 billion! His 2018 budget continues this trend. Our aldermen have engaged in No Debate and in 2016 and 2017 there were No Public Meetings held by the city around the budget.”
Cities are competing with Chicago to woo Amazon and its founder Jeff Bezos who is worth, gulp, more than $90 billion!
So are giant corporate subsidies the best and brightest use of economic development dollars?
Ellen Shepard, the CEO of Community Allies, a Chicago-based community development consultancy, wrote in Yes! Magazine that there are cities opting out of the bid. The San Jose, California mayor calls the incentives a “bad deal for taxpayers,” noting that often their expense is not recouped by the revenue they generate. Other states like Minnesota and Toronto did not offer any money, noting that subsidizing Amazon would be unfair to businesses that have set up shop without incentives.
Good Jobs First, the nation’s leading watchdog on corporate subsidies, estimates that state and local governments spend $70 billion a year on cash handouts and tax credits mostly to big businesses and it’s an inefficient investment. They note that small-business development initiatives, workforce-development programs and entrepreneurial assistance create jobs at a fraction of the cost of giant subsidies, and the economic returns remain in communities even if one company departs, Shepard writes.
Many studies have shown that small businesses are cities’ economic engines. And large nonlocal businesses can even have a negative effect on incomes.
“Job growth comes primarily from start-up and small businesses,” Shepard writes. “Areas that have more small, locally-owned businesses see greater per-capita income growth than those with a few large entities, and locally owned, privately held firms recirculate two to three times more money back into local economies and contribute more taxes than non-locals.”
A 2017 Illinois Economic Policy Institute study found that if the state and cities had directed their $288.5 million in average business subsidies to local initiatives such as infrastructure and education, Illinois would have created or saved more than nine times as many jobs.
Shepard said Chicago is well aware Washington state lost big time after it gave Boeing nearly $12 billion in subsidies and then the company moved out of Seattle, taking 1,000 jobs away.
Amazon’s presence in Seattle has also spurred some of the highest housing costs in the world, she wrote.
“Will the investment improve the lives of people who live there now?” she wrote. “In Chicago, the highest need isn’t high-paying tech jobs, it’s economic opportunities for the 27 percent of residents living in poverty, and serious investment in public schools to retain residents across all economic strata.”
Joravsky and Shepard say the city has to run the numbers before committing billions of dollars to a company that knows numbers. But if the parking meters privatization disaster is any indication, don’t count on it.