Lawmakers in at least three states are pushing similar bills that would ban the states’ power to give corporate incentives like the kind offered to Amazon to locate its second headquarters.
The bills in New York, Illinois and Arizona would ban the states from offering incentives to any specific company. Existing state incentive agreements would remain in place under the bills. The proposals create a challenge for lawmakers who don't want to implement a prohibition on the incentives in their own states unless other states do as well.
“It’s a complicated process,” said New York Assemblyman Ron Kim, a Democrat from Queens. “It’s going to take a lot of work going from state to state.”
The New York bill would take effect once “two or more” states sign on. The bills in Arizona and Illinois don’t include any such trigger, but do include language saying that states couldn’t act on their own because it puts them at a competitive disadvantage.
Kim said he had been working on a bill since Amazon.com Inc. chose Queens as one of its second headquarters sites. He said like-minded lawmakers are working together across state lines, aided by activists. Kim said was approached by Dan Johnson, a lobbyist with Illinois-based Progressive Public Affairs. Johnson led an effort to connect “a number of states,” Kim said. That effort spurred legislators to work their own networks, creating a long email chain with lawmakers, he added.
Amazon announced last year that it would put a campus in Queens, but rescinded that decision this month after widespread criticism of the tax breaks and other incentives that officials gave the company.
Johnson downplayed his own involvement in the legislative effort, saying lawmakers across states can now use technology to track bills.
“The challenge of coordination is largely getting met by technology as these legislative leaders are able to track each other in real time,” Johnson said. “As amendments are potentially added and hearings are held, they’re able to build consensus almost as much as [they would] serving in the same chamber.”
Kim said the group is operating on a two-to-three-year timeline. Up to 12 states could offer bills this year, he said, adding a northeastern regional compact is a near-term goal.
Kim said Amazon’s 14-month-long process of seeking bids from states and local governments for its second headquarters shifted the debate on subsidies for economic development. The bidding process pit cities and states against each other and created a “race to the bottom,” he said.
“It was done in such a distasteful manner that I think indirectly it exposed to the public what kind of a sham this is,” Kim said.
Representatives for Amazon did not respond to a request for comment by press time.
Though the examples of Amazon in New York and Virginia, and Chinese manufacturer Foxxcon’s deal to build a plant in Wisconsin brought focus to the issue, economists across the political spectrum have criticized the practice.
Timothy J. Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich., said such deals can effectively boost the local economy when they are short-term, target areas with high unemployment, and aren’t paid for by cuts in areas like education that are correlated with long-term economic gain.
Most research on the subject shows at least three-quarters of incentives go to companies that would have located in the state or city anyway, Bartik said.
Despite that, they’re popular with voters who see the government working to create jobs in the area and there’s little downside for governors or mayors who can take credit for making efforts to boost the economy, but likely leave office before the cost of the subsidies affect the city or state.
There are signs voters’ attitudes on the issue may be changing, especially when the package offered is seen as excessively generous.
“Especially in the current low-unemployment environment, incentives that are excessive might create more backlash both for states and for companies than they’re worth,” Bartik said. “Foxxcon in Wisconsin was not the political plus for [Wisconsin Gov.] Scott Walker that he was hoping for.”