Outrages & Insights
Development by subsidy is finally getting a hard look
Long Island City, Queens, NY - 2018 : Amazon protests outside potential headquarters HQ2 building.
Jim Heaney is editor of Investigative Post, a nonprofit investigative reporting center based in Buffalo.
Every year, states and localities across the nation shower corporations with tens of billions of dollars—an estimated $70 billion—in tax breaks and other subsidies in the name of job creation or retention. Put another way: corporate welfare works out to more than $200 per year for every man, woman and child in the United States.
Few, if any states are more generous than New York, where $9.9 billion was handed out last year by state and local governments, and that’s not counting the $3 billion Governor Andrew Cuomo was prepared to offer Amazon to locate to New York City.
Amazon walked away from the deal in February, and all of a sudden, the issue of subsidy reform has gotten traction. That’s eighty some years after Mississippi triggered a second “War Between the States” by offering incentives to companies willing to relocate to the state. Since then, corporations have played states against each other.
Study after study has established how counterproductive the competition has proven to be for communities and taxpayers, but elected officials continue to play this game because they get a lot of political mileage from the groundbreakings and ribbon cuttings that come with it. There’s nothing like the illusion of progress.
That’s especially true here in Western New York. The Buffalo Billion is largely an exercise in doling out corporate welfare, with a side of corruption. State taxpayers have shelled out $750 million to build and help equip a solar panel manufacturing plant for Tesla, which has produced almost as many criminal convictions as jobs. (I exaggerate, but you get my point.)
Another $105 million was spent to bring IBM and Albany Molecular Research Inc. to town; taxpayers have paid a premium for a modest number of jobs and little or no documented spinoff.
And then there are our local industrial development agencies. All eight of them. Sometimes they lure an out-of-town company, but often they’re stealing firms from each other.
All of this has been going on for years, although, in New York, it’s been worse since Cuomo took office.
The Amazon deal may prove to be the tipping point. The public has gotten fed up with income inequality and big corporate giveaways gone astray. The way the Amazon deal went down—involving months of secret negotiations—lifted the veil on how the game is played. “Suddenly, many people were exposed to the tax break industrial complex,” says Greg LeRoy, executive director of Good Jobs First, a national subsidy watchdog group. According to John Kaehny, executive of Reinvent Albany: “For sure, the curtain has been pulled back.”
Kaehny’s group has been pushing for economic development reform for several years. While LeRoy views reform at the national level as “inevitable,” Kaehny isn’t so sure about New York State. “There’s a lot of education that needs to be done,” he says. “The fight over corporate subsidies, corporate handouts, is going to be a dog fight.” At minimum, “there will be a lot of scrutiny and public attention,” says David Cay Johnston, a journalist and tax law expert who has written extensively about corporate subsidies.
LeRoy thinks reform will need to come at both the national and state level. Federal legislation could tax or cap the size of subsidies, require greater transparency, or prohibit the use of subsidies to pirate jobs from one state to another. There’s a lot that could be done here in New York State, Leroy says, starting with “a ceasefire with New Jersey and Connecticut,” which now often try to outbid each other with big subsidy packages. He also thinks New York should consider capping the size of subsidy packages because the state leads the nation in so-called “mega-deals”: projects involving subsidies of $50 million or more. He sees a big need to reform the state’s industrial development agencies, starting with consolidating local IDAs into one per job market. He notes there are no fewer than eight IDAs in Erie and Niagara counties, adding, “That’s crazy.”
Reinvent Albany’s Kaehny says reform will take time: “I don’t expect an all-out assault on subsidies this [legislative] session.”
More likely is the passage of legislation that restores the oversight powers of the state comptroller involving economic development agreements and a “database of deals” that will detail subsidy projects.
Johnston doesn’t envision any substantial reforms in the near term. “Part of the problem is Governor Cuomo is a big fan of subsidies, so as long as he is in office, there is no chance,” he says. Cuomo’s track record involving subsidies makes a compelling case for reform. The scandals involving the Buffalo Billion are just part of the problem. The state under Cuomo is doling out subsidies in record numbers and the results have been modest. During his first six years in office, job creation in upstate lagged behind the rest of the nation. If upstate were a stand-alone state, its job growth would have ranked fourth-worst in the nation. What’s more, most of the new jobs were in low-wage sectors such as restaurants and bars.
There’s an argument that the job growth could have been worse without the billions in subsidies, but the facts remain that Cuomo’s economic development strategy—based partly on subsidies—hasn’t turned things around, and that some of the big-ticket projects have been spectacular busts.
Cuomo has responded by awarding more subsidies, even before his mega-offer to Amazon. Reforms can’t come too soon.