From the 238 jurisdictions that submitted bids to become the landing spot for the company’s second headquarters (HQ2), Amazon has cut the list to 20. Finalists range from major metropolitan areas such as Chicago and Atlanta to smaller places such as Nashville, Tennessee, and Columbus, Ohio. Almost all of these places offered generous incentive packages in an attempt to land the coveted headquarters, enticed by the promises that included $5 billion in investment and the creation of 50,000 jobs.
The frenzy surrounding Amazon’s HQ2 is an opportunity to examine different strategies in order to create a prosperous, vibrant local economy. Offering incentives to specific companies has long been a major tool of state, county, and city governments, to the tune of more than $80 billion per year. For HQ2, some incentive packages have been enormous, and others shrouded in secrecy. The package for Newark, New Jersey was reportedly worth $7 billion in state and local rebates. Other jurisdictions have been wary of releasing the details of their proposals. As WAMU reported, “only a handful” of 238 places submitting bids have made details public. The rest either have not made the bids available or withheld information related to the incentives.
It should not be a surprise that so many places rushed to submit bids with substantial incentive packages. In its request for proposal, Amazon emphasized that these incentive packages would “be significant factors in the decision-making process,” although many others, including the broader tax and regulatory environment would also play a significant role. Even as the incentive package for many of the finalists draws much of the focus, Toronto made the cut without such an offer.
Some places, such as San Antonio, opted out of making a bid altogether, perhaps in recognition of the substantial packages of tax breaks and incentives that the winning bid would require. San Antonio Mayor Ron Nirenberg and Bexar County Judge Nelson Wolff distilled the sentiment in classic Texas fashion, writing that “blindly giving away the farm isn’t our style.” In the same letter, they detailed the ways they were endeavoring to make the area an attractive place for all businesses. While one could quibble with the actual areas they list, the focus on creating a larger framework that is conducive to business, work, and innovation is welcome.
Amazon’s second headquarters is unique in term of the associated investment in both money and jobs, and the effect the company could have on the local economy. As my colleague Manhattan Institute Senior Fellow Aaron Renn noted, “[n]ot even the most ardent anti-subsidy person out there is going to take a pass” on trying to woo Amazon. It remains to be seen whether the winning suitor will ultimately find it worth the cost.
Past analysis has failed to find a meaningful relationship between these types of incentives and economic performance. Evaluating the effect of tax incentives can often be difficult, as state and local governments lack sufficient data or metrics.
The case of Amazon’s second headquarters notwithstanding, state and local governments would be better served by focusing less on attracting single businesses through these company-specific incentive packages, and more on fostering an economic setting that offers good governance and does not impose excessive regulations or taxes.
U.S. Agriculture Department economist Lyman Stone has presented evidence that the magnitude of firm migration is much smaller than individual migration. The number of people who move on their own, often because of work, vastly exceeds the number who move because their firms send them to new parts of the country or relocate. If a place is attractive to workers, it will also usually be an attractive place for businesses, and will encourage the growth and expansion of companies already in place.
Competition between state and local governments should be based on crafting good tax and regulatory policy, rather than manufacturing various types of incentive packages.
Charles Hughes is a policy analyst at the Manhattan Institute. Follow him on Twitter @CharlesHHughes.
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