An example when I may disagree with Richard Florida: incentives for landing the Amazon HQ2
The Amazon second headquarters "****show": Part 1 | Where could it go?" and "Amazon second headquarters list of finalists."
From Richard Florida:======
The level of incentives being talked about for Amazon HQ2 is pretty bad. Worse is that so many of these bids are not even public. We are talking about BILLIONS in public handouts - the worst in modern history.
This will take precious public money that could be used for housing or schools or transit or inclusive development and hand it over to one of the most valuable companies and richest men on earth. It will set a precedent for these billion dollar mega-deals and more companies and cities will follow suit.
I am organizing an open letter imploring the cities and states that are finalists to avoid these giveaways and perhaps even organize themselves into a pact which limits or avoids such incentives.
Robert Putnam, Ed Glaeser, Robert Reich, Amy Glasmeier, Jeff Sachs, Jason Furman, Stephanie Kelton, Alan Kruger, Ben Hecht, Bruce Katz, Saskia Sassen, Pat Sharkey, Scott Stern, Erik Brynjolfsson, Joel Kotkin, Dani Rodrik, Genie Birch, Michael Storper, Allen Scott, and a variety of other prominent economists, urbanists and social scientists have already agreed to support this effort.
Also see "Amazon sweepstakes can be great even for the losers," Bloomberg. From the article:
... there’s a worry that the scramble to lure HQ2 will give rise to wasteful urban policies and set a bad precedent. Already there is speculation that Apple Inc. will build an HQ2 of its own, sparking a similar competition. What if this sort of industrial sweepstakes, used in the past to win everything from auto plants to sports teams, becomes the norm?
Many urban policy experts are worried that Amazon-style competitions will hurt cities by enticing them to spend too much on tax incentives and other giveaways. A recent roundup of opinions by the Penn Institute for Urban Research showed that this concern is widespread.
you guys make me feel like a conservative neoliberal, when I think of myself as a progressive. Yes, generally incentives work out in favor of the recipient, because local jurisdictions are in asymmetric and very negative positions, especially vis a vis the competition from other localities.
But wrt this specific project I will say:
1. The cost/benefit is a helluva lot better compared to a stadium or other sports facility
2. It doesn't involve competition for the relocation of an already existing facility (e.g., Mercedes Benz moving to Atlanta from New Jersey; GE moving from Connecticut to Boston; etc.)
3. The firm seeking the incentive package has a high quality track record making the proposal significantly less risky compared to a business not already operating in the US or a start up firm or a project seeking to redevelop a brownfield site.
4. There are clear, monetizable benefits from landing this project
For cities like Washington or counties like Montgomery in Maryland, which have "local" personal income taxes, the economic benefits can be even greater compared to cities that rely on property and sales taxes for the bulk of their locally generated revenues.
Plus, while I am not too sure on how they are calculated, the company will pay some level of corporate income taxes which a locality would not normally reap from a firm of Amazon's size.
So I would argue that the Amazon project--because it is decidedly 100% new economic activity not likely to be otherwise generated by a company with a real track record--and similar projects like Foxconn (Wisconsin) and Toyota-Mazda (Alabama) are quantumly different from the typical incentive-based project, which tends to involve poaching of existing businesses located elsewhere or sports facilities.
How much is the right amount to offer is another question, and I am not so well versed in financial calculations to be able to say.
But it's a combination of a multi-year stream of revenues from (1) commercial property tax; (2) commercial income tax revenues; (3) the likely percentage of workers you can capture as residents and the income, property, and sales taxes they generate; (4) the economic impact of visitors to the complex, both daily employees who don't choose to live in the locale plus business related travel.
Versus the opportunity cost of the incentives. (E.g., I don't see why DC is prioritizing the hiring of veterans at $30,000 each; I just don't see how that is specifically a local priority vis a vis other segments of the unemployed/underemployed _within the city_.)
Figure out the first and you can lay out a reasonable Net Present Value and a range of incentive packages at which the economic return from incentives remains positive.
Sports facilities/relocation of existing facilities: often a bad deal. But concerning incentive projects for:
1. sports facilities
2. competition for relocating already existing facilities
I'd say the concern is real and I wish there were overarching federal legislation to limit this.
Some sports facilities better than others. Some locations are better than others.
1. with regard to sports facilities, depending on the type (baseball, basketball, hockey vs. football), up to a point, it may be worth laying out some level of incentives, if a reasonable and independent case can be made for positive economic return.
With regard to DC, while I am against incentives for sports teams generally, objectively speaking, the return to the city of hockey and baseball at the now named Capital One Arena (its third name in 20 years) was an important element of rebranding and the city's currently positive trajectory. Similarly, the Washington Nationals stadium helps to anchor and brand the ever developing Capitol Riverfront/Navy Yard district.
To the contrary, Detroit hasn't been so successful in getting suburbanites to attend events at the new Downtown hockey and basketball arena--basketball relocated from the suburbs, hockey has never left the city ("New arena hasn't led to new fans for Pistons," Los Angeles Times). Similarly, the New York Islanders hockey team hasn't been so successful at attracting fans to Brooklyn and is relocating back to Nassau County.
However, it's only a few months into the new Detroit arena and it's far too soon "to judge." (Also see "An arena subsidy project I'd probably favor: Sacramento.") It took a few years, and the parallel improvement programs of the Downtown DC Business Improvement District to fully reap for the city the benefits of the sports arena as an anchor and image builder.
Residential property tax abatements: Philadelphia. Separately, Philadelphia City Council President Darrell Clark has raised the issue of the city's generous 10-year property tax abatement on new residential properties (both conversion of existing buildings and construction of new buildings as well as certain investments in current properties) costing the economically pressed city too much money. See "Time for an honest discussion about fair taxation in Philly," Philadelphia Inquirer.
-- Philadelphia Tax Abatement Program, Building Industry Association
-- "Dispelling common myths about Philadelphia's 10-year tax abatement," Philadelphia Business Journal
-- "No property taxes, no problem: Study finds controversial abatement has been positive for Philly," Philadelphia Inquirer
The abatement program, launched in 2000, was an important initiative that helped to rebalance and reposition the attractiveness of residential living in Philadelphia at a time when the city had lost out to the suburbs in competition for residents, commercial activity, and retail. But after 20 years, maybe it's time for a reassessment. From the article:
From 2014 to 2016, the city granted 10-year tax abatements on 4,286 properties, thus forgoing more than $420 million in revenue. Nearly $8 billion in taxable property value is currently abated, resulting in $111 million in forgone revenue in 2016. A conservative estimate based on recent market trends finds that more than $1 billion in property tax revenue will be withheld from the School District and the city over the next 10 years.The city's school system continues to face significant problems and there isn't enough money to invest properly in transit. Maybe it's time to adjust the abatement program?
Without a doubt, our rapidly transforming skyline and growing population are in part the result of the abatement program. But, given the larger fiscal and policy environment in the commonwealth and in Washington, it is time to revisit the 100 percent, 10-year tax abatement in its current form as part of a broader conversation about equitable growth.
Note that Baltimore has a similar but subtly different issue wrt residential property tax abatements. There, it creates two classes of owners, legacy property owners paying higher taxes, and newer property owners paying lower taxes. Often newer owners are higher income, so older property owners are subsidizing the better off. Then again, especially now, the city needs more initiatives that can successfully attract new investment.
Labels: building a local economy, business recruitment and retention, change-innovation-transformation, economic development planning, real estate development, tax incentives and abatements, urban vs. suburban