Subsidizing Amazon won’t pay off for Illinois taxpayers

At a forum last Sunday, Democratic gubernatorial candidates expressed a range of skepticism about the use of public subsidies to attract Amazon’s so-called second corporate headquarters.

“It’s really encouraging,” commented Greg LeRoy, executive director of Good Jobs First, a policy resource center that tracks corporate subsidies nationally.  LeRoy got his start working with labor and community groups in Chicago, fighting plant closings in the 1980s.

He was encouraged to see politicians “showing an awareness of Amazon’s impact on existing retailers” and calling for no subsidies or limited subsidies.

Their position, he said, reflects what he calls “Site Location 101”–that is, the impact of public subsidies on a business’s decision to build or expand facilities is “marginal to nonexistent.”

Subsidies have little impact because state and local taxes amount to 2 percent of the cost of doing business, LeRoy said, citing IRS reports.  The remaining 98 percent of costs cover what he calls “business basics” – workforce quality, real estate and construction costs, utilities, logistics – and these can vary significantly among different localities.  Small differences in those costs dwarf any potential tax relief.

The problem is that spending more on corporate subsidies translates directly into spending less on education, infrastructure, and public safety, as research cited by the Illinois Economic Policy Institute shows.

Those are the kinds of public investments that help all businesses and boost the entire economy of the state or city, said Ellen Shepard of the economic development consulting group Community Allies. The state and city have limited economic development resources and should be targeting them most effectively for the widest impact, she said.

Indeed, the Illinois Economic Policy Institute reported that with corporate tax subsidies replacing broader public investment, “numerous studies…conclude that business incentives actually reduce employment in an area.”

At Sunday’s forum, the candidate described as the most sympathetic to Amazon was J.B. Pritzker. And even he called for ensuring that “we are truly getting a payoff for taxpayers” and a real return on the investment.

By that standard, subsidies directed at single corporations don’t measure up.  Especially the biggest deals.

Good Jobs First has looked at corporate incentive “megadeals” – those worth more than $50 million – and found that the average cost-per-job of attracting a corporate headquarters was $233,268.  At that level of spending, the group found, “taxpayer losses are guaranteed.”

Job training programs, which typically cost less than $10,000 per job, are a much better investment of public resources, the group found.

The Policy Institute studied the state’s corporate incentive programs, including smaller deals, and found that Illinois spends $288 million a year to support an average of 1,723 jobs, at a cost of $167,000 per job.  Investing that much in infrastructure would have created more than twice as many jobs. Investing it in public schools would have created 6,100 jobs.

Unfortunately, our Mayor Rahm Emanuel and our Governor Bruce Rauner are anticipating tough reelection campaigns. And they would like nothing more than to stand with Jeff Bezos of Amazon at a press conference announcing a deal for “as many as” 50,000 jobs–a number that is almost certainly inflated.

And Amazon, a $136 billion corporation with an impressive track record of winning public subsidies (particularly in Illinois) and a lousy reputation as an employer, sits back and watches a “frantic bidding war” running up the size of the subsidy for whatever site is selected. It’s a sideshow, since the site will be chosen based on business fundamentals, but it forces struggling cities and states to throw piles of money at Amazon.

There are two questions: How many billions of dollars do we really want to give Amazon? And would we be better off spending that money on basic public services that help everyone?