STUMP » Articles » On New York Corruption: The Failed Amazon Bribe » 15 February 2019, 06:04

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On New York Corruption: The Failed Amazon Bribe  

by

15 February 2019, 06:04

Yes, I’m being a little hyperbolic in calling billions of dollars in tax abatements as a bribe, but that’s the situation in New York.

I will be linking to other people’s commentary in a bit, but I’m pretty pleased that Amazon will not be coming to Queens. This is not the first failed bribe-a-company-to-come-to-New-York project that I know of.

I do not like these “special deals” where a corporation get special tax breaks and considerations in order to entice them to locate operations in specific places.

I knew Governing Magazine had covered this issue… and I got links to 4 pieces (yes, there are more), but I thought it gave a pretty good variety of coverage, because some are non-Governing staff (such as Patrick Tuohey of the Show Me Institute (yes, located in Missouri) and even one person who has a positive take.

But before I get to other people’s remarks, these “special deals” are just crony capitalism. It is basically legal bribery. Not all companies get these deals (otherwise, it would just be written into tax law), and then there’s the race-to-the-bottom as seen with the pitches to Amazon when it was trying to ask for bribes (essentially).

Obviously, this mainly goes on in high tax locations like New York, and especially New York City: start with a fairly high tax regime, and then give the favored people get a break from those high taxes. The people who write the laws and especially the ones that execute them (governors, mayors) do this officially, so no, you can’t ding anybody for corruption here. It’s all above board!

Similarly, the stinky situations I wrote about in Chicago and Illinois — the comptroller handles the unpaid state bills, a vendor makes good money off vendors wanting to get paid on time, and vendor gives campaign donations… all legal. An alderman runs a workers compensation fund, packs it with his buddies, and it’s run in a way very different from normal insurance operations…seemingly legal.

No, this is not capitalism, per se. It’s just good old tit-for-tat crap. It just gets a bit exposed when one of the deals falls apart.

NEWS COVERAGE

NYT: Amazon Pulls Out of Planned New York City Headquarters

Amazon on Thursday canceled its plans to build an expansive corporate campus in New York City after facing an unexpectedly fierce backlash from lawmakers, progressive activists and union leaders, who contended that a tech giant did not deserve nearly $3 billion in government incentives.

The decision was an abrupt turnabout by Amazon after a much-publicized search for a second headquarters, which had ended with its announcement in November that it would open two new sites — one in Queens, with more than 25,000 jobs, and another in Virginia.
….
The agreement to lure Amazon to Long Island City, Queens, had stirred intense debate in New York about the use of public subsidies to entice wealthy companies, the rising cost of living in gentrifying neighborhoods, and the city’s very identity.

“A number of state and local politicians have made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward,” Amazon said in a statement.

That reminds me — this is why real, official corruption, like one sees in Chicago, is tougher in New York. The Chicago aldermen are like little lords, each with their fiefdom. In NYC, the mayor is actually pretty weak… as are City Council members. There are so many competing power centers in the city, it can get really tough to get stuff done. And yes, it is primarily extremely rich people battling other extremely rich people. Money is power.

Mr. Cuomo and Mr. de Blasio reacted in starkly different ways. The governor blamed the newly emboldened Democrats who now control the State Senate for derailing the project.

“A small group of politicians put their own narrow political interests above their community — which poll after poll showed overwhelmingly supported bringing Amazon to Long Island City — the state’s economic future and the best interests of the people of this state,” the governor said in a statement.

For his part, Mr. de Blasio turned on the company after having steadfastly backed the deal.

“We gave Amazon the opportunity to be a good neighbor and do business in the greatest city in the world,” Mr. de Blasio said. “Instead of working with the community, Amazon threw away that opportunity.”

Wall Street Journal: Amazon Cancels HQ2 Plans in New York City

Amazon.com Inc. abandoned its $2.5 billion plan to build a New York City headquarters, undoing one of the country’s biggest economic-development deals because it said it was troubled by growing political opposition to subsidies to one of the world’s richest companies.

…..
After months of public hearings and growing opposition in New York, the nomination of Democratic state Sen. Mike Gianaris to a seat on the state’s Public Authorities Control Board, where he could have ultimately vetoed state action on the project, helped doom the company’s plans, people familiar with the matter said. Pro-union comments by Mr. de Blasio last week also played a role, they said.
….
Some New York progressive politicians crowed after the deal’s collapse. “Anything is possible: today was the day a group of dedicated, everyday New Yorkers & their neighbors defeated Amazon’s corporate greed, its worker exploitation, and the power of the richest man in the world,” Rep. Alexandria Ocasio-Cortez, a Democrat who represents parts of western Queens, wrote on Twitter.

Mr. Cuomo and city officials had assured Amazon the deal would move forward with little resistance, according to people familiar with the matter. But Amazon immediately tapped into antibusiness sentiment. The public image of Big Tech had begun to sour over the course of Amazon’s search, amid increasing concerns about its influence and reach.

NY Post: This is the man who delivered the death blow to Amazon deal

The watershed moment that led Amazon to reconsider coming to Queens came on Feb. 4 — when a fierce political foe was appointed to a state board with the power to thwart the project, said sources involved in the discussions.

That was the day state Senate Majority Leader Andrea Stewart-Cousins nominated Sen. Michael Gianaris as her appointee to the obscure Public Authorities Control Board.

Gianaris, who represents Long Island City, where Amazon was planning to build one of its new headquarters, bitterly opposed the $3 billion in subsidies offered by the city and state and was miffed that Gov. Andrew Cuomo and Mayor Bill de Blasio didn’t consult him on the deal, according to sources.

Remember that name — we’ll be coming back to that in an opinion piece in a moment.

The Verge: Amazon HQ2 defeat is a win for Queens activists but a ‘facepalm’ for tech leaders

The decision to leave New York has been disappointing for local tech leaders like Julie Samuels, who runs Tech:NYC, a nonprofit that helps grow tech companies in the city. “This is terrible for New York. You’re talking about tens of thousands of jobs that were going to be in New York City that now aren’t,” Samuels says.

Tech:NYC currently has more than 700 companies in its coalition, including Etsy and General Assembly. General Assembly CEO Jake Schwartz today tweeted that Amazon’s departure was a “facepalm heard around the world,” and a “self-own by the entire NYC ecosystem.”
….
Local lawmakers and community members had fiercely opposed Amazon’s arrival since the deal was announced in November. Just one day after Amazon confirmed the two finalists for its HQ2 hunt, protestors gathered a block away from the proposed site with signs urging the company to “stay the helipad out” (a reference to the Amazon’s request to build a helicopter landing on-site). In the months that followed, grassroots activists launched campaigns on Twitter, encouraging people to cancel their Amazon Prime accounts and placing anti-Amazon signs at the company’s 4-Star store in NYC. They also marched and protested in the streets in the wintry rain and snow.

For these community leaders and activists, their efforts had clearly paid off. Lena Afridi, the director of economic development policy at the Association for Neighborhood and Housing Development, said the deal failed due to a lack of transparency and community involvement from the early stages.

“Nobody checked in with frontline communities and whether they wanted these gigantic corporations in their community,” Afridi says. “With Amazon leaving, there’s now a chance for us to have a real conversation about what good jobs, adequate job training, and protection for tenants and small businesses can look like, and there’s a chance for really change the status quo.”

Have fun having a “real conversation” with people who have no ability to make any of that happen.

More on “urban activism” from Fast Company: Urban activism works! Amazon canceling HQ2 proves it

The decision underscores the power of activism in cities, and the power of local communities to oppose policies and development projects that they feel won’t benefit them. It’s also part of a resurgence of grassroots activism around affordable housing, education, and public space in cities.

“The promise of new jobs and more money isn’t appealing to working class folks who know they’ve been shut out of this process entirely, not just now but for decades before,” says Lena P. Afridi, the director of economic development policy at the Association for Neighborhood and Housing Development, a nonprofit that supported several other local organizations in the fight against Amazon. “It’s always been thought that development is good, and influx of capital is good. But people are starting to realize the impact it’s going to have on housing, infrastructure, schools, and entire neighborhoods.”

I do happen to agree with them. It would have been tough to absorb 25,000 more people …and that area of Queens had already been “gentrifying”. My corner of Queens (much farther out) was already getting hipsters who didn’t have enough money for Brooklyn – in 2007, when I moved (yes, at the top of the market.)

Now, I can see the people saying that Amazon would have just bulldozed them (figuratively), and wasn’t willing to work with local concerns. But. How many developers do you think are going to be willing to work with you?

I looked at the ANHD comment on Amazon withdrawal, and while I see this:

Amazon’s exit from New York presents the opportunity for a new vision for economic development: one that centers the voices of immigrant communities, communities of color, and low-wealth communities. This new vision for economic justice ensures good jobs set aside for local residents; adequate job training; and strong protections for residential tenants, small businesses, and middle income homeowners. It’s clear that our City can no longer rely on failed models of trickle-down development that have continually put communities of color at risk. Rather than embrace a strategy that focuses simply on expanding the tax base, a holistic approach to economic development must center the voices and needs of those communities that stand to both benefit and lose most from new development. We need investment in people, not just in a place.

Here is my question: will you actually get that? Or will you get nobody willing to work with you?

I prowled through a few months of blog posts from them, I did find these top 18 moments for 2018, most of which was about getting money for non-profit orgs to do stuff. Okay. But maybe some for-profit development might be more to the point. That said, it does look like they have been involved in trying to get housing and manufacturers built in communities (again, via non-profits, which makes me a bit skeptical), so it’s not merely saying NO!

Wall Street Journal: Amazon’s Pullout From Queens, N.Y., Stuns Real-Estate Industry

Amazon.com Inc.‘s decision to ditch a corporate headquarters in New York City stunned real-estate speculators, developers and renters who had rushed into the Long Island City neighborhood to be near the new HQ2.

Only three months ago, the prospect that the giant retailer would locate a headquarters in New York City and create 25,000 new jobs set off a real-estate frenzy that the borough of Queens had never experienced.

….
Already, the euphoria is evaporating. The real-estate investment firm Savanna had a commitment from Amazon to lease the majority of a 1.4 million-square-foot office tower in Long Island City. With the building’s main tenant, Citigroup Inc., likely to leave in 2020, Savanna now faces a one-million-square-foot hole in the building that it now needs to fill.

…..
Since Nov. 12, when The Wall Street Journal reported that Amazon had chosen Long Island City, 31 commercial and multifamily properties have sold in Long Island City for a combined $553 million, according to real-estate data company Reonomy, although some of these contracts may have been signed before the announcement.

Property searches in the neighborhood on the firm’s database, which is used primarily by real-estate professionals, were up 35.5% compared with the prior period, Reonomy said.

The residential market in Queens also rode the Amazon effect to great heights. Since November, 135 contracts were reported signed in Long Island City, compared with 48 contracts during the same period the year before, an increase of 181%, said Patrick W. Smith, Long Island City-based broker at Stribling & Associates.

….
Big publicly traded real-estate firms with exposure to New York City also felt Amazon’s sting. Shares of SL Green Realty Corp. and Vornado Realty Trust, two property owners with large and concentrated New York City portfolios, fell 1.4% and 0.9%, respectively, on Thursday, declining more than the broader market.

And I want you to remember what is happening with commercial real estate being detailed there. I will have to say something about that… when I address the asset transfer plan for Illinois pensions later today.

OPINION ON THE AMAZON DEAL FAILURE

NY Post: With Amazon gone, everyone sees that Emperor Andrew has no clothes

Emperor Andrew has no clothes — and Amazon noticed.

Isn’t the bulk of Gov. Andrew Cuomo’s economic development varsity — including his ­as-close-as-a-brother top aide — on its way to prison because of the team’s first-term pocket-lining? Haven’t all of his grand plans flopped spectacularly, one after another and usually mired in scandal?

And then there is Mayor Bill de Blasio, a party to the Amazon deal and a fellow who spent most of his first term under investigation for corrupt practices; who has a kindergartener’s attention span; and who nobody takes seriously anyway — to say nothing of trusts.

Why would any self-respecting company want to do business in such an environment?

Good question. The problem is – Amazon thought it would have it its own way… and that the mayor and the governor could actually hold all the other Democrats in line.

It is getting quite “funny” to me. The big political battles this year, so far, seem to be between Democrats, who, having run out Republicans from any power in places like California, New York, and Illinois, find that they’ve got a huge bill that can’t be met… and they have only other Democrats to bitch about.

via GIPHY

It’s only “funny” because, as long as I love New York (and I do), I know they’ll be getting money out of me… somehow.

Back to the opinion piece:

Has any sitting governor ever been so artfully decapitated by a rookie legislative leader quite like the way Senate Majority Leader Andrea Stewart-Cousins did it to Cuomo?

Stewart-Cousins, who has been chafing at her treatment by Cuomo for years, finally had a chance to even things up: She put the Amazon deal’s principal opponent, Sen. Michael N. Gianaris of Queens, in a position to kill it — sending an unmistakable message both to Amazon and to the governor: Your troubles are just beginning, boys!

Amazon split. Cuomo can’t.

The outcome doesn’t necessarily signal a tectonic power shift in Albany, but it definitely was a challenge to a governor who pretty much had his way with the Legislature for his first two terms — and who is entering a third facing ideologically energized and powerfully placed lawmakers dedicated to making New York America’s most progressive state.

Thank goodness Albany actually is pretty far away from New York City. There is a weird dynamic between the city and the state capital… a lot of NYC stuff is actually under the state umbrella, and the mayor has less power than you might think.

But Governor Cuomo — I’ve mentioned this a few times — is liked by nobody. People have stayed in line, because power is not about being liked. But if they don’t even fear him, well.

A POSITIVE PIECE ON TAX INCENTIVES

I’m sampling from four pieces going back to 2012. I will start with the partially-positive piece.

2012 – written by Susan K. Urahn, Executive vice president and chief program officer for the Pew Charitable Trusts: Showing the Way on Tax Incentives

A key question policymakers should be asking is how well these [tax] incentives work. Unfortunately, some states don’t even ask. Others rely on incomplete, conflicting or unreliable information. According to a recent study from the Pew Center on the States, half of the states have not taken even basic steps to produce good evidence of whether these tools deliver a strong return on taxpayer dollars and then use that evidence to make decisions about continuing to invest. No state regularly and rigorously tests whether these investments are working and ensures that lawmakers consider this information when deciding whether to use incentives, which industries and businesses should receive them, and how much to spend.

….
But it’s not all bad news. Pew’s report had four policy options for state leaders who want to measure the impact of their subsidies and weigh that evidence in their policy deliberations. In each of these areas, states are using promising approaches that others might emulate:

Build evaluation of incentives into policy and budget debates. Under a new Oregon law, tax credits expire after six years unless lawmakers act to extend them. During budget deliberations in 2011, legislative leaders set a spending cap on the expiring incentives, driving policymakers to rely on evaluations to make tough choices about which investments should continue and in what form.

Develop a schedule to review incentives. In 2006, Washington State began a 10-year process to review every tax incentive the state offers. Nonpartisan analysts work with a citizen commission to examine a particular group of incentives each year and make recommendations on whether and how the incentives should change.

I’m stopping write there. They said there would be a 10-year process… starting the 2006. In 2012, the author wouldn’t know the results… but it’s now 2019. What’s the result?

I found this tax incentive webpage:

Tax incentive programs
There are over 50 tax incentive programs available for businesses. These incentives are to encourage the creation and preservation of family-wage jobs, especially in areas with high unemployment.

50 programs?! Have they evaluated all 50 of those programs?

The 2006 Legislature established the Citizen Commission for Performance Measurement of Tax Preferences (RCW 43.136). The seven-member Commission develops a ten-year schedule to review tax preferences. The Joint Legislative Audit and Review Committee (JLARC) staff conduct the tax preference reviews with findings reported to the Commission in August of each year. The Commission then reviews and comments on the JLARC report.

….
The 2018 report includes 7 reviews conducted by JLARC staff and 47 reviews based on information supplied by DOR.

Okay, let’s take a look.

The 2018 reviews:

So. Most of these aren’t even being used, and the ones being used… are somewhat small amounts (not necessarily small for the ones getting breaks.)

But note the EMPTY column. You know, the Commissioners’ decision that was supposed to be available in October 2018.

Should I go get a calendar? (It turns out that the Commission did go down the list – but I had to go to a different place to find them. And it took me some digging to find the final 2018 results.

Here’s the 47 other reviews done.

Hmmm. I’m just going to capture one exhibit.

Gotta support the craft brewing industry.

And again, it might have been nice to have a spreadsheet, so one could add up all the effects.

Looking at the recommendations — I see only the ones not used were recommended to end. I didn’t see anything re: “maybe we shouldn’t be subsidizing the production of hops specifically”, for example.

That’s my problem: the “we’ll review later” tends not to be very well-defined. Most of the tax incentives mentioned were extremely small from a total state revenue point of view… but, again, may be substantial for the specific companies involved in that activity.

More definitely skeptical coverage of tax incentives:

OTHER GOVERNING PIECES ON TAX INCENTIVES

2013 – Job Creation and the Snake Oil of Tax Incentives

very politician wants to appear to be creating jobs. The problem is that in America today most elected officials think that the way to do this is through the use of tax incentives. Even when they sincerely want to do the right thing, the pressure to give away the public’s money is just too strong: Ribbon-cuttings celebrating business openings secured with public dollars are a staple of the political realm. If you’re not seen doing these regularly, you can be assured that you’ll be called a “jobs killer” in attacks fueled by corporate interests that see you as denying them a place at the public trough.

….
Things may be shifting. Even as the frenzy of tax incentives continues, there is more and more pushback and criticism. This is in part because of the continued efforts of groups like Good Jobs First.

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To see what actually works, read “Selling Snake Oil to the States,” a study Good Jobs First produced in partnership the Iowa Policy Project that is a rebuttal to ALEC’s economic-development prescriptions. Chapter 2 of that report, “Prosperity: Its True Sources and Consistent Measures,” is a compact gem. In just four pages, heavily footnoted and backed up with regression analysis and scatter graphs, it documents what works to increase prosperity: investments in education, infrastructure and technology.

Oooh, regression analysis! Let me check out that study. Oh, this is ridiculous. I looked at the study. The period studied covered 2007-2011. Do I have to tell you why that may be distorted data?

September 2018: Tax Incentives’ Bipartisan Folly

Consider the example of New York Gov. Andrew Cuomo. Promoting one of New York’s many tax incentive programs, Cuomo argued earlier this summer that “businesses do not come to New York state without government incentives. Businesses literally shop states. … It literally takes money to make money.”

….
New York is one of the worst offenders. According to Good Jobs First, since 1980 the Empire State has offered more than $34 billion in 127,154 different subsidy programs, far more than any other state. In subsidy dollars per capita, only five states exceed New York, three of them blue (New Mexico, Oregon and Washington state) and two red (Kentucky and Louisiana). Apart from blue Hawaii, states with the lowest subsidies per person are red or purple: the Dakotas, New Hampshire and Wyoming.

New York is a typical blue state, with high taxes and regulations on business, but Albany tries to compensate for those disadvantages with targeted incentives. How well does this model work compared to the red-state model of deregulation, right-to-work laws and low taxes on labor and investment? In our biennial Cato Institute study, Freedom in the 50 States, we have found year after year that states with lower tax and regulatory burdens — more economic freedom — see faster income growth.

Okay, I looked at their study. The New York profile is brutal.

Their data covers 2000-2016. Perhaps one can see why I might rely a wee bit more on regressoin to that data set compared to one covering 2007-2011.

December 2018: Jobs, Growth and the Dubious Worth of Tax Incentives

Our state of Missouri is a compelling place to study such [tax] incentive programs. According to Good Jobs First, as of November 2017 Missouri had 4,113 active state and local economic development subsidy awards with a total value of just under $6 billion — some of them in existence since before 2007. That dollar figure puts us 11th in the nation, ahead of larger states like Illinois and California. If such subsidies were an effective way to attract growth, evidence should abound.

Such evidence hasn’t been easy to find. Methods for researching the impact of subsidies vary widely, and the outcome of a study reflects the method used by the researchers. In May 2016, for example, the St. Louis Development Corporation released a study of economic development incentives. Researchers looked at use of various incentive programs and compared the value of the incentive with the increase in assessed value and job growth over time. The study concluded that development incentives had little or no positive economic development benefits, despite the $709 million the city had spent on them in the 15 years leading up to the study. Incentives had not created jobs, revitalized neighborhoods or increased long-term tax revenues. Moreover, the level and quality of reporting on incentives was so poor that, as the researchers wrote, officials and the public “cannot readily determine what may or may not be deemed a project worthy of consideration for a City tax incentive.” These are damning conclusions, and the city’s leaders are studying ways to reform the system.

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For a uniform examination of incentives, last year the Show-Me Institute turned to William Lester of the University of North Carolina at Chapel Hill, who previously researched tax-increment financing (TIF) in Chicago, to study the likelihood that Missouri incentives are driving development. Lester and his associate Rachid El-Khattabi examined the period from 1990 through 2012 in both cities, looking at employment, business counts and sales figures down to the census block. Perhaps most importantly, these researchers compared areas that had received TIF subsidies against similar areas that had not. They found no great differences in changes over time, indicating that it was not the TIF program that was creating economic growth. “Overall,” they concluded, “the analysis conducted in this study finds no support for the claim that TIF generated tangible economic development benefits in either Kansas City or Saint Louis.”

Here’s their study – covering 1990-2012. Again, you may understand why I trust this analysis more than one from 2007-2011.

April 2012: The Expensive Folly of Tax Incentives

As the New York Times reported recently, Gov. Chris Christie of New Jersey has approved $1.57 billion in tax incentives to businesses since taking office in 2010. The incentives are touted as a way to grow the state’s economy, which lost more than 260,000 jobs during the recession.

Every state has at least one tax-incentive program for economic development, according to a recent report by the Pew Center on the States which concluded that “no state ensures that policy makers rely on good evidence about whether these investments deliver a strong return.”

….
So how can it be that states (and local governments) are spending billions of dollars — and increasing that spending at a rapid clip — without evidence that they’re actually getting a return on their investment? Only one answer is possible: The people spending the money don’t want to know.

And that’s all there is.

There’s no money to be made, as a politician, in having a generally low tax environment and not picking-and-choosing winners and losers.

If you give favored industries a break… and they know they’re getting a favor… maybe they’ll return that favor in the form of campaign contributions, huh?

Why would government do a better job of investing capital than the market? In fact, the use of incentives often distorts the market and can actually make things worse, as it did in Newark, where, after the state gave Prudential $250 million in tax credits to build a new office tower and move out of its current leased space office, vacancies shot up. That drove down rents and the value of existing investments.

Markets create jobs. The role of government is to create conditions that allow markets to work better. A business-friendly government is one that combines a broad-based, low-rate tax system with a clean, competent and consistent regulatory environment and investments in education and infrastructure.

Yet the “economic-development industry” chugs on. Why? Because it allows public officials to borrow tax dollars from the future and give them to potential campaign donors today. This is legal. And it is widespread. It is the modern version of the spoils system.

Yup.

Stop the political-corporate complex.

No tax incentives for favored businesses. Just stop.


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