In September 2017 Amazon issued an open invitation for North American cities to put in bids for hosting the company’s $5-billion “HQ2” (that is, second headquarters) and the 50,000 jobs it’s expected to bring. Well over 200 locations applied. Their submissions included a range of gimmicks, from an offer to create a separate city called Amazon to free sandwiches for company employees—but also, crucially, billions of dollars in economic development incentives.
When Amazon announced last month that it would split HQ2 between New York City and Arlington, Va., losing applicants cried foul: They accused Amazon of an extraordinary bait-and-switch, enticing dozens of bidders to increase the competition and the incentive offers, only to end up with two of the most obvious candidates all along.
The reality is that this sort of competition for big projects, while unusually large in the Amazon case, is the rule not the exception in economic development and has been for a long time. It has been happening in the U.S. since Alexander Hamilton received local tax exemptions in 1791 to build up the city of Paterson, N.J. as an industrial center. What’s different in our own era is that most companies aren’t actually changing their decisions based on incentives but are pocketing substantial benefits anyway.
Studies show that the cost and frequency of incentive packages—which cities and states typically offer companies to either relocate or stay put—have been rising. Secrecy surrounding many of the deals makes a full accounting difficult, but a new database assembled last year by the Upjohn Institute for Employment Research covers programs for 47 cities in 33 states. It found that the cost of such incentives more than tripled from 1990 to 2015, to $45 billion. …