Why Offering Incentives for Amazon HQ2 Isn't Smart (Just Ask My Hometown)

It’s crazy what municipalities are reportedly offering Amazon to entice the company to build its 50,000-employee “second headquarters” in their city.

Probably the two most ridiculous come from Boston and Fresno. According to the Seattle Times, Boston is offering Amazon an “Amazon Task Force” – a team of city employees focused on advocating for the company. That means essentially paid consultants for Amazon, on the city’s tax rolls.

Fresno's offer is equally wild, offering Amazon the right to direct where the taxes it pays goes. Think about that – it means a private corporation would have control over a sizable chunk of the city’s budget, removing all notion of a free and for-the-people government.

But, alas, these cities will all say the same thing: sure, we have to compromise a bit. But look at the upside! Imagine what all those employees will mean to our city!

Well, don't get too excited. I ask you to look at my hometown, New London, Connecticut, for where these deals can lead.

How Pfizer Used New London

 In 2000, Pfizer was the Amazon of the time. Fueled by record profits from its newly released Viagra drug, Pfizer was one of the most powerful and fastest growing companies on earth, offering high-paying jobs and great benefits to its employees.

New London, Connecticut – a small, poor port city of 27,000 people in Southeastern New England – wanted in on the action. Imagine if New London could get Pfizer? The whole city would turn around with all the jobs it offered! The schools would improve, everything would be great, right?

Well, New London went even further than what Fresno and Boston are offering. There was a neighborhood in the city right on the water, which held about 100 modest homes. Using eminent domain in an unprecedented manner – it previously was used to make room for things like bridges and roads – the city seized the properties from the homeowners in that neighborhood and knocked down all the homes, all to make room for Pfizer’s new site (this went all the way to the Supreme Court, which unfortunately ruled that what the city did was indeed legal).

Sure, the city had to crack a few eggs to make the omelet. But it was getting Pfizer! Rejoice! Surely the end would justify the means!

Well, as part of the deal, New London also gave Pfizer 10 years where it didn’t have to pay property taxes (this was a savings of hundreds of millions of dollars). Guess what happened when those 10 years were up, and Pfizer had to start paying property taxes on its giant, waterfront property?

Pfizer moved its offices to several other cities that again offered the company tax incentives. That left the waterfront site empty; the most valuable land in the city, a ghost town.

How did this benefit New London? It didn't. The city got no tax benefit and little other benefit from Pfizer’s decade-long stay. Instead, all it got was angry citizens deprived of their property and a national embarrassment.

How this relates to Amazon

What happened in New London is a worst-case scenario. But, who is to blame, New London or Pfizer?

I’d argue New London. While I don’t agree with what Pfizer did, they are responsible to their shareholders to be as profitable as possible. New London, meanwhile, is responsible to its taxpayers to build the best city possible. And it failed on this deal.

And yet, cities have appeared to learn nothing from this experience. What’s stopping Amazon from taking one of these great incentives, only to leave when some other city offers something better? In fact, wouldn’t they be negligent not to do so?

I know, it’s tempting to offer Amazon a lot. All those jobs and the economic boom Amazon HQ2 could bring sounds great. But, all of this could very much be fool’s gold.

Besides, I ask you to look at the morality of it all. A small company gets no breaks from the government. It has to follow all the rules, pay all the taxes and hopes it can make enough money to pay its bills. And regular citizens get no breaks either.

And yet, the absolute most powerful, most profitable companies in the world somehow get the most breaks. It doesn’t make sense, it isn’t fair and it doesn't work.

My advice to any city looking to woo new businesses – heed the lesson of New London. Instead of offering incentives, build a tax plan and a city that’s fair to everyone, which entices people to build there without tax-funded handouts.

That’s the only way to sustainable growth. Not these incentives.