When it comes to choosing vendors and making other business decisions, we’ve all had our secret preferences – the tax attorneys who saved our competitors a lot of money, the website developers from our old firm, the office space next to our favorite wine bar. Oftentimes, we’ve already made a decision, but it would be professional malpractice not to do everything we can to get the price down. That’s why I think Jeff Bezos already knows where he wants to build Amazon’s second headquarters, and the competition among cities has been staged so that his favored city offers the best deal possible.
From coast to coast, well-meaning politicians may have fallen prey to perhaps one of the oldest strategies in the MBA playbook. In order to land the hottest company in the world, New Jersey Governor Chris Christie offered $7 billion in tax breaks, Maryland Governor Larry Hogan offered a $5 billion package, and Governor Brown, by comparison, pledged about $300 million in tax breaks.
Perhaps that’s why so many California cities stepped up to the plate. The Sacramento Bee reported that Elk Grove, south of Sacramento, put together a package worth $281 million, including a 267-acre site zoned for corporate office development; a $110 million job creation grant that would offer a $2,200 subsidy for each of Amazon’s promised 50,000 jobs; fund $100 million in infrastructure; and defer $71 million in development fees. Right on Elk Grove’s heels was West Sacramento, which offered $180 million in incentives, and pledged to spend $9.1 million a year over 20 years for parking structures, streets, sidewalks, utilities, transit facilities, parks and public art.
In the end, Los Angeles was the only city in the west coast to make it to the short list of 20. L.A., however, has been less public on its “package.” Bill Allen, chief executive of the Los Angeles County Economic Development Corp., would only say to the Los Angeles Times that the bid includes “substantial” financial incentives. But in a seeming contradiction, the same LA Times story also reported that Mayor Eric Garcetti told KNX that no city tax breaks are involved. “We’re sitting on our laurels and on what the state offers any company today,” he said.
The jury is still out on whether targeted financial incentives to major companies benefit localities over the long run. But Garcetti’s statement is a telling reminder of the attitude of the state’s liberal politicians when it comes to attracting business to California. What the state offers “any company today” is high corporate tax rates, high real estate prices, and never-ending red tape. And with the highest poverty rate in the nation, California can’t afford to “rest on our laurels.” Certainly many small and mid-sized companies could be persuaded to relocate to California with enterprise zones in the state’s high-poverty areas.
In the competition for Amazon’s 2nd HQ, Los Angeles is a likely underdog (or if my hunch is correct, has never been in the running). While politicians might think that avoiding lavish tax breaks to Amazon is taking the high road, the fact is, the state is on no road at all.
Rowena Itchon is senior vice president of the Pacific Research Institute.