Gov. Tom Wolf recently announced that internet retailer Amazon.com has accepted a proposal from Pennsylvania’s Department of Community and Economic Development (Department) that is expected to result in a $150 million investment by Amazon, and 5,000 new jobs in the Keystone State.
The proposal included the following:
- A $5 million Pennsylvania First Program grant;
- $15 million in Job Creation Tax Credits to be distributed upon creation of the new jobs; and
- $2.25 million in funding for employee training from the Workforce and Economic Development Network of Pennsylvania (WEDnetPA).
All of the Department’s assistance is contingent upon Amazon submitting complete applications and meeting all of the program guidelines and commitments.
Comparable deals in other states
The Pennsylvania arrangement follows consummation of similar deals in other states over the past several years. For example, in April 2015, Massachusetts announced its own deal, which we addressed at the time, that included these breaks:
- $11.6 million in local tax incentives;
- $1 million in job creation tax credits; and
- $2.25 million in investment tax credits.
In return, Amazon committed to investing $54 million in a one million square foot sortable fulfillment center. The Commonwealth’s Economic Development Incentive Program, a tax incentive program designed to foster job creation and stimulate business growth anticipated 500 new full-time jobs and 2,000 seasonal jobs in Massachusetts, and $54 million of additional funding via private investment.
And in November 2013, the Wisconsin Economic Development Association went public with its tax credit program for Amazon.com. Under the terms, Amazon was to invest at least $141 million to build, lease and equip a distribution center on a 101-acre parcel; combined with other investments, the total capital outlay was expected to be over $200 million. This rendered Amazon eligible to earn up to $7 million in Enterprise Zone tax benefits through 2024, based on the actual number of full-time jobs created and capital expenditures at the fulfillment center.
The Debate over “corporate welfare”
These deals have been quite controversial. One critic of the Pennsylvania agreement is the Commonwealth Foundation (Foundation), which describes itself as “Pennsylvania's free-market think tank.” In March 2016, highlighting Gov. Wolf’s claims that he had cut state spending “to the bone,” the Foundation asserted that cutting $700 million in unfair subsidies would be a better way to fix the state’s budget. “Before asking taxpayers for more, the governor and lawmakers should trim the fat of selective subsidies for private businesses…Year after year, Pennsylvania directs millions of tax dollars to Hollywood movies, horse racing prizes, sports stadiums, and green energy projects, to name a few. Picking—and funding—favorites is not a viable path to economic growth.”
The Foundation provided a list of the top recipients of tax subsidies in Pennsylvania, which is the top-ranked state for such spending, at $5.7 billion for the years 2007-2015.
Among others, Pennsylvania’s subsidy recipients include:
- Horse Race Development Fund ($253 million in 2015-16)
- Film Tax Credit ($60 million in 2015-16)
- Redevelopment Assistance Capital Program ($5.4 billion in borrowed money since 1986)
- Sports stadiums (nearly $600 million since 1999)
- Alternative Energy Production Tax Credit ($2 million in 2015-16)
In a March 2016 policy brief (brief), the Foundation criticized these expenditures. With respect to the Horse Race Development Fund, for instance, the brief explained that horse racing subsidies account for the largest share, or 36 percent, but the industry has struggled to generate interest, Standardbred breeding and horse betting have declined, and lawmakers have had to bail out the fund. Citing the Pennsylvania Office of the Budget, the brief asserted that “[i]f the government stopped subsidizing the industry and made it strictly the responsibility of the private sector, taxpayers could save more than $250 million…”
When Gov. Wolf announced the Amazon deal, the Foundation had this response:
Sure, 5,000 (promised) jobs will be terrific for Pennsylvanians lucky enough to land one. But what about the entrepreneurs competing with Amazon who won’t benefit from taxpayer-funded perks? Don’t hold your breath waiting for a follow-up press release.
Another reason that economic development deals are unpopular in certain circles is the quality of the new jobs, many of which are in warehouse and distribution centers. In a June 17, 2015, article, "With 6,000 new warehouse jobs, what is Amazon really delivering?," Reuters explored whether such employment is “worth lining up for.”
Pointing to wages in the range of $11-$13 per hour, the piece noted that even Wal-Mart, with its average rate in distribution centers of $19 per hour, pays more.
Additionally, Amazon’s treatment of its warehouse workers has been under the microscope since 2011, when “an investigation by the Allentown Morning Call newspaper revealed what were — quite literally — sweatshop conditions.” Like the Commonwealth Foundation, Reuters presented the possibility that Amazon actually “eviscerates smaller businesses that put more of their earnings into hiring workers.”
Opined the Reuters author, “[t]ossing out tax incentives for Amazon jobs might be good short-term politics, but when it comes to lasting employment, let the buyer beware.”