Apple, Amazon, and Google:
They get you your phones, your packages and, well, allow you to search weird things on the internet.
But these companies are all synonymous with one other thing: jobs.
Lots and lots of jobs!
But what’s the economic, social and political impact of thousands of people
moving into a town to work for one company?
Hi guys, I'm Omar, and this Sunday we're looking at how cities try to attract big companies
- and how that can sometimes help and sometimes hurt the people who live there.
OK, so in case you haven’t heard,
Amazon – led by the richest man in modern history, Jeff Bezos,
has been on the hunt for a second corporate headquarters, otherwise known as HQ2.
And, well, despite being a somewhat open process it's been..
one hot mess, to put it bluntly. This is only the sixth big public auction in US history.
It provoked 238 bids, including many from places that don't have a prayer,
that did not meet the original criteria.”
If you're wondering why so many cities applied to host Amazon's second headquarters,
it's because, well, it potentially means tens of thousands of new high-paying jobs.
It also means five billion dollars to
local companies who will be charged with building the structures, hiring people
who will then get paid, and contribute to small businesses across the city.
All-in-all, HQ2's presence could really help the economic growth of the winning city.
By its own projection, Amazon added $38 billion in value to the Seattle economy.
This year, Amazon narrowed its list of finalists down to
20 cities, which included Boston, Washington D.C., Atlanta, Los Angeles, Columbus and Miami.
These cities have tried to attract Amazon by flaunting
their modern transportation systems and available housing infrastructure,
as well as their cultural, educational and financial institutions.
Some cities like Boston have even reimagined entire neighborhoods to make way for HQ2.
Check out this video that Boston submitted with its bid:
Sounds great, right? Except Amazon might be looking for a whole lot more than that,
in the form of tax incentives from those competing cities.
They've been told that you need to offer long-term,
deep tax discounts, property-tax abatements
sales-tax exemptions, income-tax credits
companies are like people, they, they pay
three main kinds of taxes - income sales and property, and in many cases,
especially for big deals, those taxes all go away for a long time.
So you might think, “Wow, Amazon’s pretty ballsy to expect all of that.”
Well, Amazon's gotten a lot from his years in Seattle, allowing it to become the second
most valuable company in the world at $768 billion just this year.
But while Amazon's fortunes have been on the rise, the same can't be said for its hometown.
Despite Amazon investing nearly 40 million dollars in housing for Seattle
the city has seen the cost of housing skyrocket.
Since 2010, more than a 100 people a day
have been moving to the city and the surrounding area.
In the last five years, housing prices have shot up by 70%,
with median rent in Seattle hitting $1,448 in 2016,
coming in at fifth overall nationwide.
And despite the increase of thousands of high-paying jobs in the city,
the rate of homelessness has increased by close to 50 percent between 2011 and 2017.
"I got, you know, economically zero unemployment in my city and I got thousands of
homeless people that actually are working and just can't afford housing."
So, that's what's been happening in Seattle and now Amazon is looking for incentives
in the next city it moves to.
Oh, and by the way, Amazon does not receive any tax
incentives from Seattle. It's only there because it was founded in the city and
maybe the fact that Washington state doesn't have any kind of income tax.
We know that two bids, three bids exceeded $7 billion,
from St. Louis, Newark and Montgomery County, Maryland.
And this is gonna be perhaps the biggest subsidy deal in U.S. history.
It may rival the $8.7 billion deal that Washington state gave Boeing five years ago.
And these incentive deals are actually pretty common.
States and cities will often throw this kind of money at big companies.
Like Ohio's $120 million to GE between 2007 and 2011.
And Wisconsin's $3 billion subsidy deal that went to electronics manufacturer Foxconn.
And that's just a drop in the bucket for these
types of deals between companies and local governments across the U.S.
Studies have shown that the total amount of
subsidy deals for corporations could be worth anywhere between $45 and $90 billion.
The rate at which these deals are made has also tripled since the 1990s.
But this phenomenon goes way back.
"The history of incentives goes back to the late 1930s.
Mississippi created the first program intentionally designed to
lure companies from the Midwest and from the Northeast.
The whole system really took off, especially after World War II,
when the interstate highway system got built starting in the 1950s.
And by 1976, there was a cover article of
Businessweek talking about the “second war among the states” -
that is the war for jobs."
Naturally, these deals have generated much controversy over the years.
And in 2006, the Supreme Court overturned an Ohio court's ruling that
said such deals were unconstitutional.
We don't have a federal industrial policy
to rein in the states from spending excessively in these chases or from
actively pirating for each other.
When free trade deals were being made left and right
in the 80s and 90s, and factory after factory either shut down or moved abroad,
many cities and states sought to attract other industries for their work forces.
Enter: the tech industry.
As tech took off in the U.S. in the 2000s,
local and state governments started to compete once again to woo these companies to
replace the long-gone factories.
And sure, a lot of big tech companies have their
home base in Silicon Valley, but they've also opened up data centers to store
the immense amount of data that they generate.
27 states have created incentive programs
to bring in these tech data centers.
And a report found that Google, Microsoft, Facebook, Apple and Amazon
have received $2 billion in subsidies for 11 data centers in the past decade.
So with that much money being
spent by taxpayers to build data centers left, right and center, you'd hope that
there'd be a lot of jobs as a result, right?
Well, the study also found that
these data facilities only employ under 200 people on average and these states
had spent roughly $2 million per job created.
We can point to examples
of incentives that have worked and usually those are programs that don't
benefit one program hugely, but instead target a whole industry.
But while it's possible for a local government
and the dominant industry to work together to
better a city or a state, there's still the question of over reliance on a
single industry.
Take Detroit, for example.
For about 70 years Detroit was the home
of the American auto industry but when international competition grew, it became
more expensive for the industry to remain in Detroit with the numbers it
had in manufacturing and employment.
As the auto industry started to leave Detroit,
the city's economy collapsed.
Today, the once thriving city is a shell of its former self.
But the state of Michigan wasn't quite done enticing the
auto-industry.
Ford, GM and Chrysler were awarded tax credits worth
$4.5 billion on the condition they keep 86,000 jobs
in Michigan through 2032.
By 2015, Michigan was facing a $289 million budget
shortfall for the tax credits it had largely offered to the auto-industry
over the previous 20 years.
$289 million - does Flint even have clean water yet?
"If we pick smartly and pick companies that have a future, we can grow the whole
industry over time, and also increase the likelihood that the
companies will stay put in that area, because they see value in being tied to
the local university, the local training program."
So, given how little so many cities and states across America
often get out of the presence of these
massive companies, many of them have started fighting back - including Seattle.
Last year, Seattle proposed what was called
an "Amazon Tax" that would see Amazon taxed $275
for each employee - something that they could have easily afforded.
While the tax was not completely aimed at
Amazon, the tech giant was certainly the main target.
The city council unanimously passed the resolution.
But only a month later as the City Council faced intense
pressure from Amazon and business leaders in the city,
it was forced to repeal the resolution.
"I don't think head taxes are the best way to approach this deal. I think that
you have to have a comprehensive approach.
We know how to do this -
it's called community-benefits agreements."
But the idea of an employee head tax
is popular far beyond Washington state.
About 43 miles from our San Francisco studio in Mountain View,
where close to 40% of the workforce is employed by Google,
there's a proposal for what some have called the "Google tax."
And we decided to go talk to the mayor of Mountain View – this guy, Lenny Siegel –
who helped introduce the proposal for the new tax that would make companies
like Google pay a head tax for every employee.
Mayor Siegel's lived in Mountain View since 1972.
And while he's seen it change a lot, its core culture he says hasn't.
"Before Google was in Mountain View, Mountain View was a thriving tech center.
We're actually the birthplace of Silicon Valley.
There's been a gradual transition in Silicon Valley away from physical manufacturing
to software and services, and Google is one of the companies that represents that."
The tax which isn't officially called the Google tax, by the way, would
charge all companies in Mountain View a tax per employee, based on the size of the company.
That yearly tax revenue could amount to over three million
dollars, almost half of which would be coming from Google.
And for perspective,
right now all businesses in Mountain View pay a yearly $30 flat fee,
regardless of size. That brings in about $250,000 to the city.
Now, it's worth noting that Mountain View never offered any incentives to Google.
Instead, because of the pre-existing knowledge from the semiconductor
business and NASA, Google was attracted to the city.
But why does Mountain View need this extra tax?
"So, it's a problem for our communities and, in fact, a
problem for our employers.
Housing here is extremely expensive.
The value of my house has gone up maybe by 20 times since I bought it in 1972.
And we don't have transit, other than Caltrain to get people to work."
And the mayor's not worried about alienating companies with this tax,
because he knows that the lack of affordable housing is
scaring away potential employees.
"The tax that we're proposing is so small compared to the payroll of any of the
companies that are here, that we don't think it'll have any negative impact on
their plans to continue doing business or even to expand here."
So, is this what our fiscal future looks like -
stuck between bad incentive deals and coaxing companies into paying their fair share?
"There may be times where incentives will
work, but by and large, the best way to it, create a sustainable business community,
is to focus on education, to focus on the quality of life, to protect the environment,
make it a place where people want to live."
And for companies like Amazon, that might be prime advice.
Sorry about that guys.
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And come back next week for another great video.