The high price of public subsidies
Wednesday, May 02, 2018
Does public assistance to businesses level the marketplace? Just ask Greg LeRoy, head of Good Jobs First (GJF), an advocacy group based in Washington, D.C. Public “subsidies favor big businesses and shortchange small, local and entrepreneurial firms — including a third of the Forbes 400,” according to him.
That policy dynamic has other effects. We turn to Governing magazine, tracking GJF data that examined cities’ tax-cut disclosures under a new accounting rule that studies federal measures of income distribution in municipalities. "Local governments most heavily reliant on tax incentives tend to be those with greater levels of economic inequality," according to reporter Mike Maciag.
Economic inequality was a main theme of Vermont Sen. Bernie Sanders’ 2016 presidential campaign that found a receptive audience among young people especially. President Donald Trump’s critique of the North American Free Trade Agreement with Canada and Mexico that took effect on Jan. 1, 1994, in part echoed Sanders’ theme.
It is also a focus of Josh Bivens, director of research for the Economic Policy Institute, in Washington. "Income inequality, driven largely by anemic wage growth for the vast majority of households and manifesting as an increasing share of national income being captured by the top 1 percent, is a widely agreed upon economic challenge for American policymakers," according to him.
Speaking further of policy challenges, scores of municipal governments launched efforts laced with public subsidies to attract Amazon.com’s second North American headquarters, or HQ2. The company, owned by Jeffrey P. Bezos, who also owns The Washington Post, has since narrowed the field to 20 finalists.
If the devil of public subsidies are in the details of Amazon’s decision, they are in short supply. Why? "The public knows almost nothing about six of the 20 HQ2 bids, and only two city bids and two state bids have been fully disclosed," according to a recent Good Jobs First report.
Boston is one of the 20 finalists that did reveal the terms of its proposed deal for Amazon’s HQ2. The city revealed a commitment of $92 million "to invest in opportunities that support housing and workforce development to benefit Amazon’s future employees and Boston residents; $75 million for affordable housing; $13 million for workforce development; $4 million for small business loans."
Toronto has followed Boston’s lead in sharing the details of bidding for Amazon’s HQ2. By contrast, Chicago is one of the cities that has refused to reveal its proposed deal with Amazon.
A New York Times column considered the projected impact of Amazon’s H2Q on rents. "Amazon’s planned second headquarters could lead to significant rent increases in cities where many residents already struggle to afford a place to live," citing a Zillow.com analysis.
Escalating rents in the wake of public subsidies for large enterprises are no stranger to Sacramento, California. The Sacramento Kings, a perennial NBA Western Conference cellar dweller, received a taxpayer subsidy to build the Golden 1 Center, the team’s downtown arena that opened in 2016, without voter approval.
"Eye on Sacramento (a budget watchdog group) calculated that the city taxpayers’ total subsidy of the new arena amounted to $333 million – not counting $350 to $400 million of future interest payments on the city’s $300 million arena bonds," according to Craig Powell, the group’s president.
Meanwhile, downtown and Midtown Sacramento renters are finding a costly and paltry supply of affordable rental housing.
"We have seen the highest rent increases in the nation,” said Veronica Beaty, policy director for the Sacramento Housing Alliance. “It’s not fully attributable to the Golden 1 Center, but that has put pressure on our affordable housing stock."
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