Consider these recent examples:
Earlier this week General Electric announced that it would vacate its Fort Point corporate headquarters in Boston, only three years after relocating there. You may recall that in 2016 the Commonwealth of Massachusetts and the city of Boston promised GE over $145 million in tax rebates, training grants, and other incentives if it would move its HQ to bean town. Quite a high price to pay for the 200 (remaining) HQ jobs. To be fair, GE has agreed to repay $87 million of the incentives received. Even so, the math doesn’t come close to adding up in favor of the state and the city.
Then again, Electricity doesn’t come cheap these days.
According to Good Jobs First, through the end of 2020 Amazon had received over $4 billion in cumulative subsidies to build its US warehouses, data centers and other facilities. Yet, Amazon is not compelled to keep those facilities open. Last month, Amazon announced that it was closing 21 facilities, while cancelling or delaying 48 more. Its reasons were multiple, but the one most often cited was that of overcapacity. Fair enough. One reason not mentioned, particularly to any interested politicians, was this: The threat of unionization. An Amazon center in Bessemer, Alabama was closed shortly after a union vote.
Alexa, say, “Goodbye and thanks for the tax breaks.”
Yesterday, the Calgary Flames restarted talks with the city of Calgary in an attempt to get it to agree to fund over $300 million in new arena construction costs. Sound familiar? The script is dogeared from overuse. It goes like this: Billionaire owner, Mr. Warbucks, threatens to move his sports team to another city unless a new arena is built. The local taxpayers must foot big construction costs because, as the team’s consultants so attest, the local community will benefit from short-term construction jobs and increased, long term tourism dollars. Sprinkle it with some magical multiplier effect dust, and it’s a can’t miss deal! Or is it? According to The Berkeley Economic Review (and many, many others), the long term, beneficial economic impacts of sports complexes on local economies are unproven. The opportunity costs are proven, and high: Less money to spend on infrastructure and critical community projects. Oh, and let’s not forget that a new arena invariably increases the value of Mr. Warbuck’s franchise. His equity . . . not yours.
Mr. Warbucks is so thankful, at least until another city comes calling.
Lordstown Motors (NASDAQ symbol RIDE)
This year, two years after GM closed its Lordstown, Ohio assembly plant and promised to repay $28 million (some) of the government incentives it received, the Ohio Tax Credit Authority promised GM’s successor at that same facility, Lordstown Motors, an electric car startup, $20 million in incentives. With Rivian, Tesla, Ford (Lightning), Chanje, Nikola, Workhorse Group and many others chasing the same electric truck customers, there is no guarantee that Lordstown Motors will succeed. Especially when it is the subject of an SEC investigation. It seems that in 2021 Lordstown Motors reported having nearly 100,000 vehicle pre-orders. Actually, it had no binding pre-orders. Zero. The company’s stock price, which was as high as $25.00 before this revelation, languishes under $2.00 today.
Ohio state taxpayers, it promises to be a wild RIDE.
One must question what might have resulted had these same aggregate incentive dollars been distributed to hundreds, if not thousands, of firms instead. Investment diversification theory provides an answer.
If you want to learn more about the curious math of state tax incentives, read this article from the Tax Foundation, a well-regarded, tax policy non-profit that has been around since 1937. If you want to speak with me or learn more about my company, Worldwide Local Connect, click here.
Peter has spent the past twenty-plus years as an acting/consulting CFO for a number of small businesses in a wide range of industries. Peter’s prior experience is that of a serial entrepreneur, managing various start-up and turnaround projects. He is a co-founder of Keurig.