Amazon Subsidy Bill a Big Step in the Wrong Direction

Why must we continue to put all of our economic-development eggs in this one inefficient and ineffective basket?

Published on Jan 5, 2018 in Tax and Budget

Below is prepared testimony delivered to the Senate Budget & Appropriations Committee and the Assembly Judiciary Committee.

Let’s imagine there was a program administered by the state of New Jersey that helped about the same number of residents each year but whose cost exploded nearly 8-fold over the course of a decade. No doubt there would be outrage from the legislature, who are elected to be – in part – guardians of the state’s finances. There would be grave concern about the state’s return on its investment. There might even be public hearings, a special committee, or some independent investigation about just how this particular program got so incredibly expensive.

The thing is, we don’t have to imagine this scenario – it’s actually happening, and the legislation being considered today will only serve to make it worse.

In 2006, the state of New Jersey was able to either lure or keep about 15,000 jobs through it’s corporate tax subsidy programs – about the same number (actually, a few hundred more) than it did about a decade later, in 2015. But that’s where the similarities between those 2 years ends, and the differences here are as clear an illustration as any that New Jersey has gone way overboard on these special tax breaks.

In 2006, the state “paid” – through future tax credits – $186 million for these 15,167 jobs. In 2015, the state paid 7 and a half times as much – $1.4 billion – for the 14,385 jobs. Put another way, the cost per subsidized job shot up from about $12,000 to nearly $98,000.

As we have rigorously documented at New Jersey Policy Perspective, the state has doubled down on its nearly-exclusive use of subsidies to try to spur economic development. We just wrapped up our 5th year in a row, in fact, of approving more than $1 billion in these breaks – after 17 years of never crossing that line. The amount New Jersey has approved in those most recent 5 years ($6.7 billion) is more than double the amount ($3.0 billion) it approved the entire 17 years before.

This singular approach has ignored the state’s crucial assets that made New Jersey an economic powerhouse: location in the middle of the world’s largest consumer market, one of the nation’s most highly-educated workforces and thriving communities. Instead we have witnessed the deterioration in NJ Transit, disinvestment in higher education and declining support for our excellent public schools.

Clearly, New Jersey has gone off the rails. But it’s not just NJPP that has noticed. In fact, corporate consultants at McKinsey and Company, and national economic-development experts at the Pew Charitable Trusts and elsewhere, have noticed, and – like NJPP – called for a suite of reforms that would make the state’s use of these so-called “incentives” smarter, more responsible and accountable, and less of a long-term drag on the state’s fiscal health.

Unfortunately, this bill takes New Jersey in the exact opposite direction.

Yes, we all want to bring Amazon’s new headquarters to New Jersey. But like with any other development deal, we must ask: at what cost? Is giving one of the world’s largest corporations, with $136 billion in earnings last year, a dollar-for-dollar tax break for its investment in the state of New Jersey a fair deal to all 9 million residents? Is it a good deal?

Quite simply, it is not a good deal.

Amazon does not need $3 to $7 billion in public dollars to spur its own private investment; that much is clear by looking at the company’s earnings, and at its RFP for this project. But let’s assume for a second that it does. Why are all the other critical public investments that Amazon needs to succeed in New Jersey being ignored? Why is there not a bill in this lame duck legislature to invest $2 billion in public transit investments so Amazon’s workers can get in and out of a New Jersey city efficiently, affordably and not in their cars? Why are there not bills moving right now to invest in affordable homes, higher education, workforce development, childcare and education, or any of the other factors and assets that draw leading corporations to New Jersey? Why must we continue to put all of our economic-development eggs in this one inefficient and ineffective basket?

There is a smarter path to take if we want to return New Jersey to its days of being one of the country’s economic powerhouses. But it takes real investment in public assets. Bills like this one not only ignore that crucial part of the economic-development formula, they make it harder in the future to pony up the dollars required to pay for public services and investments. This is a damaging cycle that needs to end – and there’s no better time to start than now, by voting against this legislation.