Amazon created competition between cities to land its HQ2 location, along with hefty tax subsidy packages. While this process garnered significant media attention, businesses and municipalities regularly engage in these types of deal making in which the promise of jobs and economic development all ostensibly justify enormous costs at the taxpayer's expense. Amazon alone has received over $1.6bn in economic development packages for it's various warehouses, so it's high time that we ask what's really going on behind the scenes. Does the public actually benefit from corporate welfare deals or is this just another method of transferring wealth out of local communities? In addition, we explore miscellaneous tools used for similar means, like Tax Increment Financing, and Tax-Exempt Municipal Bonds for stadium construction.
Thank you Morg for completing this transcript!
[0:05] I'm David Torcivia.
[0:07] Daniel Forkner.
[0:09] And this is Ashes Ashes, a show about systemic issues, cracks in civilization, collapse of the environment, and if we're unlucky, the end of the world.
[0:18] But if we learn from all of this, maybe we can stop that. The world might be broken, but it doesn't have to be. [0:31] David we've all heard the wonderful news. After years of searching looking for the best location, Amazon has finally settled on the locations for its "HQ 2"— its second headquarters. I believe New York City, David, where you live is going to be getting—
[00:50] Part of that, uh, wonderful development.
[00:54] As will Arlington, Virginia.
[0:56] Yes that's right Daniel we are very bummed to find out here, that we were going to be financing Amazon to the tune of 4.6 billion dollars over the next few years so that they will grace us with their presence and we can all gaze upon Jeff Bezos's shiny bald head as he walks around the city.
[1:14] Well David, it can't be all bad right? The company is going to be bringing innovation to your neck of the woods, going to be bringing some high-quality jobs... maybe something you can find a used for.
[1:27] I think the people of Seattle will tell us that there's definitely plenty that we should be worried about, and all this might not appear as great as it sounds first off. But more on that throughout this episode.
[1:40] What's particularly interesting about Amazon's decision is that it was preceded by a long drawn-out process of pitting cities across the United States against each other, right? I think over 200 cities made a bid to try and attract Amazon to their city, and what were included in these bids? Tax breaks, promises to build things for Amazon;
[2:05] Free land, the willingness to even name some towns after Amazon itself. Even here in New York City, the governor joked about renaming some of the waterways in the city after Amazon itself— we're still waiting to hear if it's going to happen, but the way these cities trip over themselves to give as many gifts as possible, to Amazon and team, is honestly a little bit disgusting and frankly extremely embarrassing.
[2:32] Well, It's nothing new David, Amazon got a lot of attention but the concept of attracting businesses to your region, to your municipality through tax breaks or other incentives, is a well-established field called Economic Development. [2:46] So, many cities have these programs and they regularly doled out these types of incentives to corporations all the time. In fact, the money that states and municipalities are spending to bring these businesses to their location, that has tripled from 1990 to 2015. And you know it's important to point out, it's not just attracting businesses but there's a lot of deals being made at the government level to keep businesses. So this is another tactic many companies use to generate the type of deal making they want, is they can threaten to leave a particular city, 03:22 thus generating offers from other cities to come see them, and putting pressure on their current locality to offer increased breaks, or whatever they can do to get them to stay.
[3:34] It's a very nice way of putting it here Daniel, but what's really happening—and let's be honest about this—is these companies are blackmailing the cities and municipalities and states that they currently reside in and forcing them to turn over huge amounts of money from government coffers which are ultimately our money as taxpayers. And then taking that money as bribes to stay in town, otherwise they threaten leaving, closing plants, moving to new places—even if most of the time like you said these threats are nothing more than bluffs.
[4:06] It's estimated that businesses received somewhere between 45 billion and as possible as 80 billion dollars in tax breaks in 2015 in the United States. And you mentioned blackmail David, but I think a lot of taxpayers feel that its okay to give breaks to these companies if they're getting something in return—something like high quality jobs or economic interest in investing in their city which will raise the value of their property. But according to data that was analyzed by the Upjohn Institute, 75% of companies that receive these types of tax breaks and incentives to relocate or stay in their current spot, well they would've done so regardless. They would have done that without any breaks at all, a lot of these moves are central to their business strategy going forward. And, I mean speaking of Amazon, this is exactly what they were accused of doing—after pitting 200 cities against each other, driving the incentive offers up and up to these ludicrous deals—the company ultimately just located to the areas they probably would have anyway, the most obvious choices— New York and Arlington Virginia.
[5:17] Which, by the way, are the two of the places that Jeff Bezos has homes; a third of course being in Seattle. So I think we could have all seen this coming.
[5:26] But because they were able to generate all that competitive bidding, they got a free economic incentive package straight from the public funds vault.
[5:37] But what's most frustrating about this all Daniel, is that despite the fact that taxpayers are ultimately often left holding the bill, they have very little say in these deals, and in fact most of the time we don't even have the opportunity to review them. So, in the case of Amazon's "HQ 2," over 120 American cities have kept their incentive proposals secret. And, in the case of the nation more generally, Good Jobs First—a non-profit non-partisan think-tank—found that 37 of the 50 largest cities and counties still keep their deals completely secret, failing to disclose the tax breaks businesses receive, or even the names of the businesses that receive them in the first place.
[6:16] But I can understand though why they would want to keep these deal secret, because any time a politician promises to cut the taxes of a business or, rent them space for free or whatever deal they come up with, that's money that comes straight out of other citizens in the area. So in 2017 for example, public school systems in 28 US states lost out on 2 billion dollars that was instead diverted to corporations in the form of tax incentives. There were public schools in an Oregon city which lost 96 million dollars—one of the largest losses for public schools across the nation—and Philadelphia lost 62 million dollars for its public schools to attract businesses.
[7:02] And of course all of this is occurring at a time of teacher shortages, a budget shortfalls in these school systems around the nation. Places like Kansas, Colorado, and Missouri, which have all had to adjust their school schedules to just four days a week in order to keep costs down, and to give teachers the ability to take on second jobs because they just can't pay them enough in the first place. But how does that play into these tax credits? Well, those company tax breaks, in just these 28 states that are impacted in the study, well they could have hired thirty thousand additional teachers. Which is an entire generation of newly educated children.
[7:37] But there's another component of this that might disturb some people—which is how it relates to economic activity. The whole idea behind attracting businesses is that it's going to add value to a particular region's economy, add jobs, do all these types of things that people want. And what many economists will tell you is that, when it comes to the most important types of businesses—in terms of building a robust and growing economy—the most valuable businesses come from the small business sector. I mean, we talked about last week how diversity is so important, whether that's biodiversity to help us combat climate change, or whether that's a diversity of farmers who can help us identify and develop new strains of crops. Well we can make a similar analogy to the economy—of diversity, of businesses at the local level who are pooling their resources and involving a community—these things are good for moving forward, but it turns out a lot of these economic incentive packages are not going to small businesses at all.
[8:39] That's right Daniel; in a study looking at 4200 different economic development awards across 14 states, it turns out that 90% of these awards, over 3.2 billion dollars, went to large companies as opposed to small or midsize local businesses. This money that was given out to big businesses instead of local shops represents lost opportunity for these municipalities to invest in public good that could benefit all employers in an area. Public goods like education, infrastructure, job training, or even access to financing in order to bootstrap more projects off the ground.
[9:15] Yeah I think that's a really important concept to think about. Which is that so many of these tax breaks and incentives are direct to a specific company, David. So just like with Amazon, 'Hey we want you, your company, to come into our state, or our city so we will give you x amount of dollars.' The problem with that is that it gives the individual company—basically—free money to do what they often do which is stock buybacks, or pay raises for their executives, or even things like upgrading the facade on their buildings, adding value to the interior of their office spaces... These are things that directly benefit this company, but we can also think of how applying money to social, political, and economic infrastructure can raise the value of all businesses in all communities; just like you said things like education. If instead of giving directly to one company a lump sum of of billions of dollars or millions of dollars, if that money instead was directed into education so that we have people more prepared and more educated to work for all companies—then in a way that does benefit the economy, does benefit business, and it does make an area more attractive.
[10:29] But you, The Listener, must be asking yourself 'well, how are these corporations able to pull the fleece over these politicians and taxpayers eyes over and over again—what is it that they're promising that politicians are tripping over themselves to get?' Well in most cases it's that magic political four letter word: jobs. And the idea that if we give enough of an incentive, then it pays for itself ultimately because of all the new jobs created. And the economic impact of these jobs will mean that we get to be repaid, via tax, over the coming years. But in reality, often times the math does not add up, not even close; the average cost per job created in these programs is $658,247. That's an amount that can never be repaid by local taxes. These municipalities are losing money based on the amount of jobs created despite their claims that this is not the case. And in some cases, the amount of money per job generated is [11:28] astronomical. Oregon awarded two billion dollars to Nike and got 500 jobs, or a cost of 4 million dollars per job created. North Carolina help Apple open a server farm for 321 million dollars, and out of that program, they got 50 jobs created or 6.4 million dollars per job that the taxpayers are ultimately going to pay. And Louisiana of course takes the cake with a subsidy of 234 million dollars they gave to Valero Energy that created just 15 jobs... at a cost to taxpayers of 15.6 million dollars per job.
[12:05] [baffled] What were those j—how did, how do people get these equations so wrong? I don't know, I'm not in economic development at the city level, but it seems like you would at least be able to... ballpark? Uh you know—
[12:18] Well, Daniel—
[12:19] —more than 15 employees like, 'oh we're going to build this factory, I mean, what is the minimum number of employees that it will take to staff it?'
[12:26] Well I mean to be fair we are simplifying this little bit—there is corporate taxes and things that will be paid, property tax and stuff, but even with all that, these numbers almost always fall short. But that's because quickly we realized for the politician it's not about the financial gain that it makes for their area, but the optics of the action. If you can say during your term as mayor or governor or whatever that you brought in a massive Apple data center into your small rural community, that looks good when you're facing reelection. And by the time your municipalities left trying to figure out a way to pay for this massive bill that you created. you're long gone out of office and taking that sweet pension that you hope will be able to continue to be serviced—despite the massive amount of money that your state is giving away to these corporate welfare programs.
[13:13] But I guess the other thing that can make it difficult for the taxpayer to figure out how much they are at a loss—when you talked about how easy it is to visualize a shiny new factory versus visualizing the subtle cost and erosion of certain funds—I mean there's so many different ways that these economic development departments can do these incentives. Whether that's saying the company doesn't have to pay sales taxes, whether they don't have to pay their property taxes, it could be just straight up cash; there's so many different ways that it can come about and oftentimes these packages are structured to change over time—so it can be difficult for people to sort out exactly how much money is being sucked out of their community to subsidize this new business. But number of jobs, man, that's... you can put that on a graph.
[14:02] It makes a really nice sound bite too, like, 'because of my actions, we're opening 2000 new jobs here in Buffalo.' But what I leave out is, we're creating 2000 new jobs because I first built a 315 million dollar building, and then bought four hundred million dollars worth of equipment to stash it in, and then lease that to company for 1 dollar.
[14:23] Okay David, I know [laughs] I know I said that these packages can get creative but, you know we don't have to make something up here; it's just ridiculous.
[14:31] Oh I wish I was making this up Daniel, this is something that actually happened here in Upstate New York, up in Buffalo, where the town decided that they really wanted to attract this high-tech company, to their town to open a solar panel factory. Now, this company is very dependent on subsidies, and I'll reveal who it is in a little bit, but they figured out that they could get Buffalo New York to not only give them a tax break, but to literally build them the factory that they wanted to build, and then not only building the factory, but fill it with all the equipment that they need it so—so this company at this point has done nothing. They didn't—they didn't design the factory—
[15:07] This is—this sounds like a big scam company.
15:11 Like a mail-order like, you've open up the magazines and its like, 'buy a factory and buy the equipment, we'll run it and will generate profits for your county' and then you do it and they never show up and they just run away with the money.
[15:23] Yeah seems like something like that, I mean it's so crazy, uh I mean the company didn't even help them design the space—the local University had that up—ultimately, with this company, all they did was put their name on the side of the building and then sell all the products at this municipality owned factory created and I—I guess pay the salaries of the employees and stuff, but really they're not doing anything that the state couldn't have done after giving them all this stuff for free like, if I knew that Buffalo was giving out factories for $1 leases, I would have stepped in and said 'hey yo I'll take this factory for 2 bucks, double your investment, and like also create 2000 jobs, I'm more than happy to do that right now,' but I guess that option wasn't out there because this is a corporate welfare system and now we'll name and shame this company. So this was Tesla, the much-beloved electronic vehicle manufacturer and solar panel creator—well, this is their "Gigafactory 2" up in Buffalo New York—this was several years ago and they still to this day have not fully staffed this factory, and in fact had to give over the majority the factory to Panasonic, their partner, because it turns out they're just not that interested in making solar panels after all. They've been slowly shutting down that side of their company and they're producing less solar panels then they have even just a few years ago, they closed a lot of their solar panel sales facilities, there are giant list of people complaining about them not coming in repairing their solar panels, so their SolarCity acquisition and tax grift right here really seems to be something they don't care about, at the moment, and Buffalo and all of us as New Yorkers are just sort of left holding the bill, hoping that eventually Tesla will come through and start actually producing things and creating these jobs that they promised they would.
[17:03] That reminds me of something, this came up when we were at that conference in Boston a few weeks ago, we were on that panel—the ethics panel—talking about ethics and one of the other podcast host there, Raven, has a podcast that deals with scientific topics related to insects and she delves into a lot of the latest research coming out of academic institutions; and one thing she said is that she has ads on her podcast because she doesn't like the idea of 'double dipping' which is we the public already pay for much of the research that she sites. So we the public should be getting access to that research, right, but we don't because a lot of it is locked behind paywalls [17:46] So from her perspective she's like, 'look I don't want to take, donations like the Ashes Ashes boys on their Patreon, I want to just use advertising to generate my revenue because I don't feel it's appropriate for the public to be paying twice for the same research,' and I feel like the Tesla factory giveaway is a great example of how the double dipping occurs all the time in our economy. I mean I think we were talking off air a while ago, David, about how even Tesla itself has received public funding for some of it's own research and development, which it then gets to privatize and profit off of and sell back to us, in a way that this is exactly the double dipping that Raven was talking about.
[18:27] Yeah, of course I mean it's not just Tesla, I don't want to just say that it's—they're the only people committing this sort of crime against all of us. But they're one of the big players in this subsidy sort of fueled industry as are many of the automakers, but especially the electric ones. Who both receive first, up until the end of this month you get seven thousand dollars, or seventy-five hundred dollars, whatever it is tax credit just for buying electric vehicle—a 70 or $80,000 electric vehicle—so this is a tax credit for the wealthy already. Their Nevada factory, the 'Gigafactory,' is getting 1.3 billion dollars worth of subsidies from Nevada, much of which comes from the pockets of the local school districts up there—there's one school district that lost 36 million dollars in a single year because of the subsidies the state gave out. Though Tesla has said that they're going to contribute back to these local school programs—they've committed 37 million dollars in the next 5 years—for school funding across the state, and you can see how very quickly that is a huge shortfall to what these school should be getting, so I mean, we are paying for the success of these companies quite literally out of our own pockets. And many cases these are coming straight from schools, from children; some of the municipalities down in Louisiana are losing $2,000 per student because the money is being taken away and given to corporations, [19:46] who are already supposedly profitable without this sort of corporate public benevolence that we have going on. This is a huge, huge amount of welfare, that we willingly give to these institutions that are, like I said, allegedly profitable. And if you're somebody like most of these CEOs or the financiers who run this that believes very strongly in the market and its ability to determine what is good or what's not good by its profitability, well then this is a huge failing because many of these companies, quite honestly, wouldn't be profitable. In some cases they aren't profitable, like Tesla, and it's even with these subsidies. In many cases they wouldn't exist in the first place, and then most of these companies, I don't know if we'd lose that much, especially when we look at the largest 'Welfare Queens' here. Boeing, Alcoa, Intel, General Motors, Ford... lots of car companies are on this list... Oil companies are way down at number 7—Royal Dutch Shell—and then Nike number 8. Many of these companies are taking money directly from our pockets in order to appear profitable, and they can do that because of their size and their ability to lobby and control our politicians, and in many cases like we mentioned, outright blackmail them for access to these sorts of funds.
[20:57] It also reminds me of a concept like we talked about in our episode about intellectual property rights; this idea of owning ideas, copyright, trademark, all that. Some of the push back on our criticisms of the ability to own these types of ideas has come from people saying, 'look, a company is investing millions or billions of dollars into developing something they should have the right to own that,' but I think this topic kind of questions this idea of ownership and who ultimately should own these types of things when it's not necessarily the companies themselves that are paying for it. But David, let's come back to Amazon one more time, because while "Headquarters 2" received the most media attention, this is actually something they honed really well, is their ability to pit municipality city, state, counties against each other to get these tax breaks, sales tax breaks, whatever they can get to open their businesses. And Amazon of course, has been kind of at the heart of the 'retail apocalypse,' where all these shops, retail companies across the nation, across Europe have been struggling to compete with Amazon's large e-commerce footprint. [22:10] In the United States, based on data from civic economics, Amazon directly caused retail vacancies which represented 420 million dollars worth of property tax revenue that cities and counties could have collected, and that was in 2014. In 2015, Amazon was directly responsible for 135 million square feet of retail space in the United States becoming vacant. And it's estimated that today we reached around 380 million square feet that have been lost in the United States as a result of competition from Amazon. But to understand how Amazon drives other retailers out of business. I think it's not enough to assume that the company simply offers a better model of convenience that customer simply prefer, and that this is the natural outcome of free market competition. Because one of the main reasons Amazon has been able to out-compete small retailers like independent bookstores in the first place, has to do with the cost savings the company enjoys over retailers through tax-dodging. For example in 2012, book sellers across the United Kingdom led a campaign over the fact that their book stores were shutting their doors due to an inability to compete with Amazon. But while these independent local shops were contributing a lot of tax revenue from a diversity of sources like payroll for employees—payroll taxes, sales, sales tax on the books they sold, corporation tax and other taxes; Amazon was avoiding pretty much all of this tax liability by diverting its profits outside of the United Kingdom.
[23:55] But back here in the United States, Amazon honed a strategy early on for avoiding this sales tax. To explain it very simply, here in the U.S., online retailers are generally not required to pay sales tax to states in which their products are bought. Instead they're required to pay sales tax to states in which the location of the product originate.
[24:16] Or to clarify even more, generally you only pay taxes to the state where your product was bought online if you also have a presence in that state.
[24:27] So as an example if you own a basket weaving business and you sell it all on a website, you will pay sales tax to the state in which you own your business but not necessarily the states and with your customers live. So what Amazon did was learned to how to take advantage of this by only building warehouses in states where no sales taxes was required, allowing them to sell products nationwide at prices local retailers could not match. It's estimated that Amazon dodged between 4 and 5 billion dollars in unpaid sales tax in the United States in 2016 alone.
[25:00] This was built in to Amazon's growth strategy from the very beginning. From a source that a listener provided for us: Jeff Bezos made clear in a 1996 interview that avoiding sales tax was critical to many of the early decisions of the company, and it's in fact why he moved from New York to Seattle to open the first headquarters. This is what he said in the interview, quote:
[25:25] "Physical location is very important for the success of a virtual business. We could've started amazon.com anywhere; we chose Seattle because it met a rigorous set of criteria. It had to be in a small state—in the mail order business you have to charge sales tax to customers who live in any state where you have a business presence—it made no sense for us to be in California or New York. We thought about the bay area which is the single best source for technical talent, but didn't pass the small state test. I even investigated whether we could set up amazon.com on an Indian reservation near San Francisco. This way we can have access to talent without all the tax consequences. Unfortunately the government thought of that first.
[26:04] Innovation at its finest. And it's hard to understand just how much wealth ultimately is funneled out of local communities so that Amazon can grow its market share. Tax revenues are what fund public services and lost sales tax can be just the catalyst for a chain reaction of additional lost revenue. When retailers go out of business, for instance—leaving malls and other buildings vacant—property taxes also decline. According to Civic Economic, Amazon's 2015 sales in the United States alone where the equivalent of 39000 door fronts that would have generated 530 million dollars in property tax revenue for their city.
[26:47] But today Amazon strategy from market share growth has shifted gears and gain complexity. Although it may still be based primarily on unfair subsidies and advantages. For instance, now that Amazon has established itself as a price leader, its commitment to convenience by building warehouses in as many places as possible makes it more difficult to dodge sales tax directly in some areas. So Amazon has adjusted its strategy—the kind we saw with hq2, pitting municipalities against each other for other tax breaks, direct payments, and subsidy packages. And in these warehouses by, investing in autonomous robots and AI technology, Amazon continues to accumulate profit by replacing human labor. Check out episode 27, The Robot Is In for detailed discussion on automation around the globe.
[27:34] Eh, David we might have to pause for a moment here to clarify that we're not necessarily saying that we support the current model of retail economics, or anything like that. The point of this example, using Amazon, is to show how the company's success—the ability for it to grow its market share—it's all predicated on transferring wealth out of other businesses and the communities in which their business has a physical footprint. Amazon's business model is founded on avoiding taxes, driving competitors out of business, and taking advantage of the desperate economics that municipalities and workers face—especially in rural and poor regions where it's difficult for declining city budgets to support the services they need. And there is plenty of examples from Amazon's history of anti-competitive behavior; when the company introduced Kindle for example it intentionally sold ebooks at a loss so that it could drive others out of business. And in 2009, Amazon purchased Zappos shoes after they had sold 150 million dollars worth of shoes on their website at a loss, also that they could undermine Zappos' own business and then drive their value down so that they could acquire it for a reasonable price. [28:59] And of course after they gained significant market share, it's been revealed that Amazon intentionally will redirect online customers away from other competitors, and even raise prices on people when it thinks they won't notice. And when you consider the fact that, right now Amazon Prime memberships represent more than half of all American households, and half of all online shopping begins in the Amazon search bar. And, in addition, less than 2% of Amazon Prime Shoppers actually ever compare Amazon prices to other stores—it's easy to see how they could get away with systematically raising prices on people, without anyone noticing.
[29:40] Daniel—and that's not even mentioning the concepts that we talked about like an episode 35 Plugged In; the fact that Amazon has all this data that they're constantly harvesting on you—your purchases, the way you browse the website—all of this allows the company to more easily capture our attention, redirect our behavior, and raise prices to the highest price they we're willing to pay. This ultimately shape our buying behaviors, and by extension our lifestyles. Speaking of taking advantage of desperate economics Amazon increasingly staffs low wage positions from a growing labor pool made up of people that have lost jobs directly because of Amazon and the tax breaks and subsidies it gets combines to enrich Amazon at the direct loss of public funds for schools, municipal services, hospitals, libraries, pensions, and ultimately at the expense of jobs, property values, and a robust social fabric of healthy communities.
[30:35] But they get away with that of course because, the things that are lost—those services, the ability for us to fund our pensions—well those things are less tangible and often more long-term than the immediate convenience offered by Amazon. We have to remember though that we are not just consumers in this world. If Amazon can afford to offer a two-day or even two hour delivery service, sure that's a benefit that we all get. But it may come at the cost of everything else, it may come at the cost of those public funds, it may come at the cost of a diversity of local businesses, and may come at the cost of available jobs. But like we mentioned, a lot of attention was given to Amazon for the competitive bidding of it's "HQ 2," but it does that all the time at a more local level for its warehouses—fulfillment centers, sortation centers—these are the things that enable Amazon's convenience. And its desperate to open them wherever it can, and to gobble up as much in terms of economic incentives and tax breaks that it can convince a city to give it.
[31:45] I mean, let's look at the numbers: 23 million dollars over 2 years from local city budget in Texas to open just three warehouses the company needed to open anyway. 16 million dollars in tax rebates from Fresno California in 2016. And in 2017 Amazon had 46 million dollars from the state of Florida, for it's warehouses in Miami, Polk County, and Jacksonville. In fact, if you add up all the deals just like these across the United States that Amazon has secured and tax breaks, it comes to one billion, 6 hundred million dollars ($1,600,000,000)
[32:19] That's a big grand total. Now, of course any city will say that they give these tax breaks again because the jobs at Amazon brings make up for it, and some of these municipalities like we mentioned are desperate for any economic investment because they're on the verge of bankruptcy; but the jobs that Amazon brings to the table don't necessarily make a community a better place. In San Bernardino, California for example. Amazon came to town in 2012 and now offers 15,000 jobs in nine different warehouse facilities, and the unemployment rate has fallen from 15 to 5%. That's pretty good right there right David, I mean that's a, you know, that's something the mayor should be proud of.
[33:02] Sure. Sounds all rosy... but something tells me there's more to the story then.
[33:07] Well I mean while that went on the number of people living in poverty in the area has risen 5% and the median household income has fallen 4%. So again, there's a lot that goes on under the hood of job creation. But let's look at the jobs themselves—let's take a minute, David, out of this very conceptual and somewhat boring topic of Economic Development to look at what is the job like that an Amazon warehouse offers. It's one of those 15000 jobs they brought to this town.
[33:39] Okay, well, what you can expect is $12 an hour, working grueling 10 hour shifts, during which you're constantly monitored and driven to move faster and faster all under the threat of termination if you ever fall behind. And then on top of that Amazon's anti-union message prevents workers from ever organizing—though they are trying to do that here in New York, congrats to them—and although warehouse jobs come with benefits like stock options, these don't actually kick in until after 2 years. The work of course is so difficult that many workers never even make it past a single year.
[34:12] Okay maybe it seems a little bit far-fetched that, working at a warehouse is so hard can't make it two years, but I think it's worth pointing out the type of chronic psychological stress that comes from the type of work that Amazon offers, which involve repeating physically tiring tasks over and over again while being pitted against your co-workers in a never-ending race against the clock. If you're a picker, for example, one of the most common jobs at an Amazon warehouse, your job is to go up and down these vast endless shelves, locate items as directed by your handheld device, and then place them in bins for someone else to take care of. Sounds easy enough, but once you're given an item to find, there's a countdown timer on your device; and if you fail to get this item in time, you get written up which leads to termination. [35:06] So then what Amazon will do, is it pools the data on worker activity, and it'll find the average time that it takes most workers to find a particular item, and then it will adjust its expectations downwards towards this average. So let's say for the past week you've had five minutes to find a particular item; one day you show up and now you only have 3 minutes. And so in this way, Amazon can constantly churn out workers in this vicious race to the bottom. And the timing goes beyond just these specific tasks but, when workers go to the bathroom, they're timed; if they take too long, they get written up. Lunch breaks. as you would expect, are extremely brief; again if you take too long to eat—written up, terminated. And to earn a single paid 10 hours off can take months.
[35:53] But Daniel as dystopian as that might sound, it doesn't even take the cake. Listen to this: so these workers are constantly told to work faster and faster and faster but every now and then the warehouse managers will do something called "Power Hour".
[36:08] That's where—that's when everyone gets a break and they get to drink some kind of protein shake—
[36:13] Maybe get some... protein infused waffles.
[36:16] No no.
[36:17] Breakfast for lunch.
[36:18] Unfortunately not. No what—[chuckles] what, what actually is happening here during Power Hour is that workers are told to work as fast as possible. Their times are track, and whoever is the fastest gets a prize. In one warehouse, what do you think the prize might've been even?
[36:34] A brand new Tesla vehicle.
[36:36] No Elon Musk promises frozen yogurt if they do well, but Amazon has a different type of prize, one more guess.
[36:43] You get to be manager for the day, and whip all your, your former co-workers with the nine tails that every Amazon warehouse manager employs, you know, to motivate its workers.
[36:56] Ah no not quite—uh they won a cookie.
[36:59] A single cookie.
[37:02] A single cookie.
[37:03] Well so I was kind of, ri—I was, I mean, I was on the right track with the waffles.
[37:06] On the right track, yeah. But of course Amazon is not just using this Power Hour to motivate people, but rather to re-adjust the expectations of what is normal, but I mean like I said I guess you get a cookie out the fact that—well you get chronic stress from potentially losing your job because you're not packing boxes fast enough—and that makes it all worth it.
[37:26] Long as it's chocolate chip—
[37:30] Amazon is the worst.
[37:32] But enough about Amazon; Amazon really deserves its own show, and I think at some point we'll have to do that, but let's turn back to some financial talk.
[37:40] Yea so this concept is not exactly an economic development incentive, but we threw it in here because it's kind of related to this idea of redirecting public funds to benefit businesses or benefit an area within a state, county, or city. And one of the most common tools that municipalities use to divert revenue is called Tax Increment Financing or TIF. And, essentially what it is, is a city will say 'okay this neighborhood here, we want a lot of economic activity to occur; now how are we going to incentivize that? We're going to create this TIF district. So every property within this new border, we're going to lock in the amount of general tax revenue we get from these properties, we're going to lock that into this specific year. So that won't go up. And after this year, any additional value that is added to these properties, if the value of this property goes up, we will still increase the taxes but every amount above that preset value that we locked in that's going to go into a special bank account, the TIF bank account, and we're going to use that money only on this specific district. So we're going to keep that additional tax revenue right here where we create this district, and maybe on the face of it that kind of sounds okay that sounds pretty normal, or that sounds like a creative solution to increasing the value of a of a place. But what ultimately does is directs tax money away from other region to benefit what so often is an already wealthy Pro business district.
[39:22] Well Daniel maybe you can clarify this for me, I mean if these things are just capturing future growth, how does it end up redirecting these funds?
[39:32] Yeah okay that's a good question that, I mean, it's kind of conceptual but think about it this way David, what this district is doing is capturing future tax revenue. Or future growth of property values, but property values generally rise over time no matter what. I mean this—that is a simplification of course you know we don't want to take it to extreme and lead up to another 2008, you know, housing mortgage crisis where we just assume property values go up, up, up forever, but it is safe to say that in most areas property values will rise at least along with inflation by let's say 3% each year. And local tax budgets are created on the assumption that these property values will continue to track with inflation. So in a way, first off, when you lock these values in, you're kind of condemning an area to declining tax revenues because it's not going to be able to keep up with the inflation that's going on. So, for illustration, let's say that a city announces an area as a TIF district. And on that news, property values rise 5% next year. Well that 5% increase in value goes exclusively to this district, but if property values outside this district rose 3%, then we can assume a majority of that increase in value would have occurred anyway. And so the extra money that is now available to developers and business owners in this tax increment financing district, well it actually came at the expense of tax revenue that should have and would have gone to other neighborhoods in this city, resulting in higher prices that everyone else has to pay for public services and potentially higher property taxes for everyone else.
[41:15] But another glaring problem with this, Daniel, is that the money is not used for general public services, but often things like storefronts and expensive businesses, which ultimately are just diverting development from one part of the city to this specific district. Although TIF began as a way to combat run down parts of municipalities, often it's simply use as a way to divert funds away from the general public, and into private real estate and business deals benefiting from an already well-off area. Things like hotels, high-end grocery stores, stadiums, tourist shops, and amenities.
[41:48] Just like those economic development incentives which are secret, almost all of these TIF districts operate under secrecy. So for example, a big user of this tool is Chicago, and the city of Chicago has been using this tax increment financing tool for decades now, and it has been increasing its use of it. From 2017 to 2018, the amount of tax revenue that collected by Chicago from these TIF districts rose by 18%, and that now represents 30% of all the tax revenue that the city collects; that's a huge amount of money. That's a huge proportion of Chicago's total tax base, that has been locked into these very neighborhood specific districts which can then be used in total secrecy to find private real estate developers or whatever they want, and that's because these funds are generally not subject to the same public approval process that other tax revenues are. I mean before your city for example can decide to increase spending on roads or cut funding for schools, residents have to vote on that. You see these signs all the time, you know 'vote no on Bill 2' or whatever. But these TIF funds can be directed behind closed doors and away from public scrutiny. And so, just like those economic incentive programs, this is another way that studies remove the public from discussions about tax spending. And ultimately enables politicians to hand out money to their friends who are developers, they can hand them out to businesses indiscriminately, and these are funds that could be better served by improving infrastructure, maintaining libraries, or other things that the public actually need and is used in common.
[43:41] But let's turn to something more exciting Daniel, and it's the Wide World of Sports! Yes, that's right.
(end of "Take Me Out to the Ball Game" plays)
[43:58] Another example of funneling public money into the pockets of private business and wealthy individuals is the long and storied history of financing sports stadiums; something which exemplifies the process of socializing cost of privatizing those profits for business owners. Until around 1950, almost all sports buildings were built with private money by the owners themselves. But in 1953, baseball team Boston Braves were relocated to Milwaukee Wisconsin, lured by a new stadium built completely with public money. This was the first relocation of a Major League baseball team in 50 years, and it set off a trend of publicly financed Stadium Construction in baseball and football. Because team owners realize they could pit cities against each other to see who could offer the most money for them to either keep their teams in their home city or relocate.
[44:53] A few examples for you; in 1984, Indianapolis convinced the Colts to leave Baltimore with a new 95 million dollar stadium. But then, in 1995 Baltimore enticed the Browns to leave Cleveland with a 229 million dollar stadium. And then three years later, Cleveland brought back the Browns with a 315 million dollar stadium. And so that's a great example of how this competition to house a famous sports franchise can result in runaway cost— renew shiny buildings that benefit primarily the team owners, but ultimately come out of the pockets of local communities.
[45:35] Shows you the real loyalty these teams have, to their towns. I mean, that original example, the Boston Braves they relocated to Milwaukee then from there they eventually came to Atlanta; and then just a couple years ago they moved from Atlanta out into the suburbs because Atlanta wouldn't pony up the bill for new stadium, and so now they are the Cobb County Braves, technically. But how does this happen? One of the most popular ways governments have funded these sports facilities has been through a tax-exempt municipal bond. So typically, when a city wants to raise funding for something, it will sell bonds to investors and banks. A bond is just a debt, and interests that investors make on these bonds are taxed as income; but there are certain bonds that are exempt from income taxation, usually because they serve a quote, "public good," and government wants to encourage people to invest their money in public works projects, But somehow sports stadiums have historically been included under tax exempt status, and that's what helps spurs so much unnecessary stadium construction and team relocations—because cities could offer these bonds at lower interest rates while still attracting investors because they wouldn't have to pay any taxes on. [46:42] But where the story gets interesting is 1986; Congress deciding that maybe it wasn't such a good idea to give sports owners free money for new stadium, amended the tax also that tax-exempt municipal bonds no longer apply to projects that were secured by private business activity— this meant that a city could no longer secure a bond with a stadium itself, nor could the debt be paid by business revenue like ticket sales. The thought by Congress was at no city would make the taxpayer totally liable for the cost of a stadium, [laughs] but unfortunately that's exactly what happened and because of the new rules, publicly-financed stadiums actually accelerated.
[47:18] Cities figured out they could still finance stadiums with tax free money as long as it was secured by something unrelated to the sports team, which often meant direct taxes on citizens. Things like higher property taxes, taxes on cigarettes and liquor, taxes on hotels and motels, or whatever. And between 2000 and 2017, some 13 billion dollars of tax-exempt bonds were used to construct 35 stadiums, resulting in 3.7 billion dollars in federal tax revenue that was lost. In addition to what came out of the locals' pockets, and based on data on the revenue that stadiums generate and their economic activity, it's been largely agreed-upon for 30 years or more that, the cost of a new stadium simply isn't worth it from the public's point of view. The money that publicly-funded stadiums suck out of communities ends up detracting from other important public goods that cities and towns should be spending on. [48:20] And it ultimately just redirects the spending habits of consumers; so instead of going to the movies maybe you go to the baseball game but, as we've been talking about, the ability for sports team owners to make these cities and counties compete against one another, creates this situation where maybe an individual politician might realize that it's going to be a bad investment for his or her city to invest in a—in constructing a new stadium. But that politician usually doesn't want to be the one that people are going to blame for losing a famous sports franchise. So instead they decide to spend the money, they get this big announcement, they get to go to the ribbon-cutting ceremony. And then by the time the cost have undermined budget for all the things that the city needs or a local neighborhood needs to be prosperous, well that politician might be long gone.
[49:18] Murdered by their constituents.
[49:20] And although new tax legislation however looks like it's finally catching on to this specific loophole that enables these federal tax exempt bonds, there's still a lot of different ways that team owners can get incentives from cities; particular taxes or promises to spend on infrastructure, or spend on providing security for free at every single event. So while the legislation finally is trying to catch up to this, you know, the team owners have wise enough they're ready for it and they're finding all these creative ways to get the public to fund ultimately what should be their private business costs, and they do it in these very sneaky ways that often the taxpayer doesn't notice until it's too late.
[50:04] That's right Daniel and to bring up Atlanta again, they just built a brand new beautiful stadium, football stadium, and the owner of this stadium and the team, Arthur Blank, he promised that he was going to limit the amount of public funds used for the construction of the stadium to just two hundred million dollars, but somewhere buried deep down in the final contracts of the funding for the stadium was the fact that, the hotel sales tax which he was using to fund this public portion of the stadium construction well it was just capped at 200 million dollars of upfront cost, but the remainder that went past that was going into a waterfall fund that would pay for upkeep of the stadium, maintenance of the stadium, upgrades to the stadium, over the next however many decades. And that total eventually climbed over seven hundred million dollars in total public contributions to this privately owned stadium. That's about half the cost of the total stadium built, but none the less we don't get free tickets to these stadium games, we don't get free access to this, this is not a public space, instead we're just coming in and paying half of this privately owned space. Could you imagine going up and paying for half of somebody's house and then send them saying, 'well thank you, you won't have this house, but you're not allowed in it, so if you want to come in you can pay $150 and then watch a football game with me and then you have to leave. And also beers are $20.' No that's that's not how it works, but for some reason in this world of corporate welfare that we've developed that is absolutely what occurs over and over again just like that Tesla factory that was built and paid for by taxpayers.
[51:32] And of course was particularly insidious about some of these processes and relating it back to the Atlanta example is that, well a lot of the major relocations, like from city-to-city, grab the headlines. A lot of these new, stadium constructions come about because team owners are making like small municipalities compete against each other like, 'okay I'm in the city of Atlanta but, Atlanta won't give me what I want so let me just move 30 feet across the city border to the county next door; I'll get this new construction and I'll still get to represent the same citizens in name even though I'm taking this tax money out of an additional community,' and that's what a lot of teams are doing now; they're looking at 'how can I put these two local counties against each other, ultimately retain my same market but just keep building up these tax incentives up and up and up and up?' But anyway David, this was kind of a short show we we really just kind of like threw out some like random examples of how—
[52:29] Yeah sorry everyone for the boring episode this week.
[52:33] But there are some common themes you know competition between local municipalities that ultimately benefit a select few wealthy business owners, right?
[52:44] Well, I guess that brings us then to the question of what can we do here? If we decide that we want to maintain a capitalist market-based economy like we have right now, then we just sort of have to accept the fact that these types of things are going to happen. And our ability to find recourse in these situations are unfortunately limited, and that most of that recourse is in holding our elected officials responsible—whether through elections or making ourselves part of these, like we mention, mostly opaque process. There are some cases where even after deals have been confirmed and paperwork signed, people were able to come together and take a variety of political actions as well as direct actions on the street that made these corporations change their mind—this happened in Berlin when they came together and force Google, who was planning on opening a large subsidized campus there, to leave the city instead. Right now in New York and in Virginia there are groups of people who are coming to try and prevent Amazon from entering their communities and wrecking it, in a variety of ways that only a giant Welfare Queen like Amazon can do. These types of actions again will be everything from political processes, pressuring local city council members, the mayor, Governor, as well as people just doing things on the ground, making it difficult to start construction and stuff like that. You can take these types of actions into your own hands at various levels of risks. But being aware that these things are happening in the first place is the first part of that battle.
[54:09] I completely agree with you but I think we need to expand on this idea of holding our elected officials accountable because going back to episode 49, The World Might Be Broken, where we criticize the atmosphere at Harvard University where we attended that conference. We should also avoid this simplification of promoting individuals that we think have a good personality or when it comes to these economic development deals, I feel like there's a temptation to say, 'okay, how can I support the politician who has the most experience negotiating deals? [54:43] Clearly, they'll make the best deals, they'll make a situation that's best for everybody.
[54:47] What if we don't want deals, Daniel?
[54:49] Exactly, well exactly then, and that's what I'm getting at is that before we think about who it is that we want to represent us, before we start staying how are we going to hold people accountable, we have to decide what are the fundamental policies that are essential to the way that we want to live? Should we make it a policy, should we allow policies and concept that enable private companies to receive public funding which they can then profit off of and lock the public out of? These are fundamental issues that it doesn't really matter a person's experience if they're not on board with those specific ideas that we want going forward we shouldn't support them. It's not about how charismatic they are, intelligent they are, how business-savvy they are...
[55:32] In addition to that we don't have to hold just these politicians accountable but also these companies themselves; most of them are trying to create and sell a product. Most of them in many cases have very good reputations: people are always talking about how Tesla's trying to save the world, how Amazon is making our lives so much easier, well maybe these companies are doing that at a very great cost for each and every one of our lives. And if we hold them accountable to that, if we don't talk about them in these great ways, if we don't use their services and—and I mean I'm not a boycott person I don't think they're particularly effective, but yes boycott these products, then we can maybe force them to be members of these communities and not try and just suck our wallets dry every time they move in and threaten us when things don't go their way. Because that's what they're trying to do, they're trying to bully us because we're dependent on them and their products and their jobs and the communities and the way they did come and dominate these communities. We can break free from that but it's not an easy process and it means we have to wait more than two days for our products that we order so...
[56:31] And also you know questioning the value of a job, in recognizing that not all jobs are equal. And we need to recognize how these companies benefit from rating competition among us as individuals. In those Amazon warehouses for example, the company drives massive productivity and efficiency by making individuals compete against each other. I think recognizing that is important being able to communicate that to your fellow colleagues if you're in a position at a job where you think you could organize, start talking to your colleagues. Don't allow this corporate culture of individualization and who can out-compete the other, don't let that get the best of you and end up hurting all of you. As you see productivity standards rise while salaries and wages remain flat and benefits for everybody are slashed... Fight back, and let's demand that when these companies come into our communities and start taking our resources that they actually give people the ability to live. Anyways David that is a lot to think about.
[57:35] Like always, but think about it we hope you will. You can learn more about all these topics, read detailed numbers on these subsidies, as well as a full transcript of this episode on our website at ashes ashes dot org.
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[58:23] No, that's going to be the tattoo package David.
[58:24] You can also find us.
[58:26] That one's permanent.
[58:27] On your favorite social media network at ashes ashes cast. Next week we'll have a little bit more fun with our episode, it's something that we both are very excited about and we hope you'll tune in for that.
[58:39] You arrrr not going to want to miss it.
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