Can the states agree to mutually disarm when it comes to the billions of dollars in economic incentives that are spent annually coaxing companies to move, expand or sometimes merely stay put?
State lawmakers said Tuesday it is worth trying to find out. They are filing legislation directing Connecticut to join a nascent effort to develop an interstate compact banning company-specific incentives that are essential to corporate border wars.
“We should not be in the business of poaching,” said Rep. Josh Elliott, D-Hamden, a sponsor of the bill. “Connecticut should not be targeting businesses in other states, and other states should not be targeting employers in Connecticut.”
Last year, Missouri and Kansas agreed to end a border war in which $335 million was spent since 2010 on economic incentives aimed at luring companies in and around Kansas City, a metropolitan area that spills across state lines.
New York, New Hampshire, Florida, Illinois, Hawaii and West Virginia are considering variations, Elliott said. His bill is modeled after a version proposed last year in New York.
Good Jobs First, a self-described corporate welfare watchdog, published a policy paper asserting that the recent “public auction” staged by Amazon as it sought a location for a second headquarters was a politically galvanizing moment.
“How is it, many ask, that a company valued at almost $1 trillion and led by the world’s richest person could be allowed to stage a public relations blitz that caused hundreds of politicians — Democrats and Republicans alike— to publicly grovel, many of them offering undisclosed, multibillion-dollar subsidy packages?” the watchdog organization asked.
Amazon chose a site in Long Island City, Queens, but then canceled its plans in the face of fierce opposition over the nearly $3 billion in government incentives offered to the tech company that’s turned the retail industry on its head.
But Amazon subsequently leased space to expand in New York without the subsidies, albeit on a far smaller scale than the 25,000 jobs promised for Queens. According to the Wall Street Journal, the company now will employ 1,500 employees in Manhattan.
“We know these subsidies aren’t necessary,” Elliott said. “They are a race to the bottom, and there is no net gain.”
Rep. Jason Rojas, D-East Hartford, the co-chair of the Finance, Revenue and Bonding Committee, is backing Elliott’s bill as a way to protect the state against corporate blackmail.
“Unfortunately, it’s one of those situations where states are kind of stuck. What are they to do if a company that’s here now is suggesting that they are going to leave?” Rojas said. “It’s a difficult spot to be in. Certainly, we don’t want to act unilaterally.”
The administration of Gov. Ned Lamont has retreated from the big-ticket incentives offered by his predecessor, which included $21 million in direct aid and $50 million in tax credits for Cigna to relocate its headquarters from Philadelphia to its campus in Bloomfield.
“Here’s what we agree on: Incentives don’t drive the economy. That’s not the key to a successful economy,” said David Lehman, the governor’s economic adviser and commissioner of the Department of Economic and Community Development.
Lehman said stable taxes, workforce quality, good transportation and livable cities are more important.
After borrowing about $200 million a year for economic development in recent years, the Lamont administration borrowed only $60 million last year.
“That’s $140 million we didn’t put on the credit card,” he said.
But Lehman was wary about a restrictive compact.
“I’m happy to continue the dialogue,” Lehman said. “I just think we need to be able to compete with other states.”
Lehman said he wished the U.S. government would follow the example of the European Union, which has strict rules for economic incentives.
“If the U.S. on the federal level adopted it, I think that would be best,” he said.
Rojas said filing the Connecticut legislation was most likely the start of a longer conversation.
The National Governors Association last debated the issue in 1993, according to Good Jobs First.
In 2016, when Malloy was releasing an analysis of his incentive program, he viewed the interstate competition as unavoidable. He was asked then if he ever felt a company was playing him off another governor.
“Sure. Absolutely,” he said. “There’s no doubt in my mind. That works both ways. We’ve had people approach us who simply wanted us to have discussions that they could quote elsewhere.”
From 1995 to 2009, Connecticut spent big to lure UBS, RBS and the headquarters of Starwood Hotels & Resort from New York to Stamford, but Lehman said the New York-Connecticut border war has cooled, though Diageo announced last year it was leaving Norwalk for New York City.
The New Jersey-New York border has seen more action, he said.
Last year, the New York Times reported that a dozen companies had extracted $100 million in tax credits from New Jersey by suggesting they were looking at New York. All 12 companies claimed they were exploring leasing the same building in Pearl River, N.Y., and the newspaper found that few, if any, were seriously considering a move.