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Report: Amazon subsidy could add up to $2 billion

Friday, Oct 20, 2017

* Paris Schutz at WTTW

Chicago, Cook County and Illinois government are willing to shell out an incentive package worth around $2 billion in order to lure Amazon, according to two sources close to the bid process. That breaks down to around $1.6 billion in tax breaks and $400 million in infrastructure and capital spending around the project, the sources said. It is not known how the money is divided up between city, state and county, and over what period of time the incentives would be paid.

The main tax incentive the state has to offer is the EDGE tax credit, which was re-authorized into law this year by Gov. Bruce Rauner after it had expired. It works as a credit against payroll taxes for companies that create new jobs in the state. The credit has been controversial in the past, but several analysts say it would make sense in this instance, as Amazon is pledging to create 50,000 new jobs with an average salary of $100,000 and invest $5 billion in new office space. […]

Others point to the fact that the choice is between having Amazon and giving them tax breaks vs. not having the company at all. “It’s not as if you’re pledging current revenue to them,” Msall said. “That revenue doesn’t exist yet. You’re just pledging future revenue if they get here.”

* Related…

* Some of Amazon’s Suitors Have Been Burned Before: Good Jobs First says that in trying to lure and retain employers, many cities and states give away more than they get back. The group’s analysis of 386 deals worth at least $50 million since 1976 found that the average cost per job created was $658,427 — far more than cities and states could expect to get back from income taxes, sales taxes, property taxes or other revenue.

- Posted by Rich Miller        

32 Comments
  1. - Ed Higher - Friday, Oct 20, 17 @ 9:58 am:

    “We lose money on every deal, but we make it up in volume…”


  2. - Amalia - Friday, Oct 20, 17 @ 9:59 am:

    I just can’t get my hopes up about this one. Chicago is an amazing place, with great universities, a transportation system that is much better than residents give it credit, a workforce ready to meet the workplace challenge, and an environment of cultural richness. But maybe they will move to Austin, apparently a top choice. so I can’t get emotionally invested. I’m still not over the Olympics loss. who knew that another city could be better at bribes.


  3. - The Captain - Friday, Oct 20, 17 @ 10:03 am:

    NJ reportedly offered up to $7 billion, so if Illinois wins it won’t be because we bought it.


  4. - HangingOn - Friday, Oct 20, 17 @ 10:03 am:

    Offer them the Thompson Center. 2 birds, one stone :p


  5. - Homer J. Quinn - Friday, Oct 20, 17 @ 10:08 am:

    the workforce they’re trying to attract doesn’t want to live in Chicago. they’re not going to choose a location that would actively deter new talent. it’s going to be Denver.


  6. - TopHatMonocle - Friday, Oct 20, 17 @ 10:11 am:

    Not even one third of what New Jersey offered. Guess we can stop all the hand-wringing over this, Amazon isn’t coming.


  7. - Blue dog dem - Friday, Oct 20, 17 @ 10:11 am:

    Sales tax a must on internet sales.


  8. - Retired Educator - Friday, Oct 20, 17 @ 10:12 am:

    Nothing ventured, nothing gained. I know that if we don’t get the facility we don’t get the jobs. Maintaining the status quo isn’t an option. If we want the state to prosper we need this type of business to come to Illinois.


  9. - Robert the 1st - Friday, Oct 20, 17 @ 10:17 am:

    Chicago is at capacity. Which is a good thing. I don’t think the city has a chance at this HQ2. Not to mention the other issues.


  10. - PJ - Friday, Oct 20, 17 @ 10:26 am:

    ===Not even one third of what New Jersey offered.===

    Good. The race to see who can give the most enormous tax break to a multibillion dollar corporation is not one I want to win.

    Basic free market economics that conservatives claim to adore would tell you that massive government subsidies are not a stable or efficient path for growth.

    Politicians want to tout the job numbers. They don’t want to calculate the potential damage that a Foxconn-like deal could actually cause in the long run. I’d love to have them choose Chicago, but not because we subsidized them to the tune of the yearly GDP of a small country.


  11. - Anonymous - Friday, Oct 20, 17 @ 10:34 am:

    Listening to NPR on the way home last night, and the term corporate citizen popped up concerning Amazon. They a city like Detroit might be a place they should look at to aid in revitalization instead of whichever city could roll out the biggest “cactus”.

    http://www.npr.org/2017/10/18/556958482/a-major-distraction-is-a-mega-deal-like-amazon-s-hq2-always-worth-it

    https://www.citylab.com/equity/2017/10/a-tale-of-two-cities-and-two-companies/543405/

    https://www.bloomberg.com/view/articles/2017-10-17/amazon-has-a-chance-to-redefine-corporate-responsibility


  12. - My button is broke... - Friday, Oct 20, 17 @ 11:15 am:

    With those job and salary numbers, it would take 8 years for the State to recoup the $2 billion figure just on the income taxes of those workers (sales and property taxes and other taxes would be gravy). So for $2 billion, that’s a steal. I’m surprised the number isn’t higher.


  13. - Last Bull Moose - Friday, Oct 20, 17 @ 11:15 am:

    Amazon would be economically and culturally transformative. Chicago could absorb the additional people, though there would be many complaints about gentrification. Chicago is still down about 1 million people from its peak population.

    $2 billion would be money well spent.


  14. - m - Friday, Oct 20, 17 @ 11:19 am:

    There are a lot of articles and analysis trying to guess what city wins. Has anyone seen one where Chicago is even a top 5? It’s an honest question., just curious how they would describe it.
    Here’s one of the better ones I found- https://www.forbes.com/sites/marciaturner/2017/10/19/amazon-is-most-likely-to-build-its-second-headquarters-in-1-of-these-5-cities/#20c272ca6168


  15. - Responsa - Friday, Oct 20, 17 @ 11:29 am:

    ==the term corporate citizen popped up (NPR) concerning Amazon. They a city like Detroit might be a place they should look at to aid in revitalization==

    Yeah that’s pretty silly. Its not Amazon’s responsibility to pick a city to come into to “revitalize”. HQ employee types clamoring to move to Detroit? Not so much.
    Most people I know won’t even go to Detroit to attend baseball games or basketball tourneys anymore.


  16. - Rich Miller - Friday, Oct 20, 17 @ 11:30 am:

    ===HQ employee types clamoring to move to Detroit? Not so much.===

    It’s a hipster mecca these days.

    ===Most people I know won’t even go to Detroit to attend baseball games===

    Says more about you than you might think.


  17. - Loop Lady - Friday, Oct 20, 17 @ 11:34 am:

    Detroit is already on its way back…

    I fail to see a long term upside snagging Amazon…

    Besides, they are responsible for the demise of shop local…


  18. - Anonymous - Friday, Oct 20, 17 @ 11:45 am:

    Inside information is leaking and Chicago is not on the list. Austin Tx and Atlanta GA are rumored to be #1 and 2 followed by some other non-Illinois cities.


  19. - City Zen - Friday, Oct 20, 17 @ 11:48 am:

    Why don’t we build Amazon a stadium? It’d be cheaper.


  20. - Been There - Friday, Oct 20, 17 @ 11:48 am:

    If their projected number of 50,000 jobs actually came through we would have to be offering them almost $33 billion if we used the $658,000 average. The $2 billion deal is only $40,000 per job. If we get it that would be a steal.


  21. - Been There - Friday, Oct 20, 17 @ 11:51 am:

    ===It’s not as if you’re pledging current revenue to them,” Msall said. “That revenue doesn’t exist yet. You’re just pledging future revenue if they get here.”====
    This is the least understood part of most incentives. And a lot of the press seem to be the least educated on how these incentives actually work.


  22. - Epic - Friday, Oct 20, 17 @ 11:52 am:

    New Jersey’s 7 billion give away means nothing, the largest city in NJ is not even half a million people so it does not even meet the requirements. They are just trying to desperately bribe there way in. It might get some overspill if New York or Philly area get it.


  23. - @MisterJayEm - Friday, Oct 20, 17 @ 11:55 am:

    “Amazon would be economically and culturally transformative.”

    Yes, but that cuts both ways, e.g. http://www.chicagotribune.com/business/ct-biz-amazon-50000-workers-seattle-20171020-story.html and https://www.seattletimes.com/business/amazon/thanks-to-amazon-seattle-is-now-americas-biggest-company-town/

    – MrJM


  24. - Curl of the Burl - Friday, Oct 20, 17 @ 11:56 am:

    Quicken relocated to Detroit - in part to help jump start Detroit’s economy and standing. Their plan is working.


  25. - Anon221 - Friday, Oct 20, 17 @ 12:21 pm:

    Detroit has some pretty impressive PR just released. Watch the video.

    http://www.detroitmovestheworld.com


  26. - City Zen - Friday, Oct 20, 17 @ 12:29 pm:

    ==Quicken relocated to Detroit…==

    …from a suburb 20 miles away.


  27. - Cassandra - Friday, Oct 20, 17 @ 12:58 pm:

    It sounds like a bad deal (for taxpayers) to me but I suppose it’s all in the assumptions you make and the way the data are presented. I’m sure Amazon and our local politicians will present an excellent case for these gigantic tax breaks.

    I am, however, intrigued. What are these 50,000 employees making an average of 100k going to be doing? I thought today’s tech behemoths were heavily into automation and small human workforces.


  28. - wordslinger - Friday, Oct 20, 17 @ 3:00 pm:

    ===HQ employee types clamoring to move to Detroit? Not so much.===

    There is a little mom-and-pop outfit called General Motors.

    ===Most people I know won’t even go to Detroit to attend baseball games===

    Oh please. Tigers drew 2.3M in a down year. It’s a great ballpark and perfectly safe.

    –New Jersey’s 7 billion give away means nothing, the largest city in NJ is not even half a million people so it does not even meet the requirements.–

    There’s a pretty big city just across the Hudson, another just across the Delaware.

    I get the impression that some are working themselves into a state that this Amazon “competition” is “Chicago’s to lose.” Is there any reason to believe that?


  29. - Whatever - Friday, Oct 20, 17 @ 3:40 pm:

    Cassandra — the whole notion that there are going to be 50,000 jobs or that they will pay $100,000 each on average is hype, at best. This is for a second headquarters, and not a move or replacement of the old headquarters. Amazon’s pitch makes it sound like it will grow to the size of its current headquarters, or 50,000, and promises “high paying” jobs, without getting specific. Amazon’s most recent 10-K says it had 341,000 employees as of 12/31/16. What on earth are they going to do with 100,000 headquarters employees? Also, for 2016, Amazon reported operating expenses (other than costs of sales) of about $43.5 billion, which works out to less than $126,000 per employee if 100% of those costs were for employee compensation, which is obviously not the case. So states can dream on about the $100,000 average salary.


  30. - Ginhouse Tommy - Friday, Oct 20, 17 @ 4:03 pm:

    While the Chicago area has a lot to offer the financial situation in the state is a downer. The traffic is a killer too. The NYT did an article where the picked the city for Amazon and they figured out Denver was the best choice. Chicago and St. Louis was out on the first go round. I get the hometown pride thing but realistically Chicago has on outside shot.


  31. - Lefthand Louie - Friday, Oct 20, 17 @ 4:35 pm:

    Whichever state wins the Amazon HQ2 bidding war is going to pay a king’s ransom. And it will be worth it.

    This is a generational opportunity, and would be a big big win for Chicago and Illinois. I know there is a reluctance to overpay, but Amazon is a transformative entity unlike most others. Every retailer today fears Amazon.

    If it happens it would re-energize the city, and pay dividends to the state. Despite all the positives Chicago and Illinois have to offer, the inability of leaders across our state to demonstrate they can work together consistently is a big hurdle to overcome. All leaders, even OW’s beloved Mike Madigan are to blame. As is Rauner and Rahm.


  32. - Oswego Willy - Friday, Oct 20, 17 @ 4:39 pm:

    === All leaders, even OW’s beloved Mike Madigan are to blame.===

    Making it about me isn’t making an argument.

    I know, it felt good to type, lol

    I’m a Republican and right now Raunerism destroyed the ILGOP, Bruce and Diana Rauner own it now.

    To this idea who owns the loss?

    Looks like Rahm and Bruce want the win… so are you saying Madigan wins if Bruce and Rahm get Amazon too?

    You think on that, lol


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