Amazon HQ2: Texas experience shows why New Yorkers should be skeptical

New York offered Amazon close to US$3 billion to build a “second” headquarters in Long Island City on the promise of 25,000 jobs.

Since the deal was joyfully announced in November, however, many local residents and some politicians in the area have been questioning whether it’s worth it, both in terms of the price tag and the impact on housing and traffic congestion. There’s now a real possibility that the deal could be blocked.

The research supports those who question the wisdom of cities and states incentivizing economic development. Studies suggest the jobs and economic gains are usually not worth the tax breaks since the majority of companies would have come even without incentives.

And that’s when the companies try to live up to the promises they made. They don’t always do so, with the latest example being Foxconn’s announcement that it is reconsidering plans to build a factory in Wisconsin – less than a year after agreeing to create up to 13,000 high-tech jobs in exchange for more than $4.5 billion in incentives.

But how often do companies that agree to build factories and create jobs in exchange for economic incentives back away from their promises? And when they do, do taxpayers ever learn about it?

To shine light on these questions, we conducted a study of a Texas economic development program. Taxpayers in any American city considering luring a company with cash should take heed.

Trump takes part in a groundbreaking with Wisconsin Gov. Scott Walker and Foxconn Chairman Terry Gou. Reuters/Kevin Lamarque

Something to hide?

The Texas Enterprise Fund, which started in 2003, allows the state to offer cash grants to companies in exchange for promises of investments and job creation. As of Jan. 1, the program had provided over $600 million in cash incentives to companies vowing to create over 94,000 direct jobs in Texas.

In our study, we submitted public records requests for company applications and agreements for grants. We wanted to see what companies had promised the state in return for the cash.

Our research led to two troubling findings. First, public record law in Texas allows companies themselves to legally challenge requests – which is controversial yet not uncommon among other states.

In our study, 42 out of the 165 recipient companies submitted legal challenges to our requests. Before even seeing the data, we were asking ourselves: What are these companies trying to hide?

Although companies were partially successful in limiting our requests, primarily in getting certain parts of their proposals redacted, the governor’s office ultimately provided us with a complete list of companies that had some amendment to their contracts.

To our surprise, over a quarter of companies in the program – or 46 – had renegotiated their incentive deals with the state. These deals weren’t announced by the governor’s office nor were they reported anywhere online.

Our public records request is still unfolding and we still haven’t received the contracts for roughly two-thirds of these companies. For the 63 companies whose contracts we received, 29 had amendments to the original.

Comerica Inc. announced plans in 2007 to relocate its corporate headquarters to Dallas. AP Photo/LM Otero

SpaceX and Comerica

Most of these amended contracts were designed to reduce companies’ commitments to job creation. Two cases in point are SpaceX and Comerica.

SpaceX – a company that designs, manufactures and operates commercial spacecraft – received a $2.3 million grant in 2013 in exchange for a commitment to create 300 jobs at a new launch facility near Brownsville, Texas. In 2017, however, the company secretly renegotiated its grant contract to halve the size of the deal: SpaceX would reduce its commitment to 150 new jobs in return for a grant of $1.15 million. The situation is still a mystery, however, because the fund hasn’t paid any funds nor has SpaceX reported jobs as part of the program.