AMZN Amazon.com Inc

By Valerie Bauerlein, Kate King and Cameron McWhirter 

The collapse of Amazon.com Inc.'s plan to build a second headquarters in New York City has the potential to damp some states' willingness to offer tax breaks.

Spurred by Amazon's second-headquarters selection process, politicians and groups long opposed to incentive packages have launched legislative efforts to prohibit them in some states. In New York, bills proposed in the State Assembly and Senate call for compacts with other states promising to not provide any company-specific subsidies.

Recent pivots by large companies, including Foxconn Technology Group and General Electric Co., will likely lead to increased attention to incentives tied to performance and timelines, with an emphasis on long-term commitments, said Jeff Finkle, president of the International Economic Development Council, a group that represents economic-development officials across the U.S.

"Amazon said they were coming, Foxconn said they were coming, communities did back flips to get them," Mr. Finkle said. "When is a deal a deal? And how much effort do you put into these?"

Seattle-based Amazon said Thursday it would no longer invest $2.5 billion and hire 25,000 people in Long Island City, Queens, citing increased public opposition to the project. Apple Inc. supplier Foxconn has sent mixed messages about its plans to invest $10 billion in southeast Wisconsin, saying it wouldn't build a factory as promised then reversing course after a conversation between its chairman and President Trump.

Amazon's 14-month search for a 50,000-employee second headquarters, or HQ2, along with Foxconn's 2017 competition for a 13,000-employee electronics plant, were the biggest economic-development deals in the U.S. in recent history. Amazon shared its planned expansion between New York City and a Northern Virginia site, which was generally well-received.

Tax breaks designed for specific companies, as opposed to broader programs that companies automatically qualify for if they create a certain number of jobs, are the most vulnerable to misuse and stand the best chance of being reined in following the collapse of the Amazon deal, said John Kaehny, executive director of the New York-based watchdog group Reinvent Albany.

But, he said, politicians love them. "To the politician it doesn't really matter if that business would create jobs there with or without subsidies," Mr. Kaehny said. "What matters is that politician can get credit for it."

New York Mayor Bill de Blasio said Thursday at Harvard University's Kennedy School that Amazon made a mistake in pulling out of his city, but he accepted the competition as the way of the world.

"I don't think it's really fair to pit city against city and state against state, but that's the rules of the game right now," he said.

With the Amazon deal, however, some politicians took the position that it was better to criticize major tax deals than to support them.

Big-ticket incentive packages have been used for more than 20 years, predominantly to attract manufacturers with lots of employees and capital investment, but the unraveling of big-name deals draws attention to an imbalanced relationship between corporations seeking to do business cheaply and communities desperate to attract jobs.

"One thing is for sure: the Amazon HQ2 NYC fiasco is creating -- or should I say, elevating -- a really significant debate over communities and corporations," Richard Florida, a University of Toronto professor who studies urban economic development, said in a tweet Friday morning.

Scholars and think tanks from across the political spectrum have reached a consensus over the past five years that corporate tax breaks don't achieve their objectives, Reinvent Albany's Mr. Kaehny said.

Frank Manzo IV, policy director of the Illinois Economic Policy Institute, a nonpartisan public-policy research group, recently examined corporate incentives and concluded that often they are "an inefficient way to spend taxpayer dollars."

"You could create even more jobs and even more economic growth if tax dollars are instead invested in broad-based public investments, such as education and infrastructure," Mr. Manzo said.

New Jersey shows the difficulty of changing the status quo. Democratic Gov. Phil Murphy has criticized the state's current approach to subsidies and is calling for a new, pared-back program that lowers the values of tax credits companies can earn and establishes an annual cap on tax credits awarded.

But business leaders and some lawmakers, including from Mr. Murphy's own party, are pushing back, and the fate of the state's two main tax-incentive programs is unclear. They are set to expire this summer and renewing or revamping them will require lawmakers and the governor to agree on legislation.

At the same time, Gov. Murphy said he had called Amazon officials to reiterate the state's HQ2 interest after the company announced it would abandon its New York plans. In the competition, the state had offered Amazon its biggest corporate subsidy offer yet: $5 billion in incentives to open a corporate campus in Newark.

New Jersey and Newark officials also sent a courier dressed in red and toting a Valentine to an Amazon office in New York on Thursday. The large cardboard heart said "NJ & NEWARK STILL LOVE U, AMAZON" and was accompanied by helium-filled heart balloons.

Big public-incentive packages aren't likely to go away because not all states are apt to sign on to a disarmament pact, especially aggressive states like Texas and Georgia, Mr. Finkle said.

"If they're not included in that legislation, then you're just shooting yourself in the foot. The problem with incentives is as long as somebody has them, a company is going to discount you" if you don't ante up, he said.

Write to Valerie Bauerlein at valerie.bauerlein@wsj.com, Kate King at Kate.King@wsj.com and Cameron McWhirter at cameron.mcwhirter@wsj.com

(END) Dow Jones Newswires

February 15, 2019 14:46 ET (19:46 GMT)

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