The Finance Curse. Nicholas Shaxson
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and wire-framed glasses. He operates out of an office in a beautiful white-painted former farmhouse with Harrods-green shutters and set among lush clipped lawns, and his job is to persuade businesses to move to the area: first Lenexa, then Johnson County, then Kansas State. He seems to have been effective. Lenexa is a haven of high-end business parks, sprawling low-rise office buildings, and industrial centers, nestled among pretty suburban developments chock-full of architects, engineers, and bioscientists living comfortably behind white picket fences. Employment in Johnson County has been growing by over 4,000 jobs on average a year, and its median income is 40 percent above the national average.22
When I met him Schreck outlined a number of traditional reasons so many businesses come to the area. “We have had good elected officials who are not afraid to get infrastructure out ahead of growth: streets and roads and sewers and all these kinds of non-sexy things. Over the years it has paid off,” he told me. But the excellent local public school system is key, he said. “The hard Right come here and say all that matters is the lowest possible taxes. But here in Johnson County we are the antithesis of that. It is about total community development. Here they are paying for excellence in a safe neighborhood. We have proven that that is the model that works. Honestly and truly,” he continued, “in thirty years of doing this I have never had anyone telling me the taxes in Kansas are too high. It has never been an issue. When I started here, we looked down our noses at anyone who even dared ask for an abatement or incentive: we thought, ‘If you want to be in our community you pay your way and join the community.’” Idaho’s governor Cecil Andrus would have approved.
But the conversation then turned darker. Certainly by the 1990s, Schreck said, he had noticed direct contact with potential businesses being replaced by a more aggressive brand of consultant, who rudely and ruthlessly changed the calculations. “Instead of ‘Hey, come on in and have a beer and a steak, and let’s get to know each other and see if you like our community,’ the whole process is more cold and clinical now. You’re put in a matrix on some consultant’s spreadsheet, and you want to get into their top ten. You have to be ready to respond to these data-heavy requests: they want information overnight on a five- and ten-mile demographic slice and study. Everything is now driven by the consultants. That is the big change in the industry. Incentives coalesced around and became part of this whole culture when the consultants started driving the relocation train.”
A culture of secrecy has crept in along with the consultants, and in their hands it is a deadly weapon for jimmying more corporate subsidies from the public purse. Secrecy helps the consultants exaggerate and lie about what rival places are offering while preventing you from checking, so they can squeeze the last drops out of your desperate state or city. Schreck pulled out some files and riffled through them, reading out project names like Bigfoot, Redwood, and Maple, each with ironclad confidentiality clauses attached. “We’ve had big deals here where six to ten people come in from a company, and we’re not even allowed to know their first names,” he said. Schreck and his colleagues gave them names from the Quentin Tarantino movie Reservoir Dogs: Mr. Pink, Mr. Orange, and so on. “These are the extremes we’ve been driven to.”
In LeRoy’s long experience, companies nearly always decide where they want to relocate to before they start playing the states against one another, but with consultants earning up to 30 percent of the value of the subsidy package, they have every incentive to deceive and exert undue pressure, and around 90 percent of the value of incentives gets gobbled up by big businesses; small businesses hardly get such opportunities.23 Not only that, but the tax incentive game is notorious for corruption, with public officials being paid off or receiving campaign “donations” for rubber-stamping juicy deals. There are many revolving doors.24 The Missouri-controlled part of Kansas City, for instance, has set up an arm’s-length economic development corporation (EDC) whose avowed goal is “a competitive, vibrant and self-sustaining economy,” but its staff members rotate in and out of the big law firms negotiating the handouts. The EDC also gets a cut of each deal, while tax abatements come out of someone else’s budget: the classic free-rider problem.
Johnson County, Schreck said, now typically gives a 50–55 percent property tax abatement for incoming businesses, but aggressive companies have squeezed out more: the restaurant chain Applebee’s got 90 percent for ten years by playing the we’ll-move-to-Missouri card. The Missouri Port Authority gives up to 100 percent. Even more remarkably, the Promoting Employment Across Kansas (PEAK) program peels off—get this—as much as 95 percent of the withholding taxes levied on employees’ payrolls and, instead of handing those taxes over to the hard-pressed state, funnels these sums back to the companies employing them for up to ten years. Other deals allow companies to get their sales taxes paid in their projects. Such deals are becoming increasingly common across the United States, and they’ve got a nickname: “paying taxes to the boss.” There are other goodies, such as zero-interest loans or outright grants from states. “We are now at a point where there is an expectation pretty much from every company that comes along that there is going to be some financing,” Schreck said. “There are other states that blatantly pay you—we aren’t close to that point.” Yet the race seems to be speeding up, and different tax jurisdictions are increasingly at each other’s throats. “We’ve traditionally been great partners, but it’s put us at odds with each other. Put a bunch of rats in a box and if there’s plenty of cheese, no problem. But take away the cheese, and they start biting each other.”
Just a few miles east of Schreck’s offices, immediately across the state line, is Jackson County, Missouri, where I met Bruce Eddy, executive director of the Community Mental Health Fund. This is a public sub-fund that channels a little over $10 million per year into charities serving some fifteen thousand victims of domestic and sexual violence and people with mental health needs.25 Most of its revenues come from a single stream, local property taxes. This is different from most tax systems around the world, where various taxes flow into the maw of a general public budget, then get mixed up and spat out in different spending allocations, so you can’t see the direct effects of any given tax cut. But here property taxes railroad straight through to particular spending lines, such as this fund. So competitive tax abatements have direct victims.
Eddy’s work is intensely political, and he reports to elected officials, so he was guarded talking to me, but it was soon clear how badly the property tax abatements slice into his budget. “It’s like a hydra,” he said. “There are many tax abatements, and I have to fight for revenue to serve mentally ill people. This is not a sport.” “Competitive” tax cutting has become like a mania. “There’s a circular discussion going on here. Cutting taxes is good. Why? Because it’s ‘competitive.’ Why is ‘competitive’ good? Because it means lower taxes! That plays into the neoliberal agenda that doesn’t like the common good. The notion of being a human that merits some reasonable standard has been totally dismantled. And it’s getting worse.”
This game has spread across the United States and the world. One of the bleakest recent tales concerns Amazon, which in 2017 announced plans to build a second headquarters, dubbed HQ2, and asked cities to submit secret bids stuffed with incentive packages. Amazon knew where it wanted to set up all along—somewhere that offered deep pools of educated workers and executive expertise and maximum access to political power.
Yet it deliberately kicked off a ferocious beehive of bidding, as 238 cities scrambled to offer ever-bigger packages. Much of the bidding was shrouded in secrecy to maximize the anxiety, but of the details that emerged we know that Newark, New Jersey, offered a $7 billion package, and Chicago offered to let Amazon receive up to 100 percent of all income taxes paid by its employees. St. Louis, Missouri, offered $7.3 billion, and Montgomery County, Maryland, offered $8.5 billion for the $5 billion project. (Jamie Dimon, the CEO of JPMorgan Chase, said he would watch to see who won the bidding, then call up their lawmakers and demand the same.) In the end, though, Amazon didn’t go with any of the high-bidding places. In November 2018 it announced that it had split the bid between Long Island City in Queens, New York, and Crystal City in Arlington, Virginia, just seven minutes’ drive from the Pentagon, probably its most profitable client, and fifteen minutes from the White House. The combined bid came to a measurable $4.6 billion in subsidies to Amazon, plus a range of unmeasurable or hidden costs, including a potentially very large tax break for