Greg LeRoy and I have written an article at Shelterforce explaining the basics of the European Union’s rules governing subsidies, or “state aid” in EU-speak. As the article is ungated, and regular readers will remember much of the detail, I will not quote it here. Suffice it to say that the continuing reverberations of Amazon’s HQ2 project have opened space to shine a brighter light on economic development subsidies.
In addition, Tim Bartik of the Upjohn Institute has a series of thoughtful tweets commenting on our article. His one reservation with the EU approach appears to be that even with the scaling down of the maximum subsidy allowed for large projects, the amount allowable might still be too high. If I’m not reading too much into his comments, it seems he would favor an absolute dollar cap on subsidies for the largest projects. He also admits in his counterfactual analysis of Foxconn in Wisconsin that the Racine/Kenosha area wouldn’t be eligible for the highest level of incentives under the EU rules, so his scenario of a $1.7 billion subsidy being possible isn’t fully accurate. In fact, it looks to me that Kenosha and Racine counties are just slightly below the national average for income per capita, and certainly not less than 75% of the average, the key figure that would make an EU region able to have even a 25% regional aid maximum.* The next highest aid maximum allowed in the European Union is 15%, and 34% of that (the scaling factor for investment over 100 million euros) is just 5.1%. Thus, a $10 billion Foxconn project would be eligible at most for a tad over $510 million in subsidies, not $1.7 billion.
I’d love to hear your take on our article.
* More technically, a per capita GDP below 75% of the EU average is required for designation as a “107(3)(a) area,” named for the treaty paragraph it is listed in. See Regional Aid Guidelines for 2014-2020, paragraph 150. 25% is the lowest aid maximum in a 107(3)(a) area, while 15% is the highest aid maximum in a 107(3)(c) area, available to regions between 75% and 100% of the EU average, plus a few exceptional situations such as very low population density.
I agree. There should be a cap on how much
of a bribeaid should be given to companies. Even more so now with the cuts in corporate tax by Trump in 2017. Was the $648,000 a per job cost for Amazon? If you take Median income for every worker, that is 13 years before Amazon spends dime one. All my cousin could argue was NY Queens lost jobs . . . but at what f*cking cost? Ken, they do not care as it hardly impacts privileged jerks.
Yes, on the caps and yes they should have time limits so the companies do not keep them in reserve like they do in Michigan which is #3 or 4 in giving money away to companies while its bridges and roads fall apart, Good article Every time I read one of your I store it away.
Thanks for the kind words.
Yes, incentives like this are even more of an abomination in the wake of their previous 2017 tax cut. The $648,000 figure does not include Amazon; it is an average applying to older deals. The Queens deal worked out to about $264,000 per job ($3.3 billion incentives / 12,500 jobs). But remember that the incentive exceeded the entire investment that Amazon would have made in Queens!
It is a good commentary on how business operates today. I live in Michigan and we bleed giveaways. Plus they do not have to use them in the years they are granted. Automotive companies store them up for a rainy day. They are worth more to them now with the tax cuts for corporations.