Richard Florida is a co-founder and editor at large of CityLab and a senior editor at The Atlantic. He is a university professor in the University of Toronto’s School of Cities and Rotman School of Management, and a distinguished fellow at New York University’s Schack Institute of Real Estate.
U.S. mayors are split on whether business incentives are good politics, but most believe—despite evidence to the contrary—that they’re good policy.
We at CityLab have written quite a lot about Amazon’s HQ2 and the use (or abuse) of taxpayer-funded incentives to lure large corporations. The reality is that corporations make location decisions based on factors like the availability of talent, and then game the process to extract maximum incentives. Despite that, the ultimate HQ2 winners—New York and Virginia—offered more than $2 billion combined in various tax credits and incentives to attract Amazon.
So how do America’s mayors really feel about the HQ2 bidding war and the use of business incentives generally?
The most recent edition of the Menino Survey of Mayors, conducted annually by Boston University’s Initiative on Cities, takes a nitty-gritty look at what U.S. mayors think about HQ2 and economic-development incentives. The survey covers 110 mayors from cities across the United States, and was designed to be broadly representative of mayors of cities with more than 75,000 people.
Despite the huge volume of research on the misuse and ineffectiveness of incentives, still more than eight in 10 mayors (84 percent) believe that business incentives are “good policy” for recruiting companies and jobs to their communities.
Nathan Jensen, a political-science professor at the University of Texas, argues that mayors engage in such bidding wars because they think they’re good politics (even if they are bad economics), signaling to constituents that the mayor is “in it to win it.” In fact, mayors are split on whether incentives are good or bad politics.
Less than half of mayors (42 percent) say the incentives are popular with constituents, while more than half (58 percent) say they are unpopular. Forty-four percent think incentives are bad politics but good for the city, and 40 percent say incentives are good politics and good for the city. Just 14 percent of mayors believe incentives are bad politics and bad policy. Only 2 percent say the incentives are popular with constituents, but bad for the city.
That said, more than half of mayors (55 percent) believe that cities gain long-term benefits from winning such competitions, and less than a quarter disagree.
Not surprisingly, mayors are wont to blame the proverbial “other guy” when it comes to incentives. More than 60 percent (61 percent) say that other cities offer too much in the way of incentives, while just 15 percent disagree with that statement.
Last fall, I urged the largely progressive mayors of HQ2 finalist cities to take a stand against such taxpayer fleecing by Amazon, and organized a petition to create a mutual non-aggression pact to avoid wasteful incentives and compete on the merits. Many of my colleagues who signed the petition told me I was naive ever to believe that mayors could organize themselves to do this.
They were right. While a majority of mayors—roughly six in 10—think such a non-aggression pact would be a good thing, only 10 percent believe it could ever actually happen. This is a telling statement on the mayors’ perceived inability to organize themselves to pursue good policy. This is an area where the philanthropic, academic, and policy communities need to do a lot more to help mayors in doing what they know is right.
On the bright side, mayors have a much better handle on the factors that actually drive businesses’ location decisions. When asked what matters in attracting businesses, two factors topped the list by a wide margin: talent (or workforce skills and composition) and quality of life. Just 16 percent of mayors say that they emphasize tax and financial incentives when they are recruiting companies.
Interestingly, even smaller percentages of mayors say that they emphasize housing costs or transit, although those are two factors that increasingly matter to business location. (My colleague Laura Bliss has argued that Amazon’s HQ2 decision was about transit, and I previously wrote that the search was about specialized talent.) This may partly reflect the way the survey question was worded—mayors were asked whether they emphasize these factors and not whether they matter to corporations.
When it comes to HQ2, mayors believe that Amazon was out for tax and financial incentives. Compare their answers in the chart above to their answers in the chart below, about recruiting HQ2 specifically. For instance, 45 percent of mayors say that tax breaks and other financial incentives were important to HQ2. That’s nearly three times what they say about the use of such incentives in their own recruiting efforts. Nearly two-thirds believe talent was important to HQ2, and another third say quality of life was a factor. The mayors seem well aware that Amazon was gaming the process to extract incentives.
The bottom line: Even though mayors have a good sense of the key factors that drive business location, they for some reason continue to cling to the incorrect notion that incentives can actually win business and jobs for their community. Clearly, all of us who care about this issue have a lot more work to do.
Ultimately, this report helps us better understand where America’s mayors stand on HQ2 and economic-development recruiting. But given the current climate in Washington, if mayors want to protect their cities and their taxpayers from corporate abuse and profligacy, they are going to have to organize themselves and get their act together.
CityLab editorial fellow Nicole Javorsky contributed research and editorial assistance to this article.