By Madeline Janis
This column was originally published on Forbes.com
Although Amazon recently announced its decision to “withdraw” from a $1.7 billion New York economic development deal, stakeholders continue to urge Amazon to reconsider its decision. All of this soul searching by New Yorkers brings up a bigger question for the rest of the country: what makes a taxpayer-supported economic deal “good?”
I have the benefit of experience on this question. Over the past 20 years as a policymaker, I have voted on over 1,000 economic development deals involving local or state government and large private companies.
For me, the question on the Amazon New York deal is not whether New Yorkers want Amazon to come to Queens and create 25,000 jobs. Amazon already has 5,000 employees in New York City and will likely increase this number substantially regardless of whether taxpayers give Amazon $1.7 billion dollars or not. There is no question that Amazon has the right to locate its facility in Long Island City without public involvement in that decision.
But does the proposed economic development deal include clear, enforceable commitments from Amazon that make it a worthwhile investment?
When individual welfare recipients are required to sign dozens of complex documents and demonstrate that they are “earning” their small grants, big businesses that are set to receive millions and billions in taxpayer contributions need to be held to even higher standards. What did Amazon propose to do in exchange for the public funding they would have received?
There is one document that has been made publicly available which has enough in it to reflect on the two things that I believe make a deal worthy of public investment.
DID THE PUBLIC ENTITY CLEARLY DEFINE THE PUBLIC GOALS AND DESIRED RESULTS?
One of the hallmarks of bad economic development deals is when policymakers see their role as making a proposed developer happy, rather than defining up front what taxpayers need and want and then negotiating from that perspective.
The memorandum of understanding (MOU) between New York and Amazon makes vague commitments to a workforce development program. Amazon is “encouraged” to use the resources of the state to assist with its job creation and retention program. The MOU does not make clear what the State and City of New York see as the greatest needs in the job market.
If, for example, New York needs more middle-skilled jobs, then officials could have asked Amazon to define the projected 25,000 jobs and the required skill level.
Key stakeholders could then have worked with Amazon to develop a training and hiring program aimed at New Yorkers who have been historically marginalized or who don’t currently have access to those good jobs. There is currently a huge need for hiring and training programs for women, people of color, veterans, and people needing a second chance. In exchange for public money—including a half billion dollar grant—New York could have negotiated a massive local hiring and training program with key stakeholders in the five boroughs. But it didn’t.
Since there is a serious affordable housing crisis in New York City, policymakers could have also negotiated a set of commitments from Amazon to create affordable housing. There are good precedents for this. That kind of commitment by Amazon could make the public investment worthwhile.
IS THERE AN ENFORCEABLE AGREEMENT IN CASE THINGS FALL APART?
As everyone knows, wishful thinking does not make a contract successful. In my 20 years of evaluating economic development deals, there are phrases that appear often in public contracts that signal a “bad deal.”
For example, the use of the words “may” (vs. shall or will) or “good faith efforts” or “encourage,” instead of “must” indicate that a business receiving subsidies doesn’t have to do much to get the funds.
The MOU with Amazon is full of this kind of language. For example, it says that the workforce development initiatives “may” include the following and then lists a few vague workforce development ideas. Also, Amazon would only be encouraged to make “good faith efforts” to create business opportunities for women and minority-owned subcontractors.
Like any good business deal, a well-negotiated economic development contract needs to have specific and measurable deliverables and remedies and time tables for the compliance with those deliverables.
Every business knows the adage, “trust but verify.” Why would businesses expect public officials to invest precious taxpayer revenue on a venture based only on vague promises to try their best to meet the community’s needs?
The draft MOU between Amazon and New York does not meet the two tests that I have used for decades to evaluate if a proposed public investment is a good one.
Policymakers cannot be advocates for big companies asking them for big money. Public officials need to have their eyes on the prize of a public return on investment.