Across the US, New York ranked first for revenue lost to tax abatements for investors between 2017 and 2020, foregoing $11.2 bn in fiscal revenues, while remaining the largest recipient of foreign investment in the country. Atlanta’s big subsidy programme also kept the city in a strong FDI position, while Philadelphia did not make back what it spent.
Government subsidies in the form of tax credits have long been an instrument in the toolboxes of economic developers for attracting investments from large corporations.
While some argue that tax incentives do more fiscal damage to a community than they do good, others maintain their importance in the site selection process as a gesture that ultimately encourages investment and job creation.
fDi compared 10 of the top US cities for FDI between 2017 and 2020 with data provided by Good Jobs First, a Washington DC-based non-partisan group promoting accountability in economic development, to examine the relationship between revenue given up to tax abatement programmes and inward FDI.
Data on tax abatements comes from the organisation’s Tax Break Tracker, a database of governmental tax abatement disclosures, made possible by the 2015 issuance of GASB Statement No. 77, a standard that requires state and local governments to disclose information regarding the tax abatement agreements they enter.
The price of New York’s FDI crown
The data reveals that New York gave up at least $11.2bn in revenue on tax abatement programmes between 2017 and 2020. New York did remain the top destination for FDI in the US between 2017 and 2020, attracting more than $15bn in foreign investment in the period, according to fDi Markets. However, doubts have mounted over the real opportunity of such a generous incentive programme in a city renowned globally for its business environment, as highlighted by those who pushed for the 2019 cancellation of Amazon’s HQ2 projects in Queens, which included a $3bn tax incentives package for the e-commerce giant.
Another big spender was Atlanta, which, with a $2bn offer for Amazon, was also among the final bidders vying for HQ2 back in 2018. Between 2017 and 2020, Atlanta has reported $1.02bn of fiscal revenue lost to tax abatement programmes, Good Jobs First figures show. The city attracted $1.35bn in greenfield FDI during this period, fDi Markets data shows.
Philadelphia, on the other hand, provides an interesting contrast to these two cities whose FDI levels outstripped their revenue loss to tax abatements. Between 2017 and 2020, Philadelphia gave up $666.7m in tax breaks, while only attracting $665.9m in foreign investment, Good Jobs First and fDi Markets data show.
An evidently pro-subsidy city, Philadelphia also made the finalist list for HQ2 in 2018, actually outbidding both New York and Atlanta with a $5bn incentives offer for Amazon’s investment. According to Good Jobs First, the largest recorded subsidy Philadelphia has awarded to a company was $350m in 1997 to Norwegian construction company Kvaerner, formerly subsidiary of what is now Aker Solutions.