How companies like Amazon and Facebook fleece communities out of billions

31 Mar How companies like Amazon and Facebook fleece communities out of billions

On the floor of the Kansas Legislature in early February, lawmakers held a brief debate over a piece of legislation called the Attracting Powerful Economic Expansion Act, or APEX. The bill would provide a substantial tax incentive—estimated at a total of $1.2 billion—to attract a large corporation to build a production plant within the state. The name of the company, though, was a secret.

In what one legislator called “a good, old-fashioned, pro-business vote,” the state’s House and, later, the Senate approved the plan. Days later, the bill was signed into law by Governor Laura Kelly. The company’s name is still unknown to the public.

“You kept hearing them say ‘the firm,’ ‘the firm,’ ‘the firm.’ It’s because these people in elected office deciding what to do with $1.2 billion in public money had literally no idea which company they were talking about,” says Pat Garofalo, director of state and local policy at the nonpartisan American Economic Liberties Project. “They didn’t even know where the factory was going to be. The few people that had those details signed NDAs.”

Nondisclosure agreements like those signed in Kansas have become a disturbingly common part of the way economic development happens in communities across the country. Companies from Amazon and Google to Facebook and any number of unnamed manufacturers regularly use NDAs as part of their negotiations with the cities where they plan to build warehouses, offices, and factories. Tax incentives to lure companies are often covered by these NDAs, leaving taxpayers in the dark about what’s being built and how much it’s costing them.

A new campaign, Ban Secret Deals, is calling for an end to the use of NDAs in economic development dealings. Launched by the American Economic Liberties Project and a coalition of policy and advocacy groups spanning the political spectrum, including the Center for Economic Accountability and Good Jobs First, Ban Secret Deals advocates for legislation banning NDAs at the state and local levels. It’s calling on everyday citizens to sign a petition urging state legislators to take action.

“Governors, mayors, city councils, and economic development department officials sign these deals with corporations which say that they, public officials, are not allowed to disclose anything about the deal, oftentimes including the identity of the recipient, until it’s finalized and essentially a done deal,” Garofalo says. “We think that’s hugely problematic.”

The scope of the problem is vast. An estimated $95 billion in subsidies and corporate tax incentives are issued every year in the U.S., and many of these incentives aren’t fully revealed to the public until after contracts or legislation have already been signed. They include eliminating taxes that companies have to pay and offering payroll reimbursements when companies begin operations. “NDAs are a corrupt way of preventing the public from weighing in on the use of public resources,” Garofalo says.

The campaign includes a growing database of recent examples of big-subsidy and tax-incentive deals involving NDAs, made public sometimes only through Freedom of Information Act requests. Deals include the $475,000 issued by St. Petersburg, Florida, to the shoe retailer Foot Locker; the $54 million issued to Google by Columbus, Ohio; and several projects adding up to more than $1 billion in incentives issued to Amazon.

“The worst actor in this that I have seen is Amazon,” Garofalo says. “They get just tons and tons of subsidies for their warehouse deals.” Fulfillment, a 2021 book on Amazon’s impacts by journalist Alec MacGillis, explores some of the ways the company has been opaque about its warehouse developments. (Amazon did not respond to a request for comment.)

The use of NDAs for these projects is hardly a tech company innovation. “Over the last 50, 60 years, corporate interests have sold the public on a particular idea of economic development, [that] the way you build a local economy is you give a bunch of money to a corporation to move to a particular place and hire a bunch of people and create knock-on effects,” Garofalo says. “The vast bulk of the academic research shows that these deals don’t actually do what they’re supposed to do and don’t actually create the economic prosperity that they’re supposed to.”

A recent report from the Center for American Progress shows how the promises of these kinds of subsidies rarely come true. In Wisconsin, where the state offered $2.85 billion in incentives to Taiwanese electronics manufacturer Foxconn more than four years ago, the planned factory has yet to open. The state recently revised its deal down to a still-substantial $80 million.

These deals often have serious effects on communities, which use significant amounts of local funding to secure the projects. “We’re really talking about resource-constrained places,” Garofalo says. “Most states are constitutionally mandated to balance their budgets. Making these deals really does mean taking money away from something else—from schools, from infrastructure, from workforce development, from childcare.”

Corporations can be less than up front about the reasoning behind their use of NDAs. Garofalo says they often cite the need to protect trade secrets, but decisions about where to site a warehouse or a factory don’t necessarily require the disclosure of such details.

“They want to have information asymmetry. They want to be able to go back and play states off each other and prevent all the stakeholders involved from knowing what’s going on in order to bid up the price of these subsidy deals,” he says. Amazon’s nationwide search in 2017 for a city to host its second headquarters is one glaring example. Cities across the country entered into NDA deals with the company from the very early stages of simply throwing their name in the hat for the project and its many jobs. Some, like New York City, which initially won part of that HQ2 race, buckled under public pressure over the subsidies the project included and pulled itself from contention.

Back in Kansas, the Attracting Powerful Economic Expansion Act was framed as a way to compete against neighboring Oklahoma for the unnamed company’s production facility. Garofalo says there’s no way for the public to know whether the two states were even in competition for the project. “We believe if there’s more transparency you’ll actually force the cost of these things down and hopefully ultimately one day eliminate them,” he says.

A growing number of states are getting there. Legislation banning the use of NDAs is currently being pursued in New York, Illinois, and Michigan. (The use of NDAs in labor negotiations has also seen strong opposition in recent years.) Garofalo says he’s hoping the Ban Secret Deals campaign will urge others to follow. Even if states don’t take up the charge, Garofalo argues that local governments, from city councils to county commissions, can make their own efforts to stop NDAs from obfuscating the economic development dealmaking process.

“Folks in local communities are way more empowered on this than they think they are,” he says. “It just takes a few of them getting together and saying, ‘No, we’re not going to stand for it,’ to make a big difference.”

Source: Fast Company