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Gary, Indiana Offered More Than $792 Million in Failed HQ2 Bid

POSTED ON Aug. 17, 2018
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Gary, Indiana — a troubled Rust Belt town beset by poverty, abandoned buildings, and other symptoms of post-industrial America — pitched an incentive package worth nearly $793 million in its failed bid for Amazon.com Inc.’s planned second headquarters.

The city's proposal, obtained by Tax Notes through a public records request, shows that the city and the state offered the e-commerce giant two incentive packages, each worth upward of $2.3 billion. 

Gary did not make Amazon’s shortlist for its second headquarters in North America, known as HQ2, a highly sought economic development project that could bring up to 50,000 high-paying jobs and investment of at least $5 billion to the chosen location. 

The city drew attention when it wrote a letter to the e-commerce giant's CEO Jeff Bezos in an ad published in The New York Times, in which the city acknowledged that locating there may have been far-fetched.

In the proposal, Mayor Karen Freeman-Wilson (D) highlighted Gary's proximity to Chicago, its transportation assets, access to talent at nearby universities, diverse cultural heritage, low state corporate income tax rate, and lack of state inventory taxes. 

Freeman-Wilson told Tax Notes that she thought "Gary certainly had a shot" when compared with other cities that submitted proposals. "My idea of it being far-fetched was from the standpoint of other people's perceptions," she said August 14.  

Nathan Jensen, a professor of government at the University of Texas at Austin and coauthor of Incentives to Pander, said it is hard to imagine how Gary would have managed the offer.

"It is an enormous offer for a city of any size, and would be very difficult for a smaller city with a limited budget," Jensen said, adding that "Amazon will bring benefits, but also additional costs such as infrastructure, schools, and public services for all the new employees."

Meanwhile, Indianapolis — the state's capital and largest city — remains in the running, along with 18 metropolitan locations in the United States. Toronto, Canada’s most populous city, is also still in the running. Amazon has said it will choose a location sometime this year.

Gary's bid may offer a glimpse into the incentives the state has offered to lure the company to Indianapolis. However, Indiana Economic Development Corporation (IEDC) spokeswoman Abby Gras declined to say whether the same amount of incentives was offered for both cities. Indianapolis has not revealed its proposal yet.

Records Request

Gary's proposal was obtained in response to a public records request filed January 24, which the city responded to in an August 10 letter after Tax Notes filed a formal complaint with the Indiana Public Access Counselor, which is responsible for ensuring that government agencies follow the state’s public access laws.

Gary's law department in a December 6 letter denied Tax Notes' initial request for documents regarding the proposal, citing Indiana Code section 5-14-3-4(b)(5), which gives state agencies discretion over whether to disclose records “relating to negotiations with industrial, research, or commercial prospects so long as the records are created while negotiations are in progress.”

When the city didn't make Amazon's shortlist of 20 locations, Tax Notes filed a second public records request, which was denied in a June 8 letter citing the same exemption. Public Access Counselor Luke Britt told Tax Notes in an August 2 email that the city had indicated that it would be fulfilling the request and would abdicate its initial denial. 

Some incentive information about a local airport was redacted from the proposal because of the city's non-disclosure agreement with the airport, Freeman-Wilson said. 

Gary is not the only city that has been reluctant to disclose its proposal. Tax Notes sought 10 bids, including Gary’s, after Amazon announced the coveted economic development project last year, and many of the locations have declined to release their proposals or have disclosed their bids but redacted information about incentives. 

Tax Notes has obtained responsive records from Toledo, Ohio and Tulsa, Oklahoma, both of which have been eliminated from the running.

Option 1

Gary’s first incentive package — worth $2,303,434,400 in state and local incentives — could have been made available with “high certainty” within four to 12 months, according to the proposal.

Under that package, the IEDC authorized roughly $1.5 billion in incentives, including “refundable corporate tax credits in tiers of three years 1-10, 5-15, and 10-20”; a “skills enhancement fund training grant for employee training” capped at $5 million for 20 years; an industrial development growth fund for infrastructure improvements capped at $2 million per year for the first 15 years; and “workforce development in-kind assistance related to strategic talent service development.”

Gary itself would have offered nearly $793 million in incentives, based on a property tax pledge of incremental tax for a period of 25 years; a combination of commercial and residential assessed valuation deductions for 10 years; the capture of the local option income tax and sales tax within a transit development district; and an offering of publicly owned land for project development, among other benefits, according to the proposal. 

Jensen said the incentives would amount to Gary offering grants as well as forgiving most of the tax benefits from HQ2 for up to 25 years. "Other cities have offered similar-sized deals, but it is still a shockingly lucrative offer," he said. 

Option 2

The second incentive package — offering more than $3.2 billion in state and local incentives — was more generous, but would have needed approval from the Indiana state legislature, according to the proposal.

Under that option, the state would have offered $2.75 billion in financial incentives by creating a new taxing district under which the company could capture up to 100 percent of the conventional local and state sales tax, local and state personal income tax, and local property taxes for a period of no more than 25 years.

Those revenues could be used for site infrastructure, land acquisition, building and parking construction, talent development, and social impact, according to the bid. At least 10 percent of the revenue would have been allocated to talent development and an additional 10 percent would have been designated for social impact projects, with the company required to match a portion of those amounts, the proposal said.

Under this option, the city itself offered substantially less generous incentives at $462.5 million. It is unclear what incentives were offered because the information was redacted. 

Jensen said many locations have offered to "essentially forgive all of Amazon's taxes, as well as give the company a large cut of the taxes being paid to the city or the state by Amazon's employees" — incentives that economic watchdog Good Jobs First calls paying taxes to the boss.  

But the difference across locations is partially driven by the existing tax rates, Jensen said.

"Higher-tax communities, such as Montgomery County, Maryland, are forgiving Amazon's taxes as well. . . . The dollar amount looks larger than Gary's incentives, but these really are a 100 percent tax abatement and then some, in both cases," Jensen said. 

Gary's 2018 operating budget was not available on its website, but the Chicago Tribune reported on October 18, 2017, that the Gary Common Council approved a roughly $55 million municipal budget for the 2018 calendar year. 

Both of the city's incentive packages would have required approval from the common council. In recent history, Freeman-Wilson said, the city has included two to three council members in economic development negotiations. 

Gary Common Council member Ronald Brewer told Tax Notes on August 13 that while he wasn’t involved in crafting the city’s proposal, he and many of his fellow council members were supportive of it. “I didn’t really know what Amazon was asking for, but I did think Gary stood in a good position,” he said, adding that the project would have brought much needed jobs to the beleaguered city. “Delivering basic services has been difficult right now,” he added.

Kasia Tarczynska of Good Jobs First told Tax Notes that there is nothing unusual among the offered incentives. 

"The amounts, of course, are very high, and the time period is very long [at] 10 to 25 years," Tarczynska said. "Depending on how the final deal would be structured, the city and the state would not see an increase in taxes from Amazon for the next decade."

Tarczynska said the problem with the offer is that the subsidies "were basically promised without an open and transparent process and public debate."

"This is not a democratic and inclusive economic development, [especially] when we talk about committing billions of dollars over the next two [decades] to one of the richest companies in the world," Tarczynska added.

An economic analysis of the incentives was done by an outside consultant, according to Freeman-Wilson. She believed the economic benefit of the project would have outweighed the cost of the incentives, she added, noting that the city levies a 1.5 percent individual income tax.

A copy of the analysis wasn't available by press time.

According to Gras, all of the IEDC's incentive offers are based on cost-benefit analyses. She declined to provide the state's HQ2 analysis, saying that "the IEDC's negotiations, which would include any cost-benefit analyses or proposed incentive offers, are confidential."