Cities and States Offered Amazon Billions, But Did It Matter?

A tightly-wrapped stack of cardboard moves on a conveyor belt inside the plant of Pollock in Grand Prairie, Texas, on August 6, 2018. (Ben Torres/Dallas Morning News/TNS)

November 14, 2018

By Paul Roberts and Benjamin Romano

Virginia’s offer of $573 million in direct public incentives and New York’s package, over $1.5 billion, weren’t the richest of the many deals pitched to Amazon for the prospect of 25,000 new, high-paid tech jobs in each place.

But the still-enormous enticements offered — by both the winners and losers of the yearlong HQ2 sweepstakes alike —illustrate how Amazon played the game of “smokestack chasing” like no other corporation in history.

They also added fuel to the ongoing debate over whether such incentives are good policy — or even whether they work, a premise questioned by academics who study economic development. Amazon downplayed their importance in its decision.

Particularly in New York, lawmakers and activists were resisting the cost even before the deals were confirmed.

New York state Sen. Michael Gianaris and New York City Council Member Jimmy Van Bramer expressed “serious reservations” about Amazon’s arrival in Long Island City, which they represent. In a joint statement last weekend, the lawmakers called out in particular the expected size of the incentive package.

“Offering massive corporate welfare from scarce public resources to one of the wealthiest corporations in the world at a time of great need in our state is just wrong,” they said.

In some respects, Amazon’s decision seemed to have little to do with the size of the incentive packages offered.

Nashville, Tenn., where Amazon is planning 5,000 new jobs to staff a major technology and management hub for its retail logistics operation in a sort of HQ2 consolation prize, won that investment in part on the promise of up to $102 million in state and city incentives. That works out to around $20,400 per job over the next seven years, compared with at least $61,000 per job over 10 years from New York state. (Amazon still intends to apply for New York City programs that haven’t been quantified.)

That said, the winning bids represent a substantial evolution in the kind of packages governments have routinely offered to attract — or keep — companies. Even taken together, the incentives Amazon described Tuesday, including tax breaks, cash grants and infrastructure investments (see below), are well shy of the $8.7 billion that Washington state lawmakers offered Boeing in 2013 to keep jobs and production in the state.

The Amazon incentives also differ in another critical respect: They are contingent on the arrival of the jobs and other economic development.

While Boeing did put its 777X production in the state, the aircraft maker’s total employment in Seattle fell after the deal, from 81,939 in late 2013 to 65,829 at the beginning of this year, even as the company has continued to benefit from what still stands as the largest state corporate tax break in U.S. history.

That won’t be the case with Amazon at its new East Coast bases, thanks to their “performance-based” structure.

“If we don’t create these jobs, we don’t get these incentives,” Amazon senior vice president Jay Carney said. “And these incentives come after we create the jobs, not upfront.”

There’s another parallel to Boeing, which moved its corporate headquarters from Seattle to Chicago 17 years ago. The motivation for Amazon’s two additional headquarters, and their scope, differs substantially from Boeing’s. But it still raises the specter of that loss and the psychological blow that came with it, as well as the soul-searching and recriminations over what was lost.

“The ghost of Boeing is certainly hanging over all of this for Seattle,” said Margaret O’Mara, a University of Washington history professor who studies the growth of the high-tech economy and the influence of U.S. politics.

In releasing details of the bids so quickly and in detail, Amazon sought to deflect some of the criticism over its aggressive — and largely secretive — efforts to wring subsidies and inducements from the more than 200 North American communities that bid for HQ2.

“Incentives offers are standard practice as you know in this kind of situation,” Carney said in an interview Tuesday morning. “I think you can see from what’s already been made public — and (cities are) free to make it public, by the way — that the size of incentives didn’t drive this process. There were places that offered more.”

Amazon required contestants in the HQ2 contest to sign nondisclosure agreements covering information the company provided, but many local governments took that further and would not disclose their bids, citing competitive concerns and setting off an ongoing public records battle as critics and good-government advocates sought to learn what local government and economic development officials were putting on the table.

The process became even more controversial after several huge bids were disclosed: New Jersey and Maryland, for example, had dangled packages of over $7 billion before Amazon.

Throughout the process, Amazon maintained that access to talent was, in Carney’s words, “the driving factor for us.” High-tech companies in particular are largely drawn by access to skilled labor — and by amenities that make a location attractive to workers.

Amazon, after a nationwide search, landed on two of the most obvious destinations from a talent perspective: the Long Island City community of New York City and the Crystal City area of Arlington County, Va.

Despite such research, states and local governments are reluctant to give up the incentives arms race. Cities and states have long competed to attract new businesses with tax incentives, industrial parks and other giveaways. Amazon’s HQ2 process is a continuation of “the long and familiar game of what used to be called smokestack chasing,” O’Mara said in an interview before Amazon’s expansion locations were announced. “We can fault Amazon for trying to play all these cities against each other … but they’re playing a game that’s been played for 75 years.

Amazon secured $1.6 billion from local governments across the country in the past two decades for siting its network of warehouses, data centers and other facilities, according to a tracker at Good Jobs First, a group advocating accountability in economic development initiatives.

“We have this crazy industrial model of throwing tax breaks in a company’s general direction that has never penciled out for governments, ever,” O’Mara said. “Scott Walker just got voted out of office because he gave billions of dollars to Foxconn.”

The $4.5 billion deal the Wisconsin governor put together last year to bring Taiwanese electronics manufacturer Foxconn to the southeast corner of the state may end up costing $220,000 to more than $1 million per job, depending on how many are created. In 2014, Nevada agreed to a tax package with Tesla that cost roughly $200,000 per job at a lithium-ion battery factory.

But there’s no precedent for the scale of Amazon’s game — both in terms of the number of cities and states that played and the proffered prize: a new, co-equal headquarters of one of the defining companies of the 21st century.

Incentive offers included not only cash grants and tax exemptions, but also rebates to Amazon of the taxes its employees would otherwise pay.

“The dollar numbers were shocking. But it is also amazing that governments were willing to forego decades of taxes, not only from the company, but from the employees,” Jensen said.

It’s all the more shocking given research that shows “incentives are a minor factor in most firms’ location decisions and that the majority of companies receiving incentives were probably coming anyway,” said Jensen, who has done some of that research.

Incentives are largely about politics, he said. Local politicians can point to them to take credit for economic development wins, and avoid blame for perceived losses.

“A politician can put in a HQ2 bid to show that they tried, even if it wasn’t serious or credible bid,” he said.

––––

Amazon incentives in detail

New York

$1.525 billion, including a credit of up $1.2 billion from the taxes Amazon expects to pay on the salaries of its 25,000 Long Island employees over the next decade, and a $325 cash grant based on the square footage of the buildings on Amazon’s new Queens campus. The company also intends to apply for other incentive programs from New York City that weren’t quantified.

Total per job: At least $61,000, assuming 25,000 jobs over 10 years.

Virginia

At least $796 million, including $550 million from the state government and a $23 million grant from Arlington County, plus a commitment by the state to make $195 million in improvements in local transit infrastructure.

Total per job: $22,920, not including infrastructure investments and assuming 25,000 jobs over 10 to 12 years.

Tennessee

$102 million in cash grants and tax credits from county and city of Nashville officials.

Total per job: $20,400, assuming 5,000 jobs over seven years.

––––

Dominic Gates contributed to this report.

———

©2018 The Seattle Times

Visit The Seattle Times at www.seattletimes.com

Distributed by Tribune Content Agency, LLC.

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