Amazon: The Great ‘Get’ — and the Great Unknown

Amazon
The Amazon Invictus Building (formerly Day One South) at South Lake Union in Seattle. Photo by Joe Mabel, reproduced under Creative Commons licensing.

First in a short series of articles.

An announcement from Amazon on where it plans to build its second North American headquarters, known as HQ2, is likely just days away.

It may not happen before Election Day – a decision that momentous could have a profound impact on election results. But in every jurisdiction still under consideration, including Montgomery County in Maryland, leaders are fruitlessly trying to interpret every move and statement of Amazon CEO Jeff Bezos.

In economic development terms, hundreds of state and local officials see HQ2 as the ultimate “get.”

But what does that “get” bring for the winner of the 20 local and state governments finalists that are vying for it?

Like all things involving billions of public dollars, promises of thousands of jobs and significant cultural shifts, it depends on your perspective.

Gigi Godwin, president and CEO of the Montgomery County Chamber of Commerce, said that even if Maryland loses its bid, the process of developing an incentive package for Amazon and mobilizing political forces in support of it has been wildly beneficial. It reflects not only a business-friendly attitude but an ability to work together to draw other businesses to the area.

“The business community here supported a very aggressive capture strategy,” Godwin said. “I think a lot of the communities that got into the competition put aggressive packages together. I don’t think we were unique. We want to get jobs in Maryland and the region as well, and we needed an aggressive package.

Gigi
Gigi Godwin, president of the Montgomery County Chamber of Commerce.

“I see it as a positive move in the right direction. I don’t think a county or a state that has a vision for the future wouldn’t pursue this opportunity. We’re in it to win it. If the county can do this for Amazon, we hope this is part of a continuing conversation about how we make our county more business-friendly. No matter where HQ2 ends up this is a great opportunity to have the conversation about how to make businesses succeed here. It was very therapeutic.”

A massive investment

A winning bid would be even more therapeutic – for any city, county or state.

According to Amazon, the company expects to “invest over $5 billion and grow our second headquarters location to be a full equal to Amazon’s current campus in Seattle, creating as many as 50,000 high-paying jobs. In addition to Amazon’s direct hiring and investment, construction and operation of HQ2 is expected to create tens of thousands of additional jobs and tens of billions of dollars in additional investment in the surrounding community.”

Amazon estimates its investments in Seattle from 2010 through 2016 resulted in an additional $38 billion to the city’s economy.

Amazon’s 2018 second quarter sales were $52.9 billion and net income for the quarter was $2.5 billion. The company expects that HQ2 will be a “full equal to our current campus in Seattle. In addition to Amazon’s direct hiring and investment, construction and ongoing operation of Amazon HQ2 is expected to create tens of thousands of additional jobs and tens of billions of dollars in additional investment in the surrounding community.”

In that sense, HQ2 would be quite a get. Maryland hasn’t been alone in offering billions in incentives to the company in spite of its huge profits.

In addition to Montgomery County, finalists of the 238 cities that applied for HQ2 are: Atlanta; Austin; Boston; Chicago; Columbus, Ohio; Dallas; Denver; Indianapolis; Los Angeles; Miami; Nashville; Newark; New York City; Northern Virginia; Philadelphia; Pittsburgh; Raleigh, N.C.; Toronto; and Washington, D.C.

The State of Maryland, specifically for Montgomery County’s bid, has emerged as one of the highest bidders for HQ2, with a package offering about $6.5 billion in tax and other incentives to Amazon as well as about $2 billion in infrastructure improvements.

A bill pushed by Gov. Lawrence J. Hogan Jr. (R) and passed by the Legislature, known as the “PRIME Act” – “PRIME” is the acronym for “Promoting ex-Traordinary Innovation in Maryland’s Economy – offers income tax credits based on the number of jobs created, state and local property tax credits and a sales tax and use exemption.

Hogan’s pitch letter to Amazon said Maryland “delivers a diverse, well-trained pool of engineers and IT professionals from world-class universities like Johns Hopkins, the University of Maryland System, and Morgan State University. Smart, successful and determined, Marylanders go the extra mile to produce value for the world’s top headquarters here, like Under Armour, T. Rowe Price, McCormick and Marriott.”

Hogan also pitches Maryland’s location between Amazon’s Atlanta and Boston operations as a logistical advantage for the company.

A fiscal summary attached to the bill indicates that Maryland would lose $25.6 million in revenue and a potential net decrease of $5.6 billion in revenue through 2023 due to the incentives.

Meanwhile, details of Montgomery County’s bid for HQ2, including the proposed location, have been heavily redacted and are largely unavailable to the public – though it is widely assumed that the old White Flint Mall site along Rockville Pike figures into the plans. The proposal is not listed on the county’s official website. Several other cities have also kept details of their bids under wraps.

Amy Liu, vice president and director of the Brookings Institution’s Metropolitan Policy Program, argues in a paper that going after HQ2 isn’t the right way to create jobs. Liu favors a more organic approach to job creation.

“For all the excitement, landing HQ2 could have a polarizing effect,” Liu wrote. “Tens of thousands of job-seekers will likely flood the city, making it harder for the new jobs to be filled by local residents. New investments will drive up housing costs, displace low-income families, strain the transportation system and widen the gap between rich and poor residents, if Seattle’s experience is any guide. The candidate cities will also dole out large sums of tax-payer subsidies for this growth and inequality.”

Liu calls for investments in a “start-up ecosystem” that includes investments in “start-up accelerators, help for small and idle market firms and the deepening of industry specializations.”

“San Diego’s life sciences specialization, Milwaukee’s water cluster and Indianapolis’s bio health ecosystem were hardly the result of dumb luck,” Liu wrote. “Instead, a series of strategic moves by private and public leaders helped create competitive advantages in those sectors.”

In addition, Martha Ross, a fellow at Brookings’ Metropolitan Policy Program, asked whether cities are ready for the “prosperity bomb” that comes with landing huge employers like Amazon. Referring to Washington, D.C.’s bid for HQ2, Ross argued that cities need to make sure incentives pay off for all residents, not just those who get the high-paying jobs at Amazon.

“Low-income residents would likely not find many jobs at HQ2, most of which will require at least a bachelor’s degree,” Ross wrote. She added that housing costs would likely become higher due to increased demand from new workers – in a region where they are already high.

“The point is, the city made a big bet that is worth huge sums of public money to attract Amazon and its 50,000 jobs,” Ross wrote. “They need to maintain that sense of urgency and purpose to ensure that the bet pays off for ALL residents.”

Seeking a ‘non-aggression pact’

Indeed, not everyone is convinced that financial incentives are appropriate for HQ2. An online petition being circulated by the University of Toronto’s well-respected urban studies theorist Richard Florida says cities are making a mistake in offering billions of dollars to a multibillion-dollar corporation.

Urban theorist Richard Florida
Urban theorist Richard Florida is petitioning elected officials to oppose big handouts to corporations like Amazon.

The petition, which is being circulated to policymakers across North America, reads, in part, that the economists share a “concern about the level of incentives and the looming competition between cities over incentives for Amazon’s new headquarters.

“Tax giveaways and business location incentives offered by local governments are often wasteful and counterproductive, according to a broad body of research. Such incentives do not alter business location decisions as much as is often claimed, and are less important than more fundamental location factors. Worse, they divert funds that could be put to better use underwriting public services such as schools, housing programs, job training, and transportation, which are more effective ways to spur economic development.

“While we are supportive of Amazon’s quest to build a new headquarters, we fear that the contest among jurisdictions—cities, metro regions, states, and provinces—for this facility threatens to spiral out of control. Already, at least four jurisdictions have proposed multi-billion-dollar incentive packages. This use of Amazon’s market power to extract incentives from local and state governments is rent-seeking and anticompetitive. It is in the public interest to resist such behavior and not play into or enable it.”

The petition urges public officials to put an end to such “imprudent policy” and forge a “non-aggression pact” that rejects “egregious tax giveaways and direct monetary incentives for the Amazon headquarters.

“States, cities, and metropolitan regions should compete on the underlying strength of their communities—not on public handouts to private business,” the petition reads.

The online petition is signed by dozens of economists, including Florida, of the University of Toronto;  Edward Glaeser, Harvard University; Robert Putnam, Harvard University; Bruce Katz, Brookings Institution; Vernon Henderson, London School of Economics; Enrico Moretti, University of California, Berkeley; and Jeff Sachs, Columbia University; Robert Reich, University of California-Berkeley, and former U.S. Secretary of Labor; Alan B. Krueger, Princeton University, former chairman of the President’s Council of Economic Advisers; and Laura Tyson, University of California, Berkeley, former chairwoman of the President’s Council of Economic Advisors.

But a study by the marketing consultants The Sage Policy Group submitted to the State of Maryland indicated that HQ2 would be a boon that will not only affect Montgomery County but will have a spill-over effect in the entire region.

The study said that if Amazon selects Montgomery County, “it will be because of the county’s combination of astonishing institutional strength, phenomenal schools, diverse and highly educated population, and proximity to the nation’s capital. Other Maryland communities stand to be large beneficiaries, with Amazon’s presence ultimately expected to support more than 101,000 net new positions and nearly $7.7 billion in annual employee compensation.”

The Sage Policy Group’s study indicated that Maryland tax revenues will be enhanced by nearly $500 million a year with HQ2. Regional leaders have also suggested that if Montgomery County gets the bid – or, for that matter, if D.C. or Northern Virginia do – the entire region will benefit.

Godwin, of the Montgomery County Chamber of Commerce, sees nothing but good coming out of HQ2.

“Incentives are only a reality of you getting the deal,” Godwin said. “It’s not a blank check. Amazon’s HQ2 will have obligations, expectations about benefits they bring but similarly you’ve got to make it possible. You’ve got to get to yes. We’re in a competitive national economy.”

Godwin also disputes the term “prosperity bomb,” referring instead to HQ2 as a “prosperity prospect.”

“You think of a bomb as something that happens quite quickly and it suggests something that’s destructive,” Godwin said. “It would be years just to get to the beginning of it. The image people have is of 50,000 moving vans coming to the Beltway, but that’s not the way it would roll out.”

She added that Montgomery County’s proposal has brought bipartisan support on the county and state levels.

“You’ve got people who normally don’t see eye-to-eye but they came together to decide across different levels of government that this is a good thing for the community,” Godwin said. “It’s not just a blank check. Amazon’s HQ2 has obligations and expectations about the benefits they bring, but you’ve got to make it possible. You’ve got to get to yes. We’re in a competitive national economy.”

She also disagrees with the notion that HQ2 would lead to economic inequalities for small businesses.

“The arrival of a headquarters will mean people will be going out to breakfast, lunch and dinner, more people shopping in our boutiques. They support families and when you get an infusion of talent, and with a headquarters you have a wide range of jobs that come in and create a ladder of opportunity.

“We need ladders, and they are a ladder of opportunity for current residents and future residents.”

‘The 800-pound gorilla’

Still, one Seattle native believes that the presence of large employers like Amazon in any community has more ephemeral cultural effects.

Cynthia Brothers, creator of the website “Vanishing Seattle,” said huge employers can have a devastating effect on local culture.

“Amazon is not the only cause of change in Seattle, but they are the 800-pound gorilla, the center of gravity, the biggest player,” Brothers said. “Whether it’s housing or the political landscape and their influence and pull. The impact of Amazon has been felt in every corner of the city in terms of the change of neighborhoods and the diversity of our city in terms of who can afford to live here, whether it’s people of color or the middle class. It’s extreme economic stratification.”

Brothers doesn’t deny the positive economic impact of corporations like Amazon but “the question is how equitable it’s going to be.”

Brothers said she launched “Vanishing Seattle,” which has about 35,000 Instagram and Facebook followers, because she felt a need to document through photographs and videos the disappearance of long-standing Seattle institutions that have closed due to changes in the local economy and overwhelming corporate influences.

“I can’t even keep up,” she said of the disappearing Seattle institutions.

Brothers cites the example of Seattle’s Capitol Hill area, a community which she described as a bohemian, queer-heavy neighborhood with lots of street art and music.

“I don’t post and say it’s Amazon’s fault,” she said, “but there has been an uptick in the displacement of the fabric of the area and the coming of a new culture that has more money and privilege and has tastes that they want to be catered to. That can be transformative for places that were safe havens for people and that has created a lot of anguish and anger. Now the neighborhood is just white tech workers.”

Coming soon: More on what big corporations like Amazon promise – and what they may or may not deliver.

Bill Zaferos is a Milwaukee-based writer. His novel, Poison Pen, will be published by HenschelHAUS Publishing in January.

 

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