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Working & the Economy

Amazon Decision to Skirt Maryland: ‘A Bitter Pill to Swallow’

The section of Arlington, Va., where Amazon plans to build a new headquarters.

Amazon’s decision to locate part of its new headquarters in Arlington County, Va., is either a “bitter pill” for Maryland and Montgomery County or a big win for the entire Washington, D.C., region.

It all depends on who you ask.

On the day the e-commerce giant confirmed rumors about its plans to locate in Crystal City, Long Island City and Nashville, political leaders and business insiders put their spin on who gains from Amazon’s decision, and why more than a dozen other finalists got left at the altar.

This much is clear: The winning cities scored a once-in-a-generation coup by inking a deal with a firm that has revolutionized retail. Whether they’re getting 25,000 workers like the main winners, or the 5,000 people who will get Amazon jobs in Nashville, the company’s decisions placed a golden halo on three communities that survived a 238-city competition, a battle without modern precedent.

Amazon’s “HQ2,” as it became known, will attract well-paid and highly skilled workers with disposable income, who will insist on good schools and amenities-rich neighborhoods. Some amount of ripple effect, both in areas closely tied to Amazon’s core operation and otherwise, will accrue to the winning communities as well.

For others, however, like Montgomery County, which made the Top 20, or Prince George’s County and Baltimore City, whose bids didn’t survive the first cut, now is a time of inevitable soul-searching and, perhaps, finger-pointing.

Dissecting the loss

“Arlington was able to out-compete [Montgomery] in terms of mass transit, recruiting potential, hotel stock, all the things that Amazon seemed to care about in this process,” said economist Anirban Basu, CEO of Sage Policy Group in Baltimore.

“Of all the 20 [finalist] cities, Montgomery County will have the most difficult time turning this is into a marketing campaign. … This is a bitter pill to swallow.”

The other cities in the close-but-no-cigar camp will certainly market their near-miss status going forward, Basu said.

“To make a 20 finalists list is a big deal. It means that they passed certain tests, that Amazon believes that they could recruit to those communities — and that means that there is a perception of elevated quality of life, sufficient transit options, office space and hotels to at least accommodate Amazon’s initial foray into those markets. I think that’s a big deal.”

For Montgomery, however, Basu sees “a psychological blow and an economic blow.”

Others saw the outcome in more positive terms.

“This is a net positive for Montgomery County,” said County Councilman Roger Berliner (D). “It isn’t the home run, but the region will benefit from it.”

Berliner believes that the Washington, D.C., region will see an explosion in tech-related firms to support Amazon’s mission. White Flint, the north Bethesda community that Montgomery and state leaders pitched as the ideal site in their negotiations with Amazon, could still benefit from that “ripple effect,” said Berliner, a term-limited lawmaker who represents the area.

“Scores of satellite companies are coming to the region in order to be close to Amazon,” he said. “The story of White Flint is not over. It is well-positioned because of its assets.”

“It’s going to be good for Crystal City, but it’s [also] going to be good for the region,” said David S. Iannucci, Prince George’s County’s deputy chief administrative officer for economic development.

“Any corporate presence of [this size] is going to have a massive ripple effect. A multiplier could easily be 1.5 to 2.0 [new workers] for every one Amazon employee.”

In addition, Iannucci and Berliner both see Amazon employees choosing to live in Maryland.

“The catchment area for [their] workforce is going to be wide. It’s not going to be two or three miles. It’ll be 50 miles, easily,” Iannucci said.

Both Prince George’s and Montgomery included their proximity to — and partnerships with — the University of Maryland in their Amazon bids.

“Schools like the University of Maryland are essentially factories producing the workers that Amazon says they need,” Iannucci said. “Software development engineers, in particular, are coming out by the hundreds, and there’s opportunity for expansion of those programs.”

Tough questions ahead

Given that Amazon wanted to locate in the Washington area but didn’t choose Montgomery, Basu said county and state leaders need to ask themselves some hard questions — among them, whether the state’s corporate tax rate is too high.

Personal income taxes for upper-echelon workers are about the same in Montgomery and Northern Virginia, he said. But corporate tax rates are a different story.

“Our corporate tax rate in Maryland is 8.25 percent. In Virginia, it’s 6 percent,” said Basu. “That’s a major factor in these site-location decisions. If I can shave 2.25 percent off my corporate tax rate by moving a few miles, it’s quite likely I’m going to move a few miles.”

He said the loss of Discovery Communications, which will soon decamp from its high-profile Silver Spring headquarters, coupled with the Amazon near-miss, amounted to a 1-2 punch, and should prompt some soul-searching north of the Potomac.

He’s not sure it will.

“How can Montgomery County leaders make sure that — whether it’s White Flint or some other part of the county — that the community is positioned to attract top-notch employers, and that top-notch employers don’t keep slipping away to Fairfax County, Arlington County, Loudoun County, et cetera?

“That’s a question that has to be asked, and I’m very afraid that the new leadership [in Montgomery County] will not ask those questions.”

Maryland officials put a brave face on Tuesday’s announcement.

In a statement, Gov. Lawrence J. Hogan Jr. (R) called the decision to bring half of HQ2 to Northern Virginia “a tremendous win for the entire Capital region,” and said he was looking forward “to working closely with [Virginia] Governor [Ralph] Northam and [D.C.] Mayor [Muriel] Bowser to welcome Amazon and meet the opportunities that lie ahead.”

Hogan is vacationing in Jamaica, but he dispatched Lt. Gov. Boyd K. Rutherford (R) to Amazon’s announcement event in Crystal City Tuesday.

Montgomery County Council President Hans Riemer (D), speaking for his colleagues, called the company’s decision “good news for everyone who cares about future job growth in Montgomery County and the region generally.

“We are proud of the fact that Montgomery County was selected to be one of only 20 potential locations for HQ2,” he said. “Being selected to this list reaffirmed that our County continues to be one of the best places in the country to live, work and grow a business in our increasingly global economy.”

But Basu believes the benefits of Amazon may not cross the river to the extent that Maryland officials and business leaders would like.

“This will put Arlington County at the epicenter of e-commerce… There’s probably going to be some impact from a regional perspective. But I really believe the lion’s share of the positive economic impact will be captured in Northern Virginia itself,” he said.

If Maryland’s political leaders want to boost their chances of winning future competitions, Basu said, they will consider lowering the corporate tax rate, something that can be done without doing much harm to the state’s finances.

“The corporate tax in Maryland generates a bit more than 4 percent of general fund revenue. You could cut it in half and it would have very little effect on balancing a budget, even in a single fiscal year, but it would have a major effect in terms of changing the narrative about Maryland as a place in which to do business.”

He said such a cut would help Washington County compete with Pennsylvania and the Eastern Shore in its competition with Delaware, along with the D.C. suburbs.

“We can make everyone better off simultaneously by slashing that corporate tax rate but politically it’s not popular, so even a Republican governor won’t touch it, so that’s where we are.”

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