Is Amazon’s second headquarters worth the price to cities?

Earlier this month, Amazon released a request for proposals (RFP), seeking a suitable development site for a second headquarters campus. The commerce giant is looking for jurisdictions to offer what it calls “incentives” to build its HQ2 in their particular location. Is this a co-investment opportunity? Or is this just a public play for corporate subsidy?

Many initial analyses of the RFP focused on which North American cities might best meet the criteria specified in the RFP, such as access to transit, airports, a “business friendly” climate, and an educated workforce. These initial scans, including Dan Reed's here at GGWash, identified sites in the Washington area as strong contenders. In fact, Mayor Bowser has announced – in a flashy marketing video – that DC is putting together a proposal. The University of Maryland is also looking to make the case that College Park in Prince George's County checks all the boxes on Amazon's wishlist, though Governor Hogan is already hustling on behalf of the Port Covington site in Baltimore. Across the Potomac in Virginia, multiple jurisdictions are also looking at the RFP.

What is Amazon offering?

In the RFP, Amazon lays out a case for why jurisdictions would want to incentivize the company to choose their location: $5 billion in capital expenditures, up to 50,000 highly paid employees, and other positive economic impacts.

Some of the economic impacts that Amazon is marketing are fairly conventional, such as tax revenue from hotel stays, payroll, and property. The RFP also emphasizes indirect positive economic impacts of their Seattle base, claiming additional indirect job creation and wage growth in Seattle through their presence.

Notably, they do not specifically measure any of these benefits in tax revenue, highlighting instead the total Amazon expenditure. This framing suggests that Amazon is looking for a place to co-invest with them in infrastructure, people, and prosperity. In this, Amazon is an unusual corporate expansion, because they do not define themselves as a tenant that might relocate in the future. They are looking for a place to put down up to 8 million square feet of roots.

What might Amazon get?

In recent history, jurisdictions in our region have offered incentives (or given subsidies) for far less than what Amazon is offering. Jurisdictional competition for jobs and sales tax revenue have inspired these notable deals:

• Earlier this year, Nestle received over $16 million in subsidies – including $10 million in cash – to relocate from California to Arlington, VA. Nestle became the anchor tenant of a Goldman Sachs-owned Class A office building that had been vacant since the day it opened in 2013.
• Marriott, the largest hotel chain in the world, may get up to $62 million in subsidies to move five miles from an office park inside the 270 spur off the Beltway to downtown Bethesda, near CEO Arne Sorenson's home in Somerset, MD.
• The Advisory Board signed on to a $60+ million package from DC in 2015 to prevent a jump to Arlington (into the same building Nestle ultimately occupied).
• Costco has received millions in subsidies to open locations in Montgomery County and in the District, as jurisdictions seek to capture sales taxes within their borders.

All of these deals have attracted significant criticism from various quarters. WAMU reported on the correlation between subsidies from DC and campaign contributions. The Washington Post editorialized against Northrup Grumman's $57.5 million payday from the State of Maryland, which they received not to relocate to Maryland, but simply in exchange for a promise not to leave. Watchdog group Good Jobs First has created an online tracker for these subsidies, and they also ranked jurisdictions in 2011 by how savvy they are in attaching conditions and targets to incentives. While Maryland and Virginia ranked in the top 10, the District came in last. Even at that, the heavily criticized LivingSocial deal resulted in less than $3 million in payouts thanks to attached strings.

The size of the Amazon proposal dwarfs any of these deals by orders of magnitude. Thus, they make it clear in their RFP that they want everything that's been on the menu for these deals and more: “land, site preparation, permitting, and fee reductions.”

What makes sense for a greater Greater Washington?

The sheer size of the potential Amazon deal suggests that no one jurisdiction in the DC area could possibly have the capacity to offer them a deal comparable to what Nestle, Northrup Grumman, The Advisory Board, and others have received. Last Wednesday, the Metropolitan Washington Council of Governments board voted unanimously to investigate the feasibility of a regional joint bid for Amazon. The vote is a light in the dark for critics who see these subsidies, and similar deals for stadiums and sports teams, as a regional race to the bottom with no evaluation of their effectiveness. Such regional coordination is not without precedent – since 1971, the Minneapolis-St. Paul region has pooled commercial tax revenues under a state-mandated framework known as “fiscal equalization” or “revenue sharing.”

What do you think of competition for corporate locations?