Amazon fleeced New York, Virginia with HQ2 picks

Over a year ago, Amazon announced its intention to conduct a search across North America to find a location for its second headquarters (HQ2).

Cities and states went to extreme lengths in their the 238 proposals, making promises and offering up enormous financial incentives, because seducing Amazon would mean a $5 billion investment to hold 50,000 employees working for one of the world’s most recognizable companies.

{mosads}Tuesday, the ecommerce and tech giant announced multiple winners ending the prolonged corporate courtship: New York City’s Long Island City, Crystal City in Northern Virginia and Nashville for a logistics hub.

Even though a ribbon-cutting ceremony for HQ2 is the kind of publicity that elected officials dream of, state and city leaders must consider the long-term effects of their decisions.

In July 2017, President Donald Trump, Governor Scott Walker (R-Wis.), and U.S. House Speaker Paul Ryan (R-Wis.) announced a pledge from Taiwanese manufacturer Foxconn to create a 13,000-job manufacturing plant in Ryan’s southeastern Wisconsin district. It was evident that Walker planned on using Foxconn as the centerpiece for his bid for a third term as governor.

The public was underwhelmed even before details of increasing costs, shrinking jobs and less ambitious plans began to emerge. An October 2017 Marquette Law School poll found only 38 percent of respondents believed that the deal’s overall benefits would at least equal the costs, and just one-quarter of those surveyed thought businesses nearby them would directly benefit.

Research backs up public opinion: For every dollar in incentive costs in a Foxconn-type deal, the benefits — in terms of income effects for residents and businesses — only increase by 30 cents. Voter approval of Foxconn never recovered, and just last week, Walker narrowly lost his re-election bid to Tony Evers, who campaigned against the $4.1 billion deal. 

The costs beyond the subsidies themselves are already apparent. Wisconsin had to delay up to $90 million of planned road projects across the state to focus on construction around Foxconn’s facility.

Nearby farms and homes were designated “blighted” so the village could claim eminent domain on the property and designated it to Foxconn. Wisconsin is expected to have a structural deficit of $865 million in the next biennial budget in part due to the agreement. 

Amazon’s request for proposal outlined its priorities for a potential location, including an educated labor pool, surface transportation and a robust airport, local cultural amenities, and, of course, subsidies in the form of tax credits and cash grants. 

Each dollar a government is forced to spend on subsidizing the company’s presence is a dollar that cannot be used to mitigate its impact.

A “revenue neutral” approach — where new tax revenues just cover the cost of subsidies —is insufficient because the arrival of thousands of workers and their families can have material impacts on housing, infrastructure and schools.

The great irony is that many of these same attributes that made finalist cities desirable to Amazon are the same ones that will be most at risk from its arrival.

The Long Island City location, as part of $3 billion in state and local incentives for job creation and occupying office space, already needs substantial upgrades for transit and sewage at a time when New York City’s infrastructure is increasingly unreliable.

The agreement to put the other half of HQ2 in Crystal City across the Potomac River from Washington, D.C. comes with nearly $600 million in cash grants plus a commitment of $200 million in nearby infrastructure spending from the Commonwealth of Virginia.

The D.C. metropolitan area is already suffering from a shortfall of housing relative to its employment levels. According to the Metropolitan Washington Council of Governments, the region will already be 115,000 housing units short by 2045 even before HQ2.

Amazon encouraged applicants to detail incentives that lessen its costs of doing business. But what finalists failed to realize is that it is entirely plausible that Amazon needs these places at least as much as they need Amazon.

{mossecondads}New York is famously home to finance, media and the arts; Washington is the nation’s political epicenter with a large concentration of data centers nearby. Both regions are large population centers with large shares of educated workers, robust transit options and international airports.

Increases in digital tech jobs of 25,400 in New York and 8,500 in D.C. over the last five years indicate growing tech ecosystems. Both cities already have dynamic economies and are in demand by employers, including Google.

The Mountain View, Calif.-based company expects to expand its Manhattan footprint to ultimately house 20,000 of its employees. However, unlike Amazon, Google hasn’t sought any special incentives to do so.

Amazon announced the competition that amounted to a yearlong dog-and-pony show and got hundreds of local governments to offer their best to land HQ2, but the company ultimately landed on the most likely and logical candidates — who were still willing to bend over backward. 

According to Governor Ralph Northam (D-Va.), the deal is “a new model of economic development for the 21st century.” If deals of this magnitude continue, states and cities will go broke long before the century ends. 

Andrew Schwartz is a policy analyst for Economic Policy at the Center for American Progress.