Amazon sparked an all-out bidding war this week when it asked North American cities to roll out the red carpet for its second headquarters.
But should one of the most powerful tech companies — valued at $474 billion, with net sales of $136 billion last year — use the hammer of tax breaks and other government incentives to cause jobs-hungry cities to engage in this awkward dance?
The move is already generating a backlash in Amazon’s hometown of Seattle and elsewhere, with critics labeling the company’s proposal for its “second home” everything from “disgusting” to a “race to the bottom.” One thing is certain: The move is very Amazonian — surprising, unconventional and brazen.
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Amazon’s request for proposals lists a number of factors the company will consider when selecting the location for what it’s calling “HQ2” — including tax credits and exemptions, relocation and workforce grants, utility incentives, and fee reductions.
“A stable and business-friendly environment and tax structure will be high-priority considerations for the Project,” Amazon’s RFP says. “Incentives offered by the state/province and local communities to offset initial capital outlay and ongoing operational costs will be significant factors in the decision-making process.”
Specifically, the RFP asks cities to identify “incentive programs available for the Project at the state/province and local levels. Outline the type of incentive (i.e. land, site preparation, tax credits/exemptions, relocation grants, workforce grants, utility incentives/grants, permitting, and fee reductions) and the amount. The initial cost and ongoing cost of doing business are critical decision drivers.”
These types of programs can help communities land big employers, but they don’t always work out for those communities in the long run.
“Cities and states, for decades, have thrown tax breaks and tax incentives at companies to attract them to come,” said Margaret O’Mara, a University of Washington professor specializing in urban history.
“First it was chasing smoke stacks, getting factories to move to your region,” she said. “And now it’s chasing strings of software code, chasing these tech companies. Amazon is playing that game too by saying, ‘who is going to give us the best package?’ In an age where cities and states are starved for resources, often times these efforts at economic development, the costs of tax breaks for the city, will far outweigh whatever benefits come from the number of jobs created.”
However, Amazon has been unique in its ability to generate growth and jobs. The company currently occupies 8 million square feet of office space across 33 buildings in Seattle, many of which have sprung up in the Denny Triangle and South Lake Union neighborhoods in the past seven years. Amazon employs 40,000 people in Washington state and about 380,000 worldwide.
The company says it will ultimately employ as many as 50,000 people at its new campus, with average compensation of more than $100,000, with a capital outlay of more than $5 billion to fully establish the new headquarters.
The notion of that growth taking place somewhere other than Seattle is causing some community leaders to criticize the city for taking the company for granted.
“This is our chance, as citizens and elected officials, to wake up and realize that Amazon is the best thing that has happened to the city in the modern era,” said Heather Redman, co-founder of venture capital firm Flying Fish and the incoming Chair of the Seattle Metropolitan Chamber of Commerce. “It has brought us density with many civic and environmental benefits, jobs across the spectrum (everything from food service to construction to design to programming), an international population rich in culture, a boom in high-talent young residents who value the environment, social justice and the arts even more than our native population — just to name a few of its benefits.”
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But other civic leaders think Amazon is leveraging those benefits to get cities to make concessions they can’t afford.
“Amazon’s quest for a second massive corporate base is reminiscent of Boeing’s ongoing efforts to ship jobs out of the Seattle area and hold us hostage,” said Seattle City Councilmember Kshama Sawant in a statement. “For decades, Boeing executives and billionaire shareholders have carried out systematic economic extortion by pitting cities and states against one another, forcing a race to the bottom for the living standards of workers, and crushing labor unions. Amazon has similarly been using its monopoly power to gobble up swathes of prime Seattle real estate, and extract plum deals from the city’s Democratic establishment.”
The so-called tax break bidding war has also caught the attention of lawmakers outside of Amazon’s hometown. In a string of tweets, Democratic Rep Ro Khanna of Silicon Valley called Amazon out for pursuing tax incentives.
Tech companies, flush w cash, must not demand local tax breaks up front. They shld partner w communities on jobs. https://t.co/3O1bkHbouF
— Ro Khanna (@RoKhanna) September 7, 2017
Dan Kelly, president, and CEO of the Canadian Federation of Independent Businesses, also took to Twitter to criticize Amazon for seeking incentives in its RFP. Toronto and Vancouver are considered attractive candidates for Amazon’s HQ2, as they check many of the boxes on Amazon’s wishlist and aren’t subject to U.S. immigration policy.
Any Canadian city providing incentives to lure Amazon will have a lot of explaining to do to independent retailers paying high prop taxes.
— Dan Kelly (@CFIB) September 8, 2017
Amazon has declined to comment beyond its initial public statements about its plans. On the project site for HQ2, the company says, “We want to find a city that is excited to work with us and where our customers, employees, and the community can all benefit.”
In the meantime, competition among cities to offer Amazon the best benefits package could have a side effect in the company’s hometown.
Seattle Mayor Ed Murray and Washington Gov. Jay Inslee pledged to work with Amazon to meet its needs in the wake of the surprise announcement this week. Given the language in the company’s RFP, it’s possible that those conversations could include discussions of new financial incentives in Amazon’s original home.
“My office will immediately begin conversations with Amazon around their needs with today’s announcement and the company’s long-term plans for Seattle,” Murray said in a statement. “And we will coordinate with Governor Inslee to convene key business and community leaders to plan for our future growth and response to this announcement. I look forward to working with Amazon to secure their long-term, successful future in the heart of Seattle.”