New York, Northern Virginia offered a combined $5.5 billion to
secure head offices
By Valerie Bauerlein, JimmyVielkind and John D. McKinnon
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (November 14, 2018).
Amazon.com Inc. picked New York City and Northern Virginia for
its two new headquarters, taking advantage of some of the
most-extensive incentives U.S. cities and states have ever offered,
totaling $5.5 billion -- more than the $5 billion the online
retailer has promised to invest.
Amazon's 14-month contest for a second headquarters has taken
state and local incentives to a new level. New York offered a
package of nearly $3 billion, while Virginia's incentives totaled
around $2.5 billion, including both direct payments to Amazon and
commitments to make improvements related to the projects. And the
winners weren't even the most generous: New Jersey and its largest
city, Newark, offered $7 billion, while Maryland dangled $5 billion
in incentives.
The spoils were at least 25,000 new jobs and $2.5 billion of
investment, as well as billions of dollars of increased tax revenue
and development of infrastructure and new real estate.
"For every dollar we invest, we're going to get back about $9,"
said New York Gov. Andrew Cuomo. "To find the money that we need to
invest in subways, to invest in schools, et cetera, this is a big
moneymaker for us. It costs us nothing -- nada, niente, goose
egg."
New York officials said they calculated the full value of their
incentives with the hope that Amazon would grow beyond its 25,000
minimum job commitment to as many as 40,000 jobs. Virginia would
pay more if Amazon creates more than 25,000 jobs, up to a total of
37,850.
Virginia officials also expect to generate revenue for the state
over and above their direct incentive payments.
The payoff from such contests, however, isn't always clear.
Sometimes the jobs don't materialize and investments come in
smaller than promised.
"It's a lot of unnecessary subsidy," said James Parrott,
director of economic and fiscal policies at the Center for New York
City Affairs at the New School in Manhattan. "They want to be in
New York City anyway, so why do they need to be subsidized at
all?"
Virginia officials say their incentives are largely
performance-based, meaning the government won't have to pay up if
Amazon doesn't come through with expected jobs and investment.
Tax-incentive packages for economic development have been an
increasingly important part of corporate relocation deals, more
than tripling over the past 25 years, according to an analysis of
incentives covering more than 90% of the U.S. economy.
By 2015, the total annual cost of these incentives was $45
billion, according to the analysis, by Timothy Bartik, a senior
economist at the W.E. Upjohn Institute for Employment Research in
Kalamazoo, Mich. The study looked at 47 cities in 32 states plus
the District of Columbia.
In 2017, Wisconsin offered Taiwanese manufacturer Foxconn
Technology Inc. a $3 billion subsidy for 13,000 new jobs. But with
its historically low unemployment, Wisconsin has struggled to find
enough workers.
Chicago Mayor Rahm Emanuel said Tuesday that he thinks one
reason Chicago didn't win over Amazon is because it wasn't willing
to offer an incentive package as large as New York or Virginia. He
also noted that the prize in the end was split in half.
"Nobody is winning the second headquarters," he said, "and
that's the other way to look at it."
Amazon said it chose the two locations -- which were among 20
cities winnowed from an initial 238 applicants -- because of the
availability of tech talent and the ability to recruit workers. For
cities that saw Amazon as a chance for economic revitalization, the
choice of New York and the Washington, D.C., areas, two established
hubs, was a disappointment.
Nashville, which won a consolation prize of a smaller investment
of $230 million by Amazon, offered $102 million in state and local
incentives for 5,000 full-time jobs.
"We looked at what our employees want, and where they would want
to live, " John Schoettler, Amazon's vice president for real estate
and facilities, said Tuesday while seated next to Gov. Cuomo at a
press conference in Manhattan.
New York typically offers a corporate incentive package in the
U.S. second only to New Mexico, said Mr. Bartik, the economist. The
Amazon package would be in line with past practice, he said.
Mr. Cuomo said Amazon's presence could grow and generate as much
as $27.5 billion in city and state tax revenue over 25 years.
"We've never seen 25,000 new jobs, ever, in the entire history
of the city and the state. We've never even come close," said New
York City Mayor Bill de Blasio, who also attended Tuesday's press
conference.
Both Mr. Cuomo and Mr. de Blasio said that high costs and taxes
in New York contributed to the Empire State's package being more
generous than Virginia's.
Virginia typically offers lower incentives than many states, and
the Amazon package would not be far from that, Mr. Bartik said.
State officials say that on a per-job basis, the Amazon incentives
are relatively low.
Virginia's final incentive package appears to total more than
$2.5 billion, including almost $1.9 billion from the state and
almost $800 million from local governments, according to materials
provided by the state.
A highlight of the proposal is a new tech campus in Alexandria,
Va., near Amazon's new location, to attract and retain top
computer-science talent and generate more advanced degrees.
Virginia officials, including Gov. Ralph Northam, see landing
the Amazon facility as a way to accelerate the state's growth, and
help anchor its economic future in high tech. Mr. Northam and
predecessor Terry McAuliffe have said it is critical to recruit
high-tech jobs to cushion the loss of some defense companies over
the past decade.
Virginia officials contend their incentives will bring in about
$3.2 billion in additional state revenue over 20 years.
"At the end of the day they have to look at it for what it is, a
once-in-a-lifetime economic opportunity that could transform that
area of northern Virginia, and could have ripple effects for the
region," said Todd Haymore, a former state commerce secretary under
Mr. McAuliffe, who helped kick off the state's pursuit of Amazon.
"I can tell you we fought like the devil" for smaller projects, he
said.
Mr. Bartik said it is difficult to gauge the long-term benefit
of incentives packages. Estimates of tax revenue often fail to
account for the increased public expenditure that comes with more
employees, like hiring teachers and expanding transit, he said.
"If you're going to do a fiscal-impact analysis, there are two
sides to the budget," he said. "You have to look at both."
Write to Valerie Bauerlein at valerie.bauerlein@wsj.com and John
D. McKinnon at john.mckinnon@wsj.com
(END) Dow Jones Newswires
November 14, 2018 02:48 ET (07:48 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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