By Laura Stevens and Shayndi Raice
Amazon.com Inc. is no novice when it comes to getting good
deals.
As the Seattle-based company is set to close on Thursday the
request for proposals for its second corporate home, its in-house
economic development team shows how important tax-incentive deals
have become to its business model and gives a window into why the
company took the step of pitting cities against each other to win
the biggest subsidy package possible.
Starting in 2013, for instance, the team helped central Florida
officials advocate for allowing Amazon to build fulfillment centers
on agricultural land in Davenport and Lakeland.
Sean Malott, president of the Central Florida Development
Council, who worked with Amazon, says together the centers employ
1,000 workers. The company received $5.3 million in tax incentives
in return, according to the state's economic-development group.
"In our case, they're taking agricultural property that had a
very small taxable base," he said, making the tax breaks well worth
it to the community.
Amazon has been promised roughly $1 billion in tax subsidies
since the team's founding five years ago, according to data
collected by Good Jobs First, a group that advocates against tax
incentives.
The Seattle-based company said last month it plans to invest $5
billion in a second North American headquarters over nearly two
decades, some of which it could recoup through hefty tax
breaks.
Promises of incentives for HQ2, as Amazon calls its new
headquarters, are already coming in. New Jersey Gov. Chris Christie
on Monday announced the state and the city of Newark will offer a
potential $7 billion in tax incentives over 10 years, tied to
Amazon's pledge to create 50,000 new corporate jobs.
While Amazon is considering many factors such as the labor pool,
cultural fit and access to airports and major highways, its
emphasis on taking advantage of incentives is part of the retail
giant's culture of frugality.
Amazon's approach differs from most other companies, which often
rely on outside consulting firms to scout locations and negotiate
tax incentive deals with state and local governments. Instead,
Amazon in recent years has brought those services in-house and made
them the responsibility of its economic development team, a sign of
the company pouring resources into new, promising initiatives.
Amazon's team is led by specialists who come from different
parts of the economic development world. The group finds sites for
new projects and negotiates tax breaks to help fuel Amazon's rapid
expansion, acting as liaisons with local and state governments.
Mike Grella, who worked at PwC before joining the web giant,
joined Amazon as director of economic development in 2012. He was
joined by Eric Murray, who had worked in-house on real estate and
economic development at Lockheed Martin Corp., in 2014, and Holly
Sullivan, who worked on economic development for local governments
in Maryland and Tennessee, in 2016. Mr. Grella leads economic
development for the company's cloud-services business, while Ms.
Sullivan, also a director of economic development, is responsible
for the rest of the company.
"Amazon is a kind of unique situation," said Mark Sweeney,
senior principal with McCallum Sweeney Consulting, which provides
site selection services and economic-development consulting for
other companies, and whose firm hasn't worked for Amazon. "Most
companies, even large companies, don't build an automobile facility
or an aircraft facility every year."
Over the past three years, Amazon has built out dozens of
warehouses and hired tens of thousands of people, with plans to add
100,000 new full-time U.S. positions by mid-2018. The tax breaks
Amazon has attained for the openings give a critical boost to
Amazon's bottom line. When the company ekes out a profit, it is
usually small compared with its sales because the company pours
money back into expansion.
Amazon said it has invested more than $100 billion in its U.S.
fulfillment network between 2011 and 2016, including compensation.
It declined to comment further.
Local economic-development officials believe tax breaks and
other incentives are an important tool for attracting jobs and
other investments to their region. Northern Kentucky and Boone
County plans to pay roughly $40 million in tax incentives to draw
Amazon's new $1.5 billion air cargo facility to the Cincinnati
airport, which is expected to create more than 2,000 jobs when it
eventually opens.
"When a project comes along like this that has competition,
we're going to use the resources that we have available to try to
secure that operation," said Daniel Tobergte, president and CEO of
the Northern Kentucky Tri-ED economic development group, which
worked with Amazon on the deal.
For some, the cost of attracting Amazon is too high. The public
courting for Amazon's new headquarters "is, intentionally or not,
creating a bidding war amongst states and cities," wrote San
Antonio officials in an open letter last week addressed to Amazon
Chief Executive Jeff Bezos. "Blindly giving away the farm isn't our
style."
Critics of such deals argue that it isn't worth the taxpayer
dollars, adding companies are likely to pick the location that
makes most sense with or without incentives. The current record tax
break awarded to a company is the $8.7 billion the state of
Washington gave Boeing Co. in 2013 to build planes there.
Florida is ready for more Amazon, Mr. Malott said. "We would
love to have the opportunity to have additional facilities, whether
in fulfillment or operations center, or we would love to see HQ2
within the region."
Write to Laura Stevens at laura.stevens@wsj.com and Shayndi
Raice at shayndi.raice@wsj.com
(END) Dow Jones Newswires
October 19, 2017 05:44 ET (09:44 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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