HQ2 Shortlist Contenders Are Hiding Faults With Multibillion-Dollar Incentives, Boston Developers Say

One Amazon HQ2 contender is banking on brains trumping tax break brawn.

Some regions on Amazon’s HQ2 shortlist have passed multibillion-dollar incentive plans to woo the Seattle-based company. But an economic development bill passed by the Massachusetts General Court before the conclusion of its 2018 legislative session did not include Gov. Charlie Baker’s proposed provision for an additional $20M in annual tax credits for companies planning “extraordinary” job-creating opportunities. 

While the governor has maintained he would push for special legislation pertaining to economic incentives relating to HQ2 should Boston win, the inability to get approval for an additional $20M to a statewide economic development bill could signal Massachusetts isn’t likely to give the company the lucrative fiscal package it has indicated it desires. Local developers aren’t exactly panicking.

“Our reticence to open up our wallet is reflective in our belief in the intellectual infrastructure that is already here,” Mount Vernon Co. Chairman and founder Bruce Percelay said. “The more a community gives, in my opinion, the less they believe in the innate capability in their city.”

Several business leaders told Bisnow Amazon needs Greater Boston’s brain power more than Greater Boston needs Amazon, and they aren’t sweating over the state’s unwillingness to add more business incentives to its economic toolkit before the e-commerce giant’s expected HQ2 decision by year’s end.

“I think we’re on the shortlist for a really good reason. We’re a great place for them, but we’re also a great place for a huge swath of industries,” Alliance Residential Co. Managing Director Michael Boujoulian said. “If a bag of money is what Amazon is looking for, it doesn’t seem like there’s any way of them coming here.”

Boston has been frank about its reluctance to give away large sums of money in pursuit of Amazon’s second headquarters. Boston Mayor Martin Walsh said the city would not offer billion-dollar incentive packages unless the money was tied to infrastructure improvements, like how the combined $250M package the city and state offered to lure General Electric was heavily attached to improvements to roads and a nearby bridge surrounding the company’s future Fort Point campus.

The tough talk might seem like self-sabotage, but NAIOP Massachusetts CEO David Begelfer said Amazon’s decision to expand by up to 1M SF in Boston independent of HQ2 at Seaport Square is a testament to the company's affinity for the region’s ability to provide talent directly from its concentration of top-tier universities like Harvard and MIT. 

“There’s no question Amazon likes this place, wants to do business here and already does business here,” said Begelfer, who is retiring after 27 years leading NAIOP at the end of 2018. “The areas coming up front showing their money and cards right now are the ones that know they have a problem. They’re not the natural place to locate.”

New Jersey has offered $7B in incentives to Amazon if it locates HQ2 in Newark. Maryland’s $8.5B incentive package is the largest publicly announced of the HQ2 shortlist contenders. Pennsylvania is believed to be offering a package in excess of $1B in hopes Philadelphia will emerge as the HQ2 victor. Many in Boston’s real estate community don’t expect Massachusetts to preemptively pass a similar package. 

“I don’t know what the appetite is for matching those kinds of numbers,” attorney and former Boston City Council President Larry DiCara said. “Even a low nine-figure number would cause people to talk.”

DiCara represented Boston-based insurance company Liberty Mutual when it was pursuing tax breaks for a $300M tower it completed in 2013 at its Back Bay headquarters. Boston and Massachusetts leaders worked together on a financing package that he estimates saved the company about $33M over 20 years. The number is far less than numbers other regions are putting forward in their HQ2 bids, and DiCara said Greater Boston’s economic climate today is entirely different from when the insurance company broke ground on its tower in 2010.

“When Liberty Mutual was proposed, unemployment was high and nobody was building anything,” he said. “Unemployment is almost zero in eastern Massachusetts today. It’s a more difficult political argument that we have to offer public funds.”

Massachusetts isn’t entirely handicapped in its ability to appeal to Amazon with tax breaks. The state’s Infrastructure Investment Incentive Program, or I-Cubed, reserves state funds collected from employee income tax for infrastructure improvements to support major private developments. It has been used on projects like Assembly Row in Somerville and Boston Landing in Brighton, and Begelfer said it is a great way to utilize existing state programs to get a good deal for all parties. 

“Here’s a good opportunity to leverage new money and put it back into the region to sustain the mobility of that workforce,” he said. “It’s not a difficult thing to create based on a formula we already have.”

Those interviewed for this story indicated they do expect Boston and Massachusetts to offer some incentives to Amazon if the region advanced further in the HQ2 consideration process, but they unanimously agreed the area shouldn’t sweat over the failure to add more funds to the state’s economic development bill. At a time when companies like Wayfair, Verizon and Google are all reported to be expanding in the region, Greater Boston will do just fine with or without an enormous surge from Seattle. 

“There was a time when things were different here,” Percelay said with a laugh. "But now we’re the prettiest girl at the dance."