Why Cities Should Think Twice About Throwing Massive Tax Incentives At Amazon For HQ2

In the 1993 movie "Sleepless in Seattle," a Baltimore reporter played by Meg Ryan is happy, but decides to impulsively disrupt her life to chase an unknown entity living out in Seattle. In 2017, U.S. cities are doing the same thing — with Amazon instead of Tom Hanks — in the quest for the e-commerce behemoth’s second corporate headquarters. 

In the end, their impulses will not deliver an Empire State Building Valentine’s Day lip lock with Tom Hanks. Instead, some say this romance promises soaring home prices, a strain on public transit and a catastrophic drain on public coffers if cities do not play corporate Cupid shuffle with firm footing on their civic identity.

“This unfettered growth has had negative consequences on the people who have lived here in Seattle,” Seattle Neighborhood Coalition Chairman Bill Bradburd said. “The housing industry is fueled by an excess of investment capital, and it has created a perfect storm of massive change that not a lot of people have wanted.”

Seattle home prices are soaring, and it is easy to point a finger at Amazon and its high-paying jobs as what is driving the surge. The median home price in King County increased 16.1% in September from the same time last year, the Seattle Times reports. This is the biggest September price surge since Northwest Multiple Listing Service began tracking the data in 2000, and it follows the biggest price increases ever in August and July. 

“One thing I would caution a municipality looking to get Amazon is consider the consequences,” Bradburd said. “Do people have a bed to sleep in, a transportation system to get them there? And if they don’t, what are the impacts and how do you mitigate? In Seattle, we’ve done an awful job at mitigating.”

The company is rapidly expanding in Seattle with nearly 6,000 open positions in the region to add to its existing employee count of around 40,000. It only had 5,000 employees in Seattle as recently as 2010. 

Moves Aren't Cheap

Amazon HQ2 is expected to bring 50,000 jobs with an average annual salary of $100K and as much as 8M SF of office development to whatever city wins the bidding process. But the winning bid for the $5B headquarters is expected to come with an enormous financial incentive package based on similar deals. 

Nevada won the bidding battle for Tesla’s $5B Gigafactory, which produces lithium-ion batteries for the company’s Model 3 sedan and homes with solar power systems. The state beat out California, Texas, Arizona and New Mexico with a $1.3B incentive package (the largest in state history) that included tax benefits, road improvements and $195M in transferrable tax credits. When the deal was completed in 2014, Nevada Gov. Brian Sandoval said the agreement “changed the trajectory of our state forever.” Should Tesla live up to its jobs requirement in the deal, the company will enjoy 20 years sans sales tax and 10 years without paying property taxes.

In August, the Wisconsin State Assembly voted to approve a bill that would give a $3B incentive package to Taiwan’s Foxconn, an electronics manufacturer, to build a liquid-crystal display plant in the state. The deal includes $1.5B in state income tax credits for the expected 3,000 to 13,000 jobs. The agreement works out to anywhere between $250K and $1M per job, depending on how many are created. Amazon will presumably use these deals as a model when deciding who will land its 50,000 high-paying jobs.

“People want to focus on the benefits of a big corporate headquarters coming to your city,” Urban-Brookings Tax Policy Center Research Associate Megan Randall said. “Jobs and higher wages are certainly justifiable things to focus on, but there are questions that get left out.” 

While Amazon may tout 50,000 jobs as the end goal once all phases of HQ2 are complete, Randall said the number of people moving to the winning city will be higher when factoring in spouses, children and even employees from other companies who follow Amazon’s lead and relocate to the winning region. They all use city resources like public schools, public safety and infrastructure, which will need significantly more funding because of the wave of new users.

“It’s important to remember that it’s easy to focus on the benefits and the plus side of the ledger when there are all these costs a city needs to be aware of on the other side for any development and relocation to work,” Randall said.

The Corporate Olympics

Boston, viewed as a leading contender for HQ2, is still reeling from a similar bidding process with its short-lived winning bid for the 2024 Summer Olympics. The United States Olympic Committee announced in 2015 Boston would be its bid city for the future games. Initial support for the bid plummeted because of the city’s secrecy with the bidding process and over the notion money spent on the games would be better spent on transit improvements and affordable housing. The city eventually halted its Olympic ambition, but some feel a sense of bid déjà vu in the city's quest for Amazon. 

“We need to be investing more in public transportation than we are. Putting that many more people on it would be unworkable with the system we have now,” No Boston 2024 co-founder Jonathan Cohn said. “The MBTA can’t function in hot weather, it can’t function in cold weather. It can’t function in weather.”

Cohn has been a skeptic of Boston’s most recent high-profile corporate romancing, which lured General Electric from Fairfield, Connecticut, with a combined city and state incentive package nearing $150M for 800 jobs. While most of those funds were tied to infrastructure costs and not actual tax incentives, Cohn said the move, and others like it, enable the corporate entity to become a major political player in the state, shaping regulatory and tax systems in its favor.

“Just like what we saw with the Olympics, these cities are conceding to give the best deal,” Cohn said. “What is in the front of the policymakers’ minds is not what the best deal they can get for the people in their cities.”

Even the character of a city is at stake. Gentrification from the surge in tech employees has altered Seattle’s landscape. South Lake Union, Amazon’s Seattle headquarters neighborhood since 2010, was once a haven for artists, galleries and theaters, Bradburd said. The art community has been displaced, and South Lake Union is now the seat of the city’s tech community. He is fearful of what it could do beyond the neighborhood borders. Seattle has historically touted small businesses and shopping districts, which he thinks Amazon has in its crosshairs. 

“A lot of us in the neighborhood get tagged as NIMBY, but really what we’re concerned about is the lack of urban planning that goes along with it and how it leads with growth,” Bradburd said. “To me, it’s an irony that we are supporting a company that is in a lot of ways is the exact opposite of what we as a city are about.”