Friday October 20, 2017

Careful what you wish for: The perils of wooing Amazon

Some of the larger cities that have put in bids for Amazon's second headquarters.

Some of the larger cities that have put in bids for Amazon's second headquarters. (Day 6)

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The deadline for Amazon's HQ2 bids has now passed, but for some, the past month leading up to the final pitches has felt like the Olympics of corporate bidding wars.

Dozens of U.S. cities — as well as a handful in Canada, including Vancouver, CalgaryToronto, Ottawa and Halifax — have been jockeying for the company's favour since September 7th, hoping to be selected as the site of Amazon's second headquarters.

"Unfortunately, in the process of getting Amazon to come to your city, you might end up giving away the farm."  - Sarah Holder
Amazon-New HQ-Standing Out

Zavian Tate pushes a large Amazon Dash button in Birmingham, Ala. The buttons are part of the city's campaign to lure Amazon's second headquarters to Birmingham. (Brynn Anderson/Associated Press)

The company has promised to invest $5 billion in constructing its new site and pledged to create 50,000 "high-paying" jobs — but Amazon is also asking cities to consider what economic incentives they can offer the company in return.

Across North America, cities have answered that call, some with wacky publicity stunts and billion-dollar tax breaks, taking their bids to another level.

That may not be in the cities' best interests, according to CityLab reporter Sarah Holder.

In some cities, Holder warns, the incentives on offer might actually overshadow the economic benefits associated with hosting Amazon's headquarters.

"Unfortunately, in the process of getting Amazon to come to your city, you might end up giving away the farm." 

Holder points to the city of Seattle — home to Amazon's original headquarters — as a canary in the coal mine, pointing out that Amazon's impact on the city has been mixed.

Amazon-New HQ-The Downside

In this Wednesday, Oct. 11, 2017, photo, large spheres take shape in front of an existing Amazon building, behind, as new construction continues across the street in Seattle. (Elaine Thompson/Associated Press)

"It has become an innovative tech hub. It has seen a lot of increased investment and an influx in a talented workforce," she says. "But it's also seen rising home prices, an increase in homelessness ... so those are the kinds of things that a city can expect."

We asked Holder to take us through some of the more extreme incentives being offered by American states — and how their strategies compare to the bidding tactics being taken north of the border.

                         

1. New Jersey

Newark Amazon bid

Holder points to New Jersey as one of the most extreme examples of a place that's falling over itself in the effort to woo Amazon. The state has offered Amazon $7 billion US in its bid to host the new headquarters. 

"Five billion dollars ... are tied to the number of employees that Amazon ends up bringing in," says Holder, "and they've pledged to bring in 50,000 jobs, so that's a $10,000 tax subsidy for each job."

The remaining incentives being offered by New Jersey include $1 billion in property tax subsidies, along with a number of other smaller sales tax subsidies.

But Holder says dangling such huge economic carrots could cost the state more than it stands to gain from a successful bid — by allowing corporations like Amazon to set the rules of the game.

While most cities have not made the contents of their Amazon bids public, Holder suspects many are offering tax incentives that could work against their long-term interests.

"In other cities and in past bids, we've seen personal income tax diversions ... nicknamed 'paying taxes to the boss'," she says. "A company's employees pay income taxes normally, but instead of those taxes going to fund a city's roads, public schools and infrastructure, those taxes actually go straight back into the employer's pocket."

Such policies are legal in 17 states, Holder says, increasing the odds that some cities are offering them to Amazon.

                         

2. Georgia

Stonecrest Amazon Bid

Another of the most extreme bids comes from the state of Georgia, Holder says.

"The Stonecrest city council actually decided recently that they would make available 345 acres of land and rename it in Amazon's name," she says. "There will be a new city called 'Amazon, Georgia.'"

Holder says Stonecrest is not alone in offering to re-imagine itself in Amazon's vision, and that they may be doing so to their peril.

"In the case of Georgia, if they're just kind of giving it away. They would be giving away many of the property taxes they were hoping to accrue."

          

3. Ontario

Toronto Amazon Bid

Other regions, including the province of Ontario, have taken a different approach, Holder notes.

"Ontario recently announced that they would not be offering any sorts of new economic incentives to Amazon besides the usual ones the offer to corporations that are hoping to settle in the city."

Instead of offering those incentives, the province has pledged to increase investment in things like education  — including $30 million in funding to boost the number of students graduating with artificial intelligence degrees.

"We don't know what will end up being in the bid that [Toronto] submitted on Thursday, but as a public statement that they've made so far, they're not going to go to the lengths of a New Jersey or a Georgia, and they're not going to offer these billion-dollar tax cuts to Amazon outright."

Hamilton Amazon Graphic

         


To hear the full conversation with Sarah Holder, download our podcast or click the 'Listen' button at the top of this page.