Article Correctness Is Author's Responsibility: What to Do About HQ2

With every passing day, the economic incentives some local leaders are offering Amazon in a fierce competition to lure the company’s second headquarters have gotten more extreme. City leaders and other defenders of unfettered bidding for companies argue the incentives are a necessary and important part of attracting jobs.

But an increasing number of urban and economic policy experts have had enough. The public competition Amazon has set up, they say, is not just damaging to whatever city wins HQ2 and owes Amazon incentives that might cost a city more than it gains. It is setting a new norm for what governments are expected to offer companies in the pursuit of jobs.

What, then, to do about it? Several urban experts share their ideas, below, including CityLab’s Richard Florida, who published an open letter Tuesday morning signed by fellow concerned urbanists.

Mayors and leaders must be the ones to stand up to Amazon with mutual disarmament

Richard Florida, university professor and Director of Cities at the University of Toronto’s Martin Prosperity Institute; CityLab co-founder

After a period where incentives fell into some disrepute and their use actually leveled off, the competition over Amazon HQ2 is likely to produce a new high. It is the start of a troubling arms race—one that pits cities against each other in a ploy for unnecessary giveaways.

In 2006, when President Trump and Vice President Pence handed over $7 million in tax breaks to the Carrier Corporation, it provoked widespread outrage, particularly among progressives. But what’s so galling in Amazon’s case is that the competition for incentives involves a who’s who of left-leaning, progressive cities and mayors.

The broad consensus among urbanists, economists, and local economic policy experts is that outlandish tax breaks ultimately have little influence on where a company decides to locate. Those decisions are based on more fundamental factors like location, talent, access to markets, and real estate costs. Instead, tax breaks simply transfer public funds that could be used for more much-needed public services like schools, housing programs, job training, and transportation to private corporations.

The time has come for elected officials, economic developers, and community leaders to take a principled stand against such a flagrant misuse of taxpayer dollars.

The only real solution, as I see it, is mutual disarmament. As an academic and researcher, my job has always been to observe trends and behaviors in cities. But, for the first time in my career, I am compelled to become an activist as well. I have asked a broad group of  fellow urbanists, leading economists, social scientists and public policy specialists to join me in signing an open letter calling on the mayors, elected officials, economic developers, and community leaders of Amazon’s finalist cities to put an end to this wasteful competition by signing a mutual non-aggression pact. The pact pledges to drop outlandish tax giveaways and incentives for the Amazon headquarters, and instead, compete on the underlying strengths of their communities. If they stand together, local leaders will no longer be able to be played off of one another.

The Washington area knows from experience. Only external enforcement will stop the bidding war

David Zipper, former director of Business Development and Strategy for two mayors in Washington, D.C.

As much as I empathize with those like Richard Florida who have called for the HQ2 finalists to collectively forswear financial incentives, mayors, governors, and economic development officials aren’t going to voluntarily walk away from the wasteful business relocation game. My home region of Washington, D.C., tried something like this to avoid intraregional fights and poaching. It didn’t work.

The District of Columbia is small—only 68 square miles. Virginia and Maryland are never further than 10 miles away from any spot in the city, making it easy for businesses to jump from one jurisdiction to another. That leaves the region vulnerable to local economic development battles that cost taxpayers millions of dollars—and, from a regional perspective, accomplish nothing. More insidiously, the battles for company relocation can deter Washington-area officials from supporting local entrepreneurs—an economic development strategy much more likely to create jobs than doling out relocation incentives.

When I was the leader of business development for the District, a woman who worked for Virginia’s state-financed venture capital fund once half-jokingly congratulated me on a new D.C.-based startup incubator: “I hope it’s a big success—and as soon as one of the startups scales, we’ll bring them to Virginia!” It wasn’t an empty threat. A few years earlier Arlington, Virginia, gave a half million dollars to a D.C. company called GridPoint—which had already received seed funding from the District—to move a few miles across the Potomac.

Such poaching can hurt the Washington region by leading individual jurisdictions to underinvest in growing local business. To curtail it, the Committee for Economic Development Officials (CEDO) entered a “gentlemen’s agreement” a decade ago to stop recruiting companies from each other’s territory (using incentives to lure companies from elsewhere was still fine). But without any enforcement mechanism the agreement was quickly forgotten as soon as a local company grew big enough to attract attention of economic development staff. Senior executives at LivingSocial, a D.C.-based e-commerce company that six years ago was on a hiring spree, told me they received so many recruitment voicemails from senior Virginia and Maryland officials that they couldn’t even respond to them.

Knowing this history, I had mixed feelings when the Washington region took a victory lap upon learning that the District of Columbia, Northern Virginia, and nearby Montgomery County, Maryland, accounted for three of the twenty finalists to house HQ2.

Sure, it’s great to see the region gain recognition for its well-educated workforce and high usage of public transit. But Amazon’s decision to keep both states and D.C. in the running seems perfectly calibrated to squeeze the maximum incentives from each—even though the benefits to the region as a whole would be pretty much the same if HQ2 locates anywhere within it. On cue, Maryland Governor Larry Hogan responded to the HQ2 finalist announcement by offering $5 billion in incentives if Amazon picks Montgomery County, putting pressure on Virginia and the District of Columbia to follow suit.

The same forces that make intraregional business attraction so destructive in the Washington area also distort national relocation competitions. The individual incentives behind the status quo are just too great, both regionally and nationwide. Basic game theory suggests that a single jurisdiction has every reason to offer cash incentives if others don’t. Unless the federal government or the courts step in, states and cities will keep doling out millions of taxpayer dollars—and collectively losing.

Cities can strike a win-win deal with Amazon by asking for community benefits

Amy Liu, vice president and senior fellow at the Brookings Institution and director of its Metropolitan Policy Program, excerpted from her CityLab column here.

Megadeals for global firms might become the new norm. How local leaders approach the competition for HQ2 will set the stage for future corporate bids. Local leaders should seek a deal with Amazon that results in a win-win, not a win-lose, proposition for the company and local residents.

While calling for cities to forge a no-subsidies pact is an ideal outcome, the unfortunate reality is that incentives will remain, undermining the merits of the opportunity.

City leaders do a shocking disservice to their citizens and their city if they give Amazon a free ride by offering incentives packages that solely reduce the firm’s costs. They should rework their subsidy packages to include community investments, not simply tax breaks that subsidize Amazon's bottom line. Instead, they could require Amazon to give back to the community by hosting internships and apprenticeships, and to use the revenue from Amazon's tax abatements for community benefits like a transit and mobility fund.

With Amazon officials coming to town for site visits, economic development leaders might feel compelled to showcase only their "best" sites in trendy locations. But they also ought to articulate why sites in emerging parts of the city, where transformative investment could catalyze wider opportunities for residents, deserve consideration.

There is one virtue to the Amazon bidding wars: Sunshine

Greg LeRoy, Executive Director of Good Jobs First. For many more ideas from Good Jobs first, see LeRoy’s prior CityLab piece here.

Amazon continues to stage a public-relations stunt apparently to extract the largest possible subsidies from its chosen site.

This so-called short list is nothing of the sort. The 19 U.S. bids come from 15 metro areas that include 28 percent of the nation’s population, including nine of the ten largest metro areas.

That said, Amazon has performed a great public service by dragging the obscure site location process out of the shadows and into a harsh public spotlight. Many Americans are rightly aghast at what they see: A secretive process in which billions of taxpayer dollars are hastily offered to a large corporation with no public input. The HQ2 auction marks a new era in economic development, one in which people expect more transparency and accountability.

To the 20 localities named as remaining contenders, we at Good Jobs first say: Fully disclose your bids right now and invite real public participation to revise them. Your residents need to know if your proposed deal is structured to help them benefit in any way and to shield them from gentrification.  

To the elected leaders of the 20 localities, we say: This is not your grandparents’ site location deal. You should cooperate and communicate freely with each other, to avoid overspending and to strengthen your bargaining hand. By Amazon’s choice, this is a public auction, so you should conduct this deal out in the open.

More than 130 organizations have signed an open letter to Jeff Bezos demanding that Amazon abandon any plans to avoid paying its taxes and instead engage with community groups on specific benefit agreements to ensure that the HQ2 project does not impose higher taxes and displace current residents. Good Jobs First signed this demand: no special tax breaks or subsidies for Amazon; instead the company should engage and agree to community benefits.

Leaders should focus instead on addressing structural barriers that have prevented cities from developing a homegrown Amazon

Andre Perry, David M. Rubenstein Fellow in the Metropolitan Policy Program at the Brookings Institution.

The sheer number of potential jobs (50,000) that Amazon’s HQ2 presents has distracted mayors from the problem of structural racism that has been the real culprit in stifling economic growth. Figuring out ways to ensure that a greater cross-section of residents, particularly black and brown folk, can share in prosperity and economic growth is the real problem that winning HQ2 probably won’t solve.

Landing HQ2 will probably distract people from doing the work necessary for creating inclusive economies like providing minority entrepreneurs access to capital, improving public school options for low-income families, increasing workforce development programs and creating inclusive zoning practices for affordable housing.

Now that most of the “losers” of Amazon’s competition can shed the hopes of their quick fix for economic development, they can begin working on issues that, if solved, will have mayors playing their own game to attract corporations.

It is my hope that cities will leverage “opportunity zones” as codified in the new tax bill to encourage investments in people and assets that have been neglected and ignored. Still, these cities must work to eliminate the structural barriers that have held cities back from building their own homegrown Amazon.