When Amazon started looking for a second headquarters locationmore than a year ago,the company asked cities to put their best offers on the table — in cash.
“Incentives offered by the state/province and local communities to offset initial capital outlay and ongoing operational costs will be significant factors in the decision-making process,” the initial request read.
The victors, New York and Virginia, delivered. The final deals revealed on Tuesday showed they provided total incentives worth about $2.8 billion total — extraordinarily generous offers to a company whose profits in 2017 totaled $3 billion on $178 billion in revenues, and whose founder Jeff Bezos is the wealthiest man in the world.
That number only reflects the value of subsidies if Amazon hires the expected 25,000 employees in each location. If the company were to add 40,000 employees, and also win additional New York City tax breaks afforded to all companies that meet certain qualifications, the total amount of subsidies could go as high as about $5.5 billion.
Amazon’s requested perks include not just money, but a helipad at its planned new locations in Long Island City and National Landing — a tall order, given that Crystal City currently falls within a flight restricted zone where the only allowed flights are those that go through the airport or have to do with law enforcement and the military.
“I was surprised the package wasn’t bigger,” said John Boyd, a site selection consultant who wasn’t involved in the Amazon search. “For a high-cost market like Long Island City, incentives are a necessarily evil.”
Amazon has long been a master of extracting tax incentives by playing local governments off one another as they vie for fulfillment centers, offices, and other sources of jobs.
For its headquarters, the company didn’t go with the richest offer.
Maryland had pledged $8.5 billion for sites just north of Washington D.C. and New Jersey had offered a $7 billion package if Amazon located in Newark. Those offers were predicated on a single headquarters with 50,000 jobs rather than the existing split deal with 25,000 in each location, but still would have blown the New York and Virginia offers out of the water — a signal that Amazon was not willing to compromise on access to technical talent.
Some of the incentives are subject to approval by state and local legislative bodies, setting up a likely political fight over how much public money to give away in exchange for thousands of high-paying tech jobs.
Already, a New York state legislator has signaled he plans to introduce a bill to block the deal by phasing out the economic incentive statutes upon which the agreement is based.
“There is a much better way of allocating our taxpayer’s money that will directly help the communities,” said New York State Assemblyman Ron Kim, who represents parts of Queens.
Virginia’s offer: $22,000 per job
The bulk of Virginia’s tax incentives come in the form of a cash grant of $22,000 for each job added over the next 12 years, as long as the average annual wage of those jobs is at least $150,000 — a total of $550 million if Amazon adds the 25,000 jobs it says it will, and up to $750 million it if adds more jobs on top of that.
The funds, which have to be appropriated by the Virginia General Assembly, are designed to decrease slightly in value if more than 10% of the new hires are focused on federal government contracts.
In addition, Amazon will receive $23 million cash from the local Arlington County authorities based on an expected increase in hotel taxes, which needs to be approved by the County Board.
Another $28 million in forecast property tax revenues will be dedicated to infrastructure investments around National Landing, the new branding for the collective developments of Potomac Yards, Pentagon City and Crystal City, all across the Potomac River but still within view of downtown Washington DC.
The agreement with Arlington County also pledges assistance in securing the necessary approval for a helipad on Amazon’s new campus.
Virginia’s memorandum with Amazon pledges a maximum of $195 million of state investment to pay for transportation projects in the area, including a pedestrian bridge to connect the neighborhoods to nearby Reagan National Airport, which is separated from Amazon’s new home by a highway.
Virginia pledged a few other goodies, such as a commitment to “regulatory flexibility” in order to allow new technologies to operate in the area, as well as confidentiality for “all materials, communications, data, and information related to this Memorandum.” That could mean testing of everything from drones to autonomous delivery vehicles, which Amazon has been developing at its Seattle headquarters.
There was no commitment in the memoranda to preserving housing affordability, hiring locally, or working with local educational institutions. However, Virginia Tech on Tuesday announced a new $1 billion “Innovation Campus” just south of the newly named National Landing. JBG Smith, the developer that will be working with Amazon to build its new complex, in May announced an effort to preserve and constructlow-cost housing in the surrounding area. And Arlington County says that revenue generated by Amazon’s presence will allow for the investment of $150 million over the next decade to create or preserve between 2,000 and 2,400 housing units.
New York’s offer: $48,000 per job
The combined offer from New York State and New York City is considerably richer than the one offered by Virginia, and does not require approval by any local or state legislative body.
The incentives offered for Amazon’s Long Island City campus total $1.5 billion if the company hires 25,000 people, and up to $1.7 billion if it hires 40,000 people, which mostly reflects a $48,000-per-job tax credit for every position as long as the average salary is at least $150,000.
There’s another cash grant of $325 million based on the company occupying a certain amount of office space.
Amazon said it would separately apply for another tax incentiveoffered to all companies that add jobs in New York’s outer boroughs, which is worth $3,000 per employee over 10 years, as well as a property tax abatement for commercial construction.
The agreement also pledges assistance in securing a helipad, with flights limited to 120 per year and limited to company executives.
When asked why New York’s bid was so much higher than Virginia’s at a press conference on Tuesday, New York Governor Andrew Cuomo pointed out that Virginia’s personal income tax is lower than New York’s. “I don’t know how they calculated it, and what they actually calculated,” Cuomo said. “So I don’t have an idea about how they put together their transaction.”
While the New York deal is worth more for Amazon, it also comes with more requirements than the Virginia agreement.
For example, Amazon pledged to create space for a tech startup incubator, artist studios, and public open space. The agreement also includes requirements for participation by minority and women-owned businesses in the construction process.
The state, the city, and Amazon pledged to kick in $5 million each for workforce development initiatives, such as technology training programs targeted at local public housing residents and high school students — which, of course, also furthers Amazon’s goal of staffing up in a tight labor market.
Don’t forget Nashville
Although it wouldn’t qualify as a “headquarters,” Nashville won 5,000 jobs, with Tennessee kicking in $102 million in tax incentives including a job subsidy worth $13,000 per head.
Both the city and the state components of the incentive package will have to be approved by various legislative bodies.
