Amazon will receive more than $2bn in financial incentives from New York, Virginia and Tennessee, following a 14-month long search for its second headquarters.
That is less than the subsidies offered by other contenders in the high-stakes contest among North American cities for a major economic development prize. Maryland and New Jersey each dangled more than $7bn in tax credits and other sweeteners in hopes of securing a single “full equal” headquarters to Amazon’s Seattle home.
But the company’s confirmation on Tuesday that it would split $5bn in investment and more than 50,000 jobs between the Crystal City area of Arlington, Virginia — outside Washington DC — and the Long Island City neighbourhood of Queens in New York attracted ire from the company’s critics, who said it was “unfathomable” that the states would be offering hundreds of millions to the ecommerce giant.
Amazon said its choice ultimately came down to where it could find the best software developers and other high-skilled workers.
“These two locations will allow us to attract world-class talent that will help us to continue inventing for customers for years to come,” said Jeff Bezos, Amazon’s founder and chief executive.
Amazon also said on Tuesday that it would put a smaller hub with 5,000 jobs in Nashville, Tennessee, which was another finalist in the contest to win the project dubbed “HQ2”.
Billions in incentives for job creation
The company will reap the benefit of financial incentives in return for creating tens of thousands of jobs with an average wage of more than $150,000.
New York state has promised Amazon $1.53bn in return for creating 25,000 jobs and reaching building occupancy targets over the next decade.
That includes $1.2bn in refundable tax credits under the state’s Excelsior jobs programme — equivalent to $48,000 a job over the next decade.
The state is also giving a $325m cash grant tied to the number of square feet Amazon occupies over the next 10 years. The company will also apply for additional incentives from New York City.
New York’s total incentives could increase to $1.7bn if Amazon expands its presence to 40,000 jobs within 15 years.
In Virginia, the company will get $573m to create 25,000 jobs, consisting of a state workforce cash grant equivalent to $22,000 per job over 12 years with a separate grant from Arlington county tied to growth in revenue from a tax on hotel rooms. Virginia will also invest $195m in infrastructure improvements to Metro stations and pedestrian routes near the project.
Nashville and the state of Tennessee have offered up to $102m in return for Amazon creating 5,000 jobs at a new planned office for the company’s logistics division over the next seven years. That consists of cash grants equivalent to $13,500 per job and a tax credit equivalent to $4,500 per job.
Critics call inducements ‘unfathomable’
Economic development experts said the incentive packages were broadly in line with what cities and states typically offer for big projects.
“The more jobs you create, the more incentives you get,” said Joseph Parilla, a fellow at the Brookings Institution’s Metropolitan Policy Program. “Because of the scale of the jobs Amazon is creating, they get pretty big very quickly.”
But the significant size of incentives offered by New York and Virginia — locations that were considered likely choices for a corporate expansion all through Amazon’s search process — have infuriated the company’s critics.
Michael Gianaris, a Democratic member of the New York State Senate representing Long Island City, and Democrat Jimmy Van Bramer, deputy leader of the New York City Council, said in a joint statement that it was “unfathomable that we would sign a $3bn check to Amazon” at a time when the New York City subway was “crumbling” and schools and healthcare providers were under pressure.
“We are witness to a cynical game in which Amazon duped New York into offering unprecedented amounts of tax dollars to one of the wealthiest companies on earth for a promise of jobs that would represent less than 3 per cent of the jobs typically created in our city over a 10 year period,” they complained, calling Amazon “a bad deal”.
Google, which is planning its own major expansion in New York that would more than double its staff numbers in the city, said on Tuesday that it had not received any tax breaks.
Mr Parilla of Brookings described the conundrum facing cities wooing big companies as a “prisoner’s dilemma”.
“It’s likely they aren’t necessary, but this is the status quo in economic development,” he said.
Jason Horwitz, director of public policy and economic analysis at Anderson Economic Group, a consulting firm, said his organisation had ranked New York as the top contender for Amazon’s second headquarters from the earliest days of the search.
“The big question you have to answer in evaluating these incentives is what would have happened if they didn't provide them?” he said. “Nobody really knows the answer except Amazon.”
Rolling out the welcome mat
Critics aside, many of the vested interests in the winning cities cheered Amazon’s arrival.
In Virginia, Democratic Senator Mark Warner told a conference on Tuesday: “This process is probably the most unique economic development. The whole country was chasing this.”
The New York Building Congress, a coalition of construction and design groups, said: “Amazon will be a tremendous boost to New York's economy and stimulate countless industries, from technology and innovation to design and construction.”
Some of its members will hope to benefit from public spending on infrastructure improvements for Long Island City that were promised as part of the package to lure the online retailer.
Savannah, a developer with several properties in Long Island City, said Amazon had signed a letter of intent to lease 1m square feet of space at One Court Square, the office tower long associated with Citi. The bank, whose lease was set to expire in 2020, said it would move about 1,100 employees out of the building during the first half of next year to make way for Amazon.
Nicholas Bienstock, a Savannah managing partner, said the company was “thrilled” by Amazon’s choice, and thanked Citi “for its critical role in facilitating delivery of the space.”
One Court Square, with the Citi logo atop it, has been an iconic feature of the Long Island City skyline. Once a lonely figure, the building has suddenly been thronged by dozens of newer office towers as the neighbourhood just across the East River from Manhattan has boomed in the last few years.
Savannah is one of several developers that have ploughed money into the area, including Rockrose, TF Cornerstone, Tishman Speyer and the Related Companies, among others.
Additional reporting by Richard Waters in San Francisco