As Amazon Considers a 2nd Headquarters, Will Taxpayers Be Fleeced?
Let the bidding begin. Amazon is planning to spend $5 billion to build a second North American headquarters, and governments are invited to open their wallets. It is easy to see why many cities would love to play host to the jobs, spin-off economic activity and prestige the online giant will generate. But officials need to look closely – and ask some tough questions – before they leap.
The prize is certainly a tempting one. Amazon has said it plans to eventually hire as many as 50,000 people for what it is calling “HQ2”, which it describes as a “full equal” to the company’s existing operations in its long-time Seattle base. The positions are expected to provide financial compensation of more than $100,000 on average. An investment of this size would carry a large multiplier, and burnish the reputation of existing technology clusters or supply a robust base for a new one.
That’s plenty of bait. The hook? How much taxpayer money and material support governments offer up to subsidize the costs of the second most-heavily capitalized company on the Dow Jones. Amazon has spelled out its criteria, including a stable, business-friendly environment, a million-plus metropolitan population, proximity to an international airport and a strong university system, with a large supply of technical talent, especially in software development, or the ability to attract it. But that’s just for starters. Amazon said that incentives offered by competing governments will be “significant factors” in the decision, in an unusually high-profile public announcement of a bidding process.
Before driving a metaphorical truckload of cash to Jeff Bezos’ office, communities should ask some tough questions – such as the number of jobs Amazon’s HQ2 would create, the likely wages, the actual cost to taxpayers, how well the company would be monitored as to whether it meets its job creation promises, and how long it would take the host government to recover the revenue.
How firm is Amazon’s estimate of 50,000 or more employees? How long-lasting will they be? The fact that Amazon is planning to make such a large investment indicates the company anticipates a long-term need for space. But are they likely to house evergreen jobs, or do they involve tasks that could be automated relatively easy? Will Amazon’s own recent forays into bricks-and-mortar investments, including bookstores as well as the Whole Foods Chain, end up drawing jobs from the central location? Wisconsin’s recently-announced $3 billion dollar incentive package to entice Foxconn to set up an LCD flat screen plant initially contained few solid job guarantees, with a total promised workforce of anywhere from 3,000 to 13,000 workers – carrying a price tag of anywhere from $230,000 to 1-million per job.
How much would the jobs pay, not just for top earners but also for lower-paid workers, and on average? The average Foxconn job in Wisconsin is anticipated to pay about $53,000 per year, but cost-benefit estimates initially counted any job paying as little as $30,000 per year against the incentive package. While the Amazon jobs are expected to be high-end and well-paid, what minimum guarantees is a government prepared to insist on in writing?
Based on likely job numbers, salary and tax rates, how long would it take for a locality to make up in enhanced tax revenues what it would have to put up in incentives? The Wisconsin state Legislative Audit Bureau found that increased state tax revenue resulting from job growth from the planned Foxconn investment would not pay for the incentives until at least 2042 — and then only if the most optimistic jobs goal is reached and all go to Wisconsin residents. Which raises another question for a prudent government: Would the Amazon site likely be close enough to another jurisdiction to see jobs, and potential tax revenue, seep to free-riding neighboring jurisdictions?
How thoroughly would Amazon’s job projections be overseen and audited? In Wisconsin, for example, the state agency tasked with holding Foxconn accountable has a history of failing to verify job-creation claims and rewarding companies that fall short of quotas, according to state audits.
Seattle has found Amazon’s fast-paced growth to be a challenge as well as a bonanza. The economic boom it has fueled has also driven up housing costs and infrastructure needs. What impact would an Amazon investment have on local infrastructure and housing? What infrastructure spending would be required, and how much would necessary borrowing costs come to? What are a community’s existing housing pressures, how much growth can be anticipated at what pace, and what would the likely impact be on housing costs. Would the host government need to invest in additional training programs to ensure a pipeline of workers for both Amazon and for local businesses that lose employees to the massive facility? Would Amazon be exempt from existing environmental assessments or regulations, at what competitive value compared to the costs borne by other businesses in the region?
In a clear-thinking world rooted firmly in market principles, we would not have to be concerned about such issues. But in the dirigiste auction that has been created, where governments constantly seek to outbid each other, they must ask themselves questions like these to determine the real costs and benefits of any project before they spend a dime. Any region entering the competition for Amazon’s HQ2 should make sure they are satisfying their own people’s likely concerns, not just the company’s. Amazon is not simply handing money over to anyone. It is investing in an additional HQ site because it needs one. Politicians should make sure their taxpayers don’t end up footing the tab.
