Wave of Amazon HQ2 Bids Unlike Anything Experts Have Seen

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By Alex Ebert

Is the nationwide tidal wave of proposals for Amazon’s second headquarters an unprecedented incentive bonanza, a game-changer, or a PR-stunt precipitating a dozen more PR stunts?

The answer: All the above.

Tax experts and site selection consultants with decades of experience struggled to define and categorize the immense amount of proposals shooting up from mega metropolises to small cities this week to meet Amazon.com Inc.'s Oct. 19 deadline.

Dozens of communities across the country are vying to be the destination for the online retailer’s anticipated $5 billion investment in a second headquarters (HQ2) that could create up to 50,000 jobs with wages averaging $100,000 per employee—what experts are calling the largest jobs deal linked to a corporate headquarters in U.S. history.

“In my 30 years of site selection projects, I’ve never seen such a thing. I’ve never seen this level of publicity,” Mark Williams, board chair for the Site Selectors Guild and president of Strategic Development Group, told Bloomberg Tax. “It’s shaking thinks up. It could backfire on the public if people don’t understand the economic consequences.”

Cities large and small leaped into the process, adding to both a media frenzy and a level of transparency previously absent from site-selection projects. This out-in-the-open bidding process is both anomalous and part of a larger trend this year in state bidding wars to land massive corporate investments. Toyota/Mazda and Foxconn have broadcast competitions for new developments, and Foxconn netted more than $3 billion in incentives from Wisconsin’s Legislature.

“It’s kind of like Groundhog Day, except the main character never evolves,” Greg LeRoy, executive director of Good Jobs First, told Bloomberg Tax. “I can’t think of another headquarters sweepstakes for 25,000 jobs, let alone one for 50,000 jobs. It’s off the charts.”

Job-Creation Incentives

This week New Jersey Gov. Chris Christie (R) announced the state would provide up to $7 billion in tax credits for Amazon.

“Let any state go and try to beat that package along with what we have offered here in Newark,” he said.

Newark is bringing $1 billion in property tax abatements and a $1 billion, 20-year city wage tax waiver to the table. But the remaining $5 billion would all come from performance-based job-creation incentives.

Site-selection consultants told Bloomberg Tax that nearly all of the top bids would follow New Jersey’s footsteps and provide job-creation incentives for each of the 50,000 jobs Amazon could create.

“Probably the moon is the ceiling for a tax incentive linked to job numbers,” Dennis Donovan, principal at Wadley Donovan Gutshaw Consulting, told Bloomberg Tax. “The job creation incentives are also probably the most equitable of all those available.”

Donovan said the consensus in the economic development community is that job-creation incentives tend to pay off better for government because the incentives cost less than grants or loans up front and are only earned once jobs materialize.

Transferable Tax Credits

But LeRoy warned that while many developers see performance-based incentives as a win-win, they are often too high per job or can create a negative cash-flow in the state through their trade.

The 50,000 jobs is bigger than any deal that tax incentive-critic LeRoy has ever seen and could be problematic for the winning state. Amazon could be liable for little or no taxes in its new state due to the company’s income apportionment across states through its online sales and series of nearly 100 regional delivery centers.

That means Amazon could have a bundle of credits left over each year. Some states bidding, such as Nevada and Connecticut, provide job-creation incentives through “transferable” tax credits, which Amazon could sell to other taxpayers who could then use them to offset their taxes—meaning incentives given to Amazon could reduce what the state earns from other employers. For example, last year Tesla sold $20 million transferable credits linked to its “gigafactory” to the Las Vegas MGM Grand.

Other versions of job-creation incentives could also contribute to little revenue in the new headquarters state for decades. For example, Chicago isn’t saying what incentives it would provide Amazon. But through a tax credit renewed this year by the Illinois Legislature, Amazon could be eligible to receive a credit of up to 100 percent of employees’ state income tax withholdings for 10 years. Based on Illinois’ state rate of 4.95 percent, that alone could yield $2.47 billion in credits.

Anti-Incentive Pitches

Most communities weren’t as forthcoming with their incentive figures.

Ryan Combs, executive director of North Carolina’s Research Triangle Regional Partnership, told Bloomberg Tax that Raleigh and Durham’s joint proposal didn’t include any incentives. He said those discussions will happen once Amazon discloses the short-list of potential locations. If they’re a finalist, Amazon could qualify for the state’s new incentives package for “transformative projects” for companies that invest at least $4 billion in-state and create 5,000 jobs.

Others tried to sell their current tax systems in relation to neighbors.

“All the Benefits of Boston Without All the Headaches,” reads the first line of the public pitch from Londonderry, N.H., to Amazon. The city’s big selling point is what it calls a $600 million per year tax incentive that “doesn’t have a ‘jobs test’ or other contingencies, and is not subject to repeal,” because the state doesn’t have sales and individual income taxes. The city argues that compared to nearby Boston, Amazon will save that much annually without a special deal.

Others communities were outright hostile to the idea of incentives and publicly denounced the process. San Antonio’s economic development leaders sent a strongly-worded letter saying they were opposed to “creating a bidding war amongst states and cities.”

History of Incentives

Many contenders were more murky about possible incentives. New York City Mayor Bill de Blasio (D) has gone on record against offering Amazon any city tax breaks for the HQ2 competition, and its public proposal outline doesn’t include any incentives—though it estimates the headquarters would bring $2.8 billion to $3.3 billion in tax revenue over 30 years. However, large breaks could still come from the state, which has a history of incentivizing Amazon’s developments.

Gov. Andrew Cuomo (D) announced last month that Amazon would receive $20 million in incentives to construct a 2,000-worker administrative building in the Hudson Yards high-rise office development on Manhattan’s West Side. That adds to the $25 million in incentives Amazon has received to locate a fulfillment center in Staten Island, an office across from the Empire State Building, and a photo-video studio in Brooklyn over the last five years.

A group of 30 community advocacy organizations wrote to Cuomo and de Blasio, opposing financial incentives to the retailer. “New York communities are facing massive cuts to public goods and services, and working families are struggling to make ends meet,” the groups said in an Oct. 16 letter. “We cannot afford to give away our tax dollars to corporations that don’t need them.”

While the Cuomo administration hasn’t disclosed what incentives it may offer Amazon, New York ranked first in a 2013 report by Good Jobs First that tallied incentive packages over 35 years. The state gave companies $11.4 billion in breaks over that period, including other forms of subsidies in addition to tax breaks, the advocacy group found.


“I Just don’t think it’s a fair business practice to have all of these communities wasting their money,” Donovan said.

He said there’s a handful of metro areas large enough and with enough infrastructure to support Amazon’s new campus. Instead, Amazon has turned the process into a PR move that pressures communities without a chance into applying.

Some applications appear as public-relations gimmicks. Kansas City’s mayor purchased 1,000 items on Amazon and left 5-star reviews for Kansas City, stressing the region’s low cost of living and high quality of life. Tucson, Ariz., sent Bezos a 21-foot saguaro cactus. Other states have offered to name a city after Amazon.

But other long-shots are taking a serious run at the proposal likely due to public pressure, Williams said. Regional economic development professionals are under pressure from business communities and politicians alike, regardless of whether HQ2 would be a good fit.

Even the smaller million-plus-population metro areas are “almost certainly not” going to win Amazon’s bid, Jason Horwitz, director of public policy and economic analysis at Anderson Economic Group, told Bloomberg Tax in an email. Horwitz was a co-author for his company’s HQ2 Index, which handicaps possible contenders based on their talent pools, infrastructure, cost of business, and incentives.

Based on those factors, obvious choices such as New York City, Chicago, Los Angeles, Boston, and Atlanta led the list.

Practice in Pitching?

“Amazon explicitly states that the local airport should have direct flights to New York, D.C., San Francisco, Seattle, and international locations,” Horwitz said. “While I’ve seen quite a few people assert that this or that city doesn’t have a chance, most of these judgments appear to be based on arbitrary or subjective preferences and not explicit statements from Amazon.”

Gary, Indiana, took out an ad in the New York Times stylized as a personal letter to Jeff Bezos. Grand Rapids, Mich., has submitted a 102-page-proposal—longer than any of the public proposals reviewed by Bloomberg Tax.

But what Donovan calls a waste of money, these communities see as practice and future planning.

Cities that don’t get the project don’t lose out completely, because the information gathered can be reused and applied to other corporate investments, Tim Mroz, spokesman for western Michigan economic development group The Right Place, Inc. told Bloomberg Tax. The process also helps communities highlight areas of improvement to land big-fish corporate investments.

Redevelopment and Land Incentives

By 2027, Amazon hopes to expand HQ2 up to 8,000,000 square-feet, which can either be on one campus or spread over several buildings like its current Seattle headquarters. Given this massive footprint, a key aspect to nearly all of the public proposals was the inclusion of choice commercial real estate and development incentives.

Memphis, Tenn.; Newark, N.J.; Worcester, Mass.; Baltimore; and Hartford, Conn., all had bids that highlighted property tax abatements and tax incremental financing that would assist with developing new structures.

Some other states also offer brownfield developments. Michigan passed a $1 billion brownfield re-development incentive package this year, and Detroit’s point-man on its pitch, Dan Gilbert, founder of Quicken Loans, said the incentive might help Amazon reinvigorate the city’s downtown.

Williams said he would be surprised if Amazon isn’t given development land free-of-charge. And several cities are highlighting “shovel-ready” sites, expedited permitting processes, and incentives to provide cost-free utilities and infrastructure around the new buildings.

With assistance from Adrianne Appel (Boston), Andrew M. Ballard (Raleigh, N.C.), Tripp Baltz (Denver), Michael J. Bologna (Chicago), Christopher Brown (St. Louis), Brenna Goth (Phoenix), John Herzfeld (New York), Nushin Huq (Houston), Aaron Nicodemus (Boston), Leslie A. Pappas (Philadelphia), Gerald B. Silverman (Albany, N.Y.), Paul Stinson (Austin, Texas), and Paul Shukovsky (Seattle)

To contact the reporter on this story: Alex Ebert in Columbus, Ohio at aebert@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

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