Richard Florida is a co-founder and editor at large of CityLab and a senior editor at The Atlantic. He is a university professor in the University of Toronto’s School of Cities and Rotman School of Management, and a distinguished fellow at New York University’s Schack Institute of Real Estate.
What should or could cities do differently next time a behemoth company solicits bids for for its headquarters?
Some 238 cities across the U.S., Canada, and Mexico responded to Amazon’s original call for proposals for its second headquarters, or HQ2. That group has now been whittled down to 20 finalists. Many of these proposals included astronomical levels of taxpayer-financed incentives—as much $7 billion from Newark, New Jersey, and $8.5 billion from Maryland. These incentives range from cash grants and property tax abatements to building a monorail for Amazon. Given that the majority of these bids aren’t public, we can only speculate on what else has been offered.
While politicians and economic developers justify incentives as part of the cost of attracting Amazon’s projected 50,000 jobs and $5 billion in investment, economists will tell you that such large-scale publicly funded incentives bring real and opportunity costs. This is taxpayer money that could be used to fund a wide range of programs from schools, infrastructure and parks; affordable housing or job training programs to locally-based research and development or bolster local startup ecosystems.
As academics who have studied the role of incentives in economic development, we believe that cities would be better served by using these dollars in different ways. But we wanted to get out of our ivory towers, so we asked a group of leaders from HQ2 cities across the country for their perspective. We reached out to leaders of business, government, civic organizations and NGOs. We wanted to include a group of people who are more representative of the range of interests in our cities and communities. We put out the following question:
Last year, Amazon released a public call for proposals for a second headquarters (HQ2). How would you want your community to respond to this kind of proposal in the future? You can talk about the process, what should have been offered in this proposal, or if your community should have submitted a proposal at all.
This is what we heard:
Moira Vetter, CEO, Modo Modo Agency, Atlanta, HQ2 Finalist
As an Atlanta entrepreneur, I feel we approach significant business proposals as we should. We understand the needs of the corporation, we share who we are and we bring other world-class companies (like Mercedes-Benz and NCR) to the table to share why they chose us as their center.
Incentives are an important part of a proposal, but they only satisfy the initial business case. Sustained success—for a corporate headquarters or an innovation hub—requires these key ingredients:
a pro-business tax stance
a world-class logistics and technology infrastructure
a growing pool of talent, shaped by a breadth of educational institutions and global corporate experience
a dynamic culture that attracts and retains a multi-generational, multi-cultural workforce
A region should focus not just on incentivizing the corporate parent, but in creating a community where high-demand talent wants to live, work, thrive, and set down roots.
Leslie Pool, council member, Austin, HQ2 Finalist
In the future, I would like to see an actual public process convened to take input from the residents of the city who would be expected to accommodate and pay for changes to their neighborhoods that such a proposal would bring. The initiating entity should not accept any proposal that has not been duly endorsed by the municipality and its governing body.
The lack of transparency of the HQ2 initiative is unfortunate. Those submitting Austin’s proposal threw a veil of secrecy over it; even the council doesn’t know what the proposal contains—and we have asked! Those respondents are not City of Austin employees, they do not speak for the council, and they are not authorized to make promises on behalf of the city.
Such unfortunate actions harm the effort, create significant obstacles to such an initiative, and do not serve the public good in any manner.
Greg LeRoy, founder and executive director, Good Jobs First, Montgomery County, Maryland, HQ2 Finalist
If Amazon chose my home county for its HQ2, it would be coming for the brain cells—as it should! We have a whole lot of really smart people here! So my offer would maximize the company’s ability to attract them.
First, no tax breaks. We need all of the property, sales, and income tax revenue that all companies routinely pay here to sustain our top-ranked schools, because great schools are a magnet for smart parents.
Second, disperse the campus to at least four transit stations, two along the Red Line and two along the new Purple Line being built between “MoCo” (where it intersects with the Red Line) and adjoining Prince George’s County.
Third, partnerships for local hiring, internships, and other joint efforts. The National Institutes for Health, Food and Drug Administration, Consumer Product Safety Commission and dozens more are here!
Stacy Mitchell, co-director, Institute for Local Self-Reliance, Portland, Maine. Did not submit an HQ2 proposal.
I’d want my city to do more than simply decline to offer Amazon public subsidies and tax breaks. I’d want it to reach out to other cities and build a movement of cities taking action against concentrated economic power. Cities thrive as places of entrepreneurship and exchange. But today, startups and small businesses are in decline and the well-being of our cities increasingly hinges on the location decisions of a few large companies.
Amazon is part of these trends: It now captures half of online spending, up from about one-third four years ago. If we want more of our cities to thrive, we need an economy that distributes economic opportunity more widely. Cities can take action to address this directly: They can, for example, look to their own procurement practices, limiting how much they buy from Amazon and instead directing their spending to local businesses. They can also play an important role in shaping state and national economic policy by convening forums to engage citizens in talking about the consequences of concentrated economic power and by petitioning state attorneys general and federal regulators to scrutinize Amazon’s market power and behavior.
Joe Spencer, president, St. Paul Downtown Alliance, former director of arts and culture, St. Paul, Minnesota. One of 238 first round proposals that was eliminated.
In Saint Paul, we seriously consider every opportunity to bring new employers—and with them jobs, vitality, and growth—to our city. Whether responding to a formal proposal process for a Fortune 500 company’s headquarters or chatting with an owner of a start-up at a local event, we strive to communicate our strengths and vision for the future to those interested in calling Saint Paul home.
The key to highlighting our city’s assets, from our talent pool to our renowned arts and culture scene, is our incredible community of business leaders, nonprofits, elected officials, and community members who work together with the same goal in mind—to build a strong, vibrant Saint Paul.
Chris Steele, COO and president (North America) of Investment Consulting Associates, Worcester, Massachusetts. One of 238 first round proposals that was eliminated.
For small cities like Worcester, bids like this are a missed opportunity not because small cities are not eligible, but because many misunderstand how to sell themselves to large employers. The video Worcester produced to entice Amazon HQ2 shows off some of the city’s shining stars, such as its medical school, its hockey team, and Union Station, but fails to showcase the regional workforce—let alone any other regional assets. When an organization chooses a site, the city name in its address is of less importance than the complete network of resources accessible to the organization from that location. Worcester’s application represented a missed opportunity to leverage the full potential of its regional situation. The failure to act regionally for economic development goes well beyond the Amazon proposal, however.
The academics’ take
It’s worth noting one takeaway from these responses that was glaring to us, who have had many off-the-record conversations about incentives: Few businesses or business associations were willing to go on record criticizing Amazon or this process. Amazon’s power has affected the public dialogue about HQ2. It’s not so much fear of retribution or of Amazon per se. We worry that city leaders were reluctant to speak up for fear they would look like “traitors” to their city and region.
So in light of these answers, we asked ourselves the same question: What should cities do differently the next time an opportunity like HQ2 comes along?
Transparency in the process is vitally important. In many communities, the HQ2 process has been shrouded in secrecy. In some cities, public records laws exempt economic development negotiations, and in many cases, cities submitted their bids through non-governmental agencies like chambers of commerce and non-profit economic development groups that aren’t subject to public records laws. Amazon has demanded that the 20 finalist cities sign non-disclosure agreements to prevent information on their bids from getting out into the public. More than anything else, effective economic development—and use of taxpayer funds to support it—requires transparency.
Cities need more time to make offers with impact of this magnitude. Amazon’s short turnaround time in the original call for proposals put pressure on communities to respond quickly. Although many communities did strive to create a broad regional process, the focus of the proposal on attracting this single investment and the short timeline made it difficult, and perhaps impossible, for a full vetting of the costs and benefits of HQ2 and to mount a truly inclusive process. Amazon’s imposition of strict non-disclosure requirements on the 20 finalists has effectively precluded a broad and necessary public discussion at this critical phase of the process.
Cities should craft policies for offering companies incentives that bring net benefits back to the community. While cities and their leaders have proven unable to band together and stand up to Amazon, there is clear opposition to the HQ2 process in several finalist cities, where council members and others have essentially said enough is enough. It makes little sense to lavish taxpayer funds on one of the world’s largest and most profitable corporations and its richest man. Those funds can be better used to pay for affordable housing, job upgrades and training, local schools, parks, transit, and the like. When all is said and done, government funds should be used to fund public goods and to help the least advantaged, not to confer subsidies to large corporations and the most advantaged people in society.
Cities can substantially improve their bargaining power by collaborating and acting collectively. This HQ process did generate some collaboration between neighboring communities, such as coordination of HQ2 bids between Detroit and Windsor, Canada. But we didn’t see this collaboration across the three D.C.-area jurisdictions offering bids nor did we observe any non-regionally focused collections of governments working together. Despite the amount of media attention and a few pockets of resistance against Amazon, there are few organized interests offering alternative perspectives on how to better conduct economic development. Across the nation, many individuals and organizations are fighting against large-scale incentives, and for transparency in the bidding process. It should be possible for the mayors of 20 large, and largely progressive cities—most of whom likely know each other personally—to forge some sort of collective agreement on an agreed-upon scope of competition and to limit the use of incentives.
The federal government should act to reform the practice of state and local economic development. It is clear that the Amazon HQ2 process has pushed local governments and economic development in a troubling direction. It has resulted in record-breaking incentives and a troubling lack of transparency often from communities that have made great strides in improving their economic development policies and increasing transference of their incentive programs. Even economists who believe that incentives can sometime be warranted agree that the incentives bandied about for Amazon HQ2 far exceed any reasonable threshold. The European Union has taken action to limit incentives. A chorus of experts have called for federal action in the United States to limit or restrict such unproductive use of local and state incentives. But while incentives have tripled since 1990, neither Democratic nor Republican-controlled Congresses have taken action.
There are systematic problems in the practice of economic development that have become more extreme with the Amazon HQ2 sweepstakes, but they were not created by Jeff Bezos. And they will not go away after Amazon gives a rose to one of these 20 finalists.