Sarah Holder is a staff writer at CityLab covering local policy, housing, labor, and technology.
Chula Vista is offering free land; Fresno is ceding community control; and New Jersey is offering $7 billion in incentives. Here’s what else we know about the 30 publicly available Amazon HQ2 bids.
Last month, before any of the bids for Amazon’s HQ2 were submitted, CityLab profiled the Hypothetical Extreme Amazon bidder. We explained some of the more outrageous economic incentives that cities could offer to woo the corporation’s second headquarters to town. Now 238 cities’ bids are in, and at least 30 have been revealed in full, between MuckRock’s requests for access and the Seattle Times columnist Danny Westneat’s research. From just those few bids, we now know: the Real Amazon Bidders have met and exceeded the expectations of the Hypothetical.
They have offered their own employees’ income taxes, free land, and even a partial surrender of community control in pursuit of Amazon.
Here’s what these offers mean, and how they could effectively drain much of the economic and community benefit Amazon is purporting to bring.
Chicago: paying taxes to the boss
The most jarring incentive reportedly comes out of Chicago, which, under state law, could redirect between 50 and 100 percent of the income taxes incurred by Amazon employees right back to Amazon. In a city where income is taxed at a rate of 4.95 percent, their concession could amount to a loss of $1.32 billion that could have been spent on city schools, roads, and fire fighters.
The Chicago bid has not yet been made public, but it has been reported by Westneat and the Chicago Reader. In an exchange with Grant Klinzman, a spokesman for the mayor's office, he would not explicitly confirm or deny the details of the bid, but said 50% was the "number we used in calculations." He explained in a Twitter message: “For every dollar from a new job that Amazon creates, the State gets a dollar. So if Amazon creates enough jobs to get 1.32B in incentives, the State gets 1.32B in new taxes to pay for schools. If Amazon doesn’t come, the state gets zero.”
These personal income tax diversion programs (nicknamed “paying taxes to the boss”) might seem tantamount to highway robbery, but they’re totally legal in 17 states, including Illinois. In fact, many states recently passed such laws allowing these offers in anticipation of just this sort of incentive package. The 50,000 workers Amazon promises to employ were attractive to cities in part because of the economic benefits their income taxes would reap. But in Chicago, all that stimulus would be sucked up by Amazon itself.
“Diverting income tax revenues—or any tax revenues—directly to privately held corporations I think is a step away from democracy; a step away from responsible governance,” said Matt Gardner, senior fellow at the Institute of Taxation and Economic Policy. “And a step toward having unelected government officials like Jeff Bezos.”
Chicago is already an independently competitive place for Amazon to set up shop. If they’re committed to such a drastic financial incentive, we are left to wonder what other similarly-sized or smaller cities in the 200 bids not made public might have been willing to offer.
Chula Vista: free land
Analysts predicted that the most competitive bids would also include a break on Amazon’s projected 8 million-square-foot, $5 billion building. Stonecrest, Georgia already made a symbolic surrender of land, offering to re-christen a 345-acre neighborhood “Amazon, Georgia” if the corporation chose them.
Now, cities are speaking in more tangible terms, offering other huge properties for free. Chula Vista, California’s, bid included a plot of 85 acres worth $100 million, and plans to defer $300 million of property taxes on HQ2 over 30 years. (They also say they will partner with Amazon to build a four-year, “binational” university to “educate Amazon’s current and future workforce.”)
In October, a representative from the small city of Danbury, Connecticut, told CityLab that they, too, would consider deferring property taxes. And the small city of Edwardsville, Illinois proposes selling land to Amazon at only $3.50 per square foot.
Other cities may have chosen to mitigate Amazon’s construction costs by waiving sales tax on construction materials. It’s a strategy that often backfires, however: After Seattle wooed Boeing in 2013, in part by doing just that, the city lost $71 million in revenue in only three years.
Fresno: civic control
Then, there are the incentives that transcend the financial realm, ones that most experts didn’t predict. “I’ve been watching these things for close to 30 years and I’ve known the history [of economic incentives] going all the way back to Alexander Hamilton,” said Art Rolnick, an economist at the University of Minnesota. “But I’ve never seen an offer like that.” He’s referring to Fresno, California’s pledge to create an Amazon Community Fund.
Far from conceding taxes, Fresno wants to hold Amazon to an agreement that would “commit all of the taxes and fees generated by Amazon to the City of Fresno for a term of 100 years.” But those funds would be “jointly” spent in a fund shared between Amazon and the county—allowing Amazon to weigh in on city planning to an unprecedented degree. Only 15 percent of the money Amazon generates in taxes would be “unrestricted” for traditional city and county services. The remaining 85 would go towards designated city projects of Amazon’s choosing, announced and advertised with a shiny, “This project brought to you by Amazon,” label.
“This is a case where Fresno apparently is offering to give Amazon the keys to the city, to give them a voice in governance that would pretty clearly outweigh any actual voter’s voice,” said Gardner. “And that’s deeply disturbing for anyone who thinks that government should be responsible to its constituents.”
Larry Westerlund, the city’s economic development director, told the Los Angeles Times that he understands “folks [will] get frustrated”with a development project of HQ2’s magnitude disrupting city order. So instead of a one-way relationship, Fresno is aiming for a more symbiotic one. He’d rather Amazon’s money be spent “[n]ot for the fire department on the fringe of town, but to enhance their own investment in Fresno.” That certainly does not bode well for the fringe of town.
While Fresno offers substantial civic opportunities, it offers no comparable economic ones. The city is already paying Amazon—up to $30 million over 30 years—for one of their warehouses. (Fresno’s bid does also include a wage reimbursement hiring program, which covers 75-100 percent of the costs of training Fresno County residents for up to the first six months.) The reasoning goes: Asking Amazon to use this money in the public interest could do more good than allowing them to keep it. But many worry this approach is a distinction without a difference.
Amazon’s involvement could conceivably result in the creation of hulking housing complexes for Amazon employees (workforce housing); a tram that runs through HQ2 (transportation and infrastructure); and an after-school Amazon Academy (STEM education).
“With the Fresno approach you might see proportionally more economic activity taking place in Fresno, but you still have the same very troublesome questions about whether the benefits of this economic activity would accrue to city residents at all,” said Gardner. “And that’s not that different than what Chicago is proposing to do.”
Meanwhile, Boston said it would create an “Amazon Task Force,” with representatives acting as “ombudsmen” in charge of permitting, workforce development, and community relations. The Bay Area’s joint proposal lays out the California’s governor’s commitment to establish a “strike team,” which will “facilitate and expedite all permits and approvals.” In Fresno’s model, Amazon would have to provide (and pay) employees to serve as city representatives; in Boston’s and California’s, taxpayers would fund city officials to serve Amazon.
“Pretty clearly, the diversity of proposed tax incentives that we’ve seen in the last few weeks reflects how high stakes this is,” said Gardner. “So I guess the thought is that you do something that really sticks out, that is really unusual. Certainly Fresno has accomplished that, if only in a horrific way.”
While Fresno’s concessions to Amazon might scare city residents, Rolnick says it’s not likely to entice Amazon: Amazon’s not in it for governmental control (though Bezos does own the media and the grocery stores), and the company doesn’t need the reputation boost (though after a bidding process this contentious, they might).
“I have to say that’s no game changer; in that I don’t think that’s much of a benefit,” said Rolnick of Fresno’s offer. “Amazon’s job is to maximize the return to its owners, to the equity people—and so they’re going to take the money and run.”
New Jersey: free money
If easy money is what Amazon is after, New Jersey is their best bet out of the 30 public bidders (and likely the full 238), offering Amazon $7 billion total. “When I saw New Jersey at 7 billion it was hard to believe anyone would go higher than that,” said Rolnick.
In October, governor Chris Christie proposed changes to the “Grow NJ Bill,” which allowed the state of New Jersey to offer $5 billion in tax incentives, tied to the number of employees Amazon brings in. Newark, New Jersey, adds $2 billion more to the package. Newark, like several other cities, charges an additional city wage tax on top of state income tax. If HQ2 located there, Newark would allow Amazon employees to shirk that tax for 20 years, saving the company $1 billion. The other $1 billion comes from property tax abatements. Camden, New Jersey’s proposal, too, highlights the state’s $5 billion offer, and adds its own 20-year property tax abatement.
“This idea would once again remove the level playing field that ought to exist between Amazon and its competitors,” said Gardner. “This proposal would be the nail in the coffin for any small business in Newark trying to compete.”
The rest of the pack: being themselves
Not all cities or states whose bids we’ve read are offering incentive packages so out of the ordinary. New Hampshire’s main selling points are that it isn’t Boston, it’s practically tax-free already, and that, because it’s one of the first states to vote in presidential primary, “you will always have the opportunity to meet, and even get to know, the president when you live and work in New Hampshire.” Washington, D.C. boasts that it has the most-highly-educated workforce in America, and proximity to political power. Boston reminds Amazon it’s “wicked close to everything,” and says it could build a 55,000-square-foot retail center with plenty of room for “Amazon spaces” like Whole Foods and Amazon books. Somerville, adjacent to Boston, insists, “our region is the incentive.”
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CORRECTION: We have updated the article to reflect that the terms of Chicago’s bid themselves were reported by other outlets, and further clarified for CityLab by a spokesman for the mayor.