Feeding Frenzy Over Amazon HQ2 Ill-Advised

New York, Boston, Atlanta and Denver are among the 283 cities that just submitted proposals to host the new second headquarters for Amazon HQ2. Amazon is promising 50,000 jobs with an average salary over $100,000, and a 5 billion dollar investment. But of course incentives and grants are expected to play a role in the company’s location decision.

It’s not often we see the darker, more realistic side of the story reported. Too often local business reporters just lap up the spin they’re given by the local growth industry and the companies extorting local governments for incentives. So it is with rare pleasure I honor on the Wall of Fame financial expert John Fullerton and the Capital Institute for this splash of cold water:

Dear Cities: Resist Amazon’s HQ2

“There is something untoward about the feeding frenzy we are witnessing as cities across the country vie to be the site of Amazon’s second headquarters (‘HQ2’). Amazon, after all, is the poster child for driving, first, independent booksellers and then retailers out of business, hollowing out communities across America. It is considered a meat grinder for white-collar workers who churn through the place at a rapid clip in search of their piece of the gold, and equally well-known for treating its warehouse workers like draft animals. It is also a notorious if not clever tax avoider.  Just the kind of company you want to build your economic development strategy around, right? Yet cities are drooling over the opportunity to bribe the company with tax giveaways and other subsidies in a sickening and dumb race to the bottom in which citizens are the losers, and powerful companies (and their executives) only grow more powerful.”

For some time now, companies interested in moving or adding new locations have been milking the competition among cities for “new jobs.” Elected officials are “drooling” because they run for reelection on promises of robust economic growth and “job creation.” They also continue to use an archaic success metric for their cities: population growth (spelled u-n-s-u-s-t-a-i-n-a-b-l-e). Real estate developers, homebuilders, media companies, banks and construction companies prod local governments to provide big incentives to lure companies to town. Why? Because about 4 out of 5 new jobs in a company relocation are awarded to people to were not already residents of the area. [See The Fiscal Consequences of Competition for Capital and Who Benefits from Local Job Growth] Incentives bring relocations, which bring population growth to a region. And more people means more houses built and mortgaged, more highways constructed, more viewers for local TV stations and more subscribers for local newspapers.

But…what do these relocations really do for the average accounting clerk or school teacher? The giveaways and the uncounted costs of growth most likely negate and even overwhelm any benefits of new jobs for the unemployed and new tax revenue. All the new residents most likely will not pay enough in taxes to cover the cost of municipal services (in most communities, they don’t). So if the community waives or defers taxes that Amazon would otherwise be obligated to pay, there is no profit to the community; only costs. As just one example, who honestly believes the traffic congestion will be the same or better after Amazon’s HQ2 is up and running in the “winning” city? Instead of lining up to outbid each other with incentives and other giveaways, communities should be setting out stringent requirements that Amazon and the millionaire real estate developers who will profit will cover all the costs to the community.

“Of course, mayors and real estate developers are huddled in their ‘war rooms’ to rashly cobble together their proposals under an absurd (and thus telling) time limit. Mayors rightly care about jobs, and real estate developers know all too well the formula for this once in a lifetime bonanza. These are the times when it can be very lonely trying to articulate a more regenerative approach to economic development. One might say ‘tilting at windmills,’ but here goes.”

You’ll want to read John Fullerton’s full commentary about economic development, even though it doesn’t even begin to touch on the complete unsustainability of infinite economic or population growth.

Denver, Colorado is said to have a good chance in this fevered competition. This recently published letter to the editor of the Denver Post asks good questions:

“I’m surprised and concerned to see the effort to bring Amazon to the Denver metro. Why would we want to do that? The biggest complaints about life in Colorado these days are: 1) there are too many people; and 2) traffic is a nightmare. How is adding a minimum of 50,000 more people going to help that? From what The Denver Post has said, the unemployment rate is below normal, meaning businesses are already having trouble hiring workers. How is Amazon going to help any of these things? Do we really want even more people trampling the mountains and clogging the highways?”
                                    – Ken Wolff, Littleton

A nod to Ken Wolff for pointing out the lunacy. I feel sorry for the community that “wins” this competition. In order for this to simply be a real financial win, a city would need to have the smartest growth policies in the world – virtually unheard of – that require new growth fully pay the costs of new and expanded capacity of ALL infrastructure – municipal services such as courts, libraries, drivers licensing, etc.; transportation; and utilities. Even then it would be an environmental loss, for the addition of 50,000 new jobs (roughly 38,500 new workers and their families) would expand the city’s ecological footprint even further beyond its geographic area.