The opportunity costs of Amazon HQ2


Are giant subsidies the best use of economic development dollars?

With the announcement of a bidding war for its second headquarters location, Amazon has whipped up a frenzied fight among cities across the U.S. and Canada. The prize: the opportunity to give billions of dollars to the retail/tech giant, in exchange for 50,000 promised jobs. We hope that city officials will step back from the lure of "winning" to take a hard look at the realities of this deal. The future of our neighborhoods hangs in the balance.

U.S. state and local governments spend about $70 billion per year in cash and tax abatements to economic development projects, overwhelmingly favoring large corporate entities. Good Jobs First, the nation’s leading watchdog on corporate subsidies, has amassed a stack of data showing that these deals rarely provide the promised return on investment in terms of jobs and economic activity. But most government officials don't do the math.

The estimated costs of luring Amazon HQ2 are $60K-$100K per job Amazon promises to create. That promise has little teeth; in their request for proposals, Amazon indicates that they will give preference to bidders that limit claw-back provisions that would require them to return funding if promises are not met. Even if we assume 100% compliance, it's an expensive way to create jobs.

This is the question that cities aren't be asking: if we have money for economic development, is subsidizing Amazon HQ its best use? Since cities don't typically have extra billions sitting around, money given to Amazon will be taken away from other things, such as schools, parks, police, and more efficient economic development programs. In its report Smart Skills Versus Mindless Megadeals, Good Jobs First finds that workforce development programs, entrepreneurial assistance, and small business cluster development initiatives create jobs at a fraction of the cost of these giant subsidies. Studies by Civic Economics and the Institute for Local Self-Relianceshow that the local businesses these programs generate have a better economic multiplier effect, recirculating two to three times more money back into local economies and contributing more taxes per square foot occupied, compared to non-local businesses.

Good Jobs First has also found that these "mega-deals" rarely generate enough in additional tax revenues to re-pay the cost of the subsidies on which they're based. That means that the citizens of whatever city gets Amazon HQ2 may pay for the deal in tax hikes.

Putting all of a city's eggs in one basket is risky. Initiatives that spur many small businesses build a diverse local economy that is more resilient than an economy dependent on one or two big players. In our city, we need only look to how Chicago lured Boeing headquarters from Seattle to see that businesses that chase incentives are not stable tenants.  

There is little evidence that large corporate subsidies make long-lasting positive impact on poor neighborhoods. On the contrary, Amazon's presence in Seattle has helped to give the city the dubious honor of having some of the highest housing costs in the world. The city that "wins" Amazon HQ2 may find itself with massive displacement of residents, and no money left in the economic development coffers to help them.

If the highest need for most cities is to improve the quality of life of the people who live in them now, what could funding being considered for Amazon—or even a sliver of it—do if invested in education, entrepreneurship and job training, and building a local economy that will provide better and more stable economic benefits than one big deal?

Finally, there's the question of Amazon itself. The Institute for Local Self Reliance’s 2016 study Amazon's Stranglehold finds that nationwide, Amazon is destroying far more jobs than it creates and devastating the property tax base of local governments. Amazon has already garnered over $1 billion in subsidies for its data and fulfillment centers. Do cities really want to keep feeding the hand that bites them? 
Cities owe it to themselves to do a smart evaluation of whether subsidizing Amazon HQ2 will provide the best bang for their bucks.