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The Dope On The Amazon Deal

shutterstock 1144120079
shutterstock 1144120079

The buzz around the country is Amazon’s choice of two U.S. cities for its second headquarters. The trillion-dollar company chose New York’s Long Island City and the Arlington, Virginia-area Crystal City. To understand the story, you will want to know the specifics of the deal and what made Amazon and Jeff Bezos choose these two cities.

But first, the Amazon story

Amazon, based in Seattle, employs approximately 45,000 people spread among 33 buildings.  The company was started by Jeff Bezos in his garage as an online book-selling retail business in 1995 and is now worth more than a trillion dollars depending on the method used to value the company. Bezos himself is the richest man in the world with an estimated net worth of more than $130 billion. After Walmart, Amazon is the second-largest employer in the U.S., and Seattle, where Amazon was founded, has been transformed by the company into America’s biggest “company town.” At the end of last year, Amazon employed more than 500,000 people worldwide. As a result, Seattle, which is more than 800 miles north of Silicon Valley, was transformed from a low-key city to a major tech hub with many high-paying jobs, a highly competitive housing market and leadership in raising the minimum wage to $15 an hour.

The search for HQ2

In September 2017, Amazon announced its search for a second headquarters (known as HQ2), and 238 cities put in applications. Amazon listed among its criteria a population of at least 1 million, a “business-friendly” environment and city officials who were willing to think “creatively” about real estate. In return, Amazon promised 50,000 jobs and a $5 billion investment in the area chosen. In January 2018, the search was narrowed to 20 cities said to be in the running. In early November of this year, Amazon announced that two cities rather than just one, would become their new headquarters, and the winners were New York City and Crystal City, outside Arlington, Virginia. The choice of two East-coast cities was a surprise to some as they are already large, established centers of commerce, each of which already have their share of high-priced real estate and high-paying jobs. Many people thought that Amazon would choose up-and-coming, middle-of-the-county cities like Nashville, Tennessee or struggling urban centers like Newark, New Jersey.

What Amazon got from the two cities it finally chose

To understand what winning the contest might mean to a city, think of the town in Georgia that offered to change its name to Amazon or the Mayor of Kansas City who wrote 1,000 reviews of products on Amazon.com. What did New York and Crystal City offer in return for landing one half of the new HQ2? Well, besides New York Gov. Andrew Cuomo half-seriously offering to change his name to Amazon Cuomo, the two cities together offered Amazon $2 billion in tax credits, rebates and other incentives to attract the company to their respective cities with New York actually offering more than Virginia in that it promised more than $1billion  in incentives and promised infrastructure upgrades and job-training programs. Virginia’s promise was a more modest $573 million package with a promise to enhance a local tech campus to provide additional degrees in computer sciences. Both locations offered to build a helipad for Amazon executives to get in and out, avoiding the massive traffic that already exists in both locations. In return, each city was promised 25,000 well-paying jobs (the average being more than $100,000 a year) and other benefits. The lingering question for some is are these incentives worth the promised rewards to these two cities, and would Amazon have chosen these locations without the incentives?

Takeaway

In the end, Amazon said its choice was directed by finding locations with an available pool of “top talent,” and that incentives offered were secondary to its decision. This is obviously true since Amazon turned down way bigger offers from other cities, including some that were geographically close-by, for example in New Jersey and in Maryland. There already has been criticism of the deals by some who allege that the deals New York and Virginia made were not good ones. Others have said that the deal continued the concentration of wealth and opportunity on the two coasts and missed the chance to provide help to the struggling middle of the country. There have been arguments on both sides, but now, having read and digested the above, you can join in the conversation.

 

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