A Better Way Forward

March 11, 2019

GLS Founding Principal Didi Caldwell takes a deep look inside the Amazon HQ2 saga to uncover fundamental problems related to site searches and corporate investment. Her solutions offer a better way forward for politicians, economic developers, and corporate executives while delivering far greater value to the communities at stake.

1.    The Importance of Timing
Announcing a project in an election year is always tricky. Announce before the election, and the incumbent gets the credit and a potential bounce in support. Wait until after the election, and you may end up with elected officials who are less familiar and perhaps less friendly to the deal.

Amazon announced in New York just after the 2018 election, which brought in a slate of progressive candidates, including Rep. Alexandria Ocasio-Cortez, who upended the traditional power base. The new politicians were vocal and openly hostile toward Amazon and used their election campaign infrastructure to organize a grassroots movement to protest the deal.

2.    Structure, Messaging, and Terminology Matter
New York offered Amazon $3 billion in incentives, but the majority – about $2.5 billion – were performance-related tax incentives. They only got the tax break if they met performance metrics on job creation. The state estimated that there would be $27 billion in tax revenues that would have been generated by Amazon and the creation of 25,000 jobs. That money could have been spent upgrading the subway system, building low-income housing, improving schools, etc. All things that would benefit the lower and middle classes in and around Long Island City. By anyone’s calculations, that’s a pretty good deal.

So why didn’t the opposition see it that way? Perhaps instead of leading with the tax credit, city officials could have led with the tax payments. But the opposition would have eventually gotten around to the thing that makes headlines: the alleged corporate handout.

A much better strategy would be if New York and other cities would develop statutory, non-discretionary incentives that are eligible for all businesses creating jobs and investment. It can be indexed to the number of jobs and salaries so that all businesses benefit – from the world’s largest to the smallest. Too often back room negotiations lead to accusations of favoritism at best and corruption at worst when these large one-off deals are put together. And often, small- and medium-sized businesses with less leverage end up paying more than their fair share.

Incentives have come under fire recently from both the right and the left. The right says it’s government picking winners and losers, and the left calls it corporate welfare, and neither are totally wrong. A fundamental change to a transparent tax policy that fairly and evenly rewards businesses for making investments and creating high paying jobs is hard to argue with regardless of your political leanings.

3.    Stakeholder Alignment Is Key
HQ2 in New York was opposed by three groups: labor unions who don’t like Amazon’s anti-union stance, constituents in Long Island City who were concerned about gentrification and being forced out of their own neighborhood, and those that opposed the large incentive deal. The first would have been difficult to reconcile, as Amazon has clearly stated it is not willing to take a neutral position on organization efforts. The latter two could have been addressed had the community and the state worked with the company to engage with local businesses, politicians, and civic groups to develop a well-thought-out plan to both educate and to take action.

4.    Public Search, Public Hype, Public Overreaction
During the HQ2 search I was asked by many whether a public search is better than the traditional, under-the-radar searches that are far more common. Public site searches of this scale, such as Boeing’s 7E7 assembly plant search in 2003 and Foxconn in 2017, generate tremendous buzz and, almost ironically, have proven to be particularly fruitful for one industry group: site selection professionals. During the HQ2 search, I was featured in The Wall Street Journal, The Boston Globe, Money Magazine … I even made an appearance on CNBC’s Squawk Box. So selfishly, I can say public site searches have been great for my professional brand.

But for everyone else, they’re a disaster. Sure, Amazon got more proposals than if had they conducted the search confidentially, but was more necessarily better? Did getting a giant saguaro cactus from Tucson benefit anyone? Sure, Tucson made the news but how much did they and all the other 237 cities and communities that prepared a bid spend on the effort? It’s in the tens of millions of dollars for certain. And if a community didn’t make the short list of 20, or the really short list of three (although everyone thought it would be one), then it may have suffered political backlash and disappointment from constituents. Economic developers all over the country were pressured by their politicians to spend time and money chasing an allusive prize when they could have spent those resources pursuing projects they actually had a shot at winning.

And, those that did “win?” Well, we know that story. In northern Virginia, where the political spectrum is further to the right than New York, residents there are already resigned to gentrification and horrific traffic, so landing part of HQ2 was seen as a triumph. Even still, Nashville may wind up being the proverbial Goldilocks in the HQ2 saga, having landed 5,000 good-paying tech jobs in a location that is not too big, not too small, but just right.

But in gritty, hard-nosed New York, it was a totally different outcome. Everyone in New York and the country knew about the HQ2 deal, so the announcement came with much fanfare and anticipation. Even though New York was considered a dark horse, many people there had probably already formed an opinion about whether it would be good or bad for the city. So, when the decision was made, there was perhaps a rush to break the news and little time to get ahead of the story.

Now both New York and Amazon are walking around feeling like they’ve been in a bar room brawl. Both are bloodied and bruised, and Long Island City and Queens are both sporting whopping shiners.

The reality is that New York could have absorbed those jobs pretty easily. Amazon already has 5,000 employees there and growing, and the additional tax revenues would have been a boon to NYC and to Long Island City. A more understated and thoughtful approach would have been more well-received. Instead, Amazon took its toys, books, and everything else that can be delivered to your door in two days or less home with them.

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