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Winning Amazon’s New Headquarters Could Come With Hidden Costs

6 minute read

Over the last few weeks officials in dozens of American cities have been working overtime to prove that they are prime for Amazon. The Kansas City, Mo., mayor’s office ordered 1,000 items from the Seattle-based behemoth — ranging from a hot-dog costume to wind chimes — and then wrote reviews for each product. The city of Birmingham, Ala., built Amazon boxes the size of bread trucks and displayed them around town. A town in Georgia proposed donating some of its own land and renaming it after the e-commerce giant. And that’s on top of the countless hours that economic developers have spent writing more serious proposals for one of the world’s most valuable companies. As a representative for the Dallas Regional Chamber says, “It’s been all hands on deck.”

Amazon dangled a transformative prize to inspire this activity: the prospect of winning the company’s second headquarters, along with an estimated 50,000 jobs and $5 billion in investment over the coming decades. The scope of the project is unprecedented, and as “HQ2” fever took hold across North America, more than 100 cities have reportedly considered bids. At least one official in Seattle, home to Amazon’s first headquarters, even pushed for their town to get in the mix ahead of the Oct. 19 deadline. “It’s impossible not to see this as the kind of rising tide that lifts all boats in the city,” says Tim Whitmire, who runs a leadership development company in Charlotte, N.C., where officials from 16 counties have been feverishly collaborating on a pitch.

The benefits of winning are obvious. Jobs are good for communities, and Amazon has estimated that the average compensation for positions at HQ2 will be more than $100,000. Cities scramble to lure factories where jobs pay half as much, in sectors that are less magnetic. Not only is the tech industry viewed as the economic backbone of the future, but one big tech company has the tendency to lure a “cluster” of others, according to economist Enrico Moretti. His research has also found that every tech job supports about four more in the same community, from taxi drivers to teachers. Besides, just being chosen will supercharge a city’s brand.“If it’s good enough for Amazon,” says Joseph Parilla, a fellow at the Brookings Institution think tank, “a lot of companies will take notice.”

Yet winning will come with costs. As Amazon has grown explosively in Seattle — since opening its downtown HQ in 2010 — the city has struggled to keep pace with housing demands and startling jumps in the cost of living. One local columnist warned other cities bidding for HQ2 to beware of the “prosperity bomb” that has pushed lower-income residents, like taxi drivers and teachers, outside Seattle’s city limits. And Amazon has made clear that it would like to receive incentives like tax breaks wherever the company builds next, pushing government officials to craft packages of subsidies in the hopes of rising to the top of the pile. If packages get sweet enough for Amazon, locals may be on the losing end of the deal, says Greg LeRoy, executive director of nonprofit research group Good Jobs First: residents may eventually find they’re paying a higher tax bill for the privilege of being Amazon’s second home.

In announcing the proposal, Amazon founder and CEO Jeff Bezos said the new headquarters will be a “full equal” to HQ1. The company has some druthers: it wants a metro area with more than 1 million people, space for a building bigger than the Mall of America, a world-class airport and so on. The population ask alone culls the list to about 50 candidates in the U.S., with the likes of Denver, Dallas and Atlanta appearing on speculative shortlists. Among metros that seemed to check the boxes, there was immediate pressure to apply, even if officials did not want to take part in the peacocking. “If you don’t, well, what are you saying about your place?” says Parilla, who works on metropolitan policy. “It’s almost a signal that you’re not in the game.”

With cities pitted against one another, Amazon noted in its request for proposals that incentives — ranging from free land to reduced taxes — could influence the decision. While many sites are staying mum about the details of their bids, reports of packages worth hundreds of millions have sprung up in places like Trenton, N.J., and San Diego. That sets off alarms for watchdogs like LeRoy. He and others have decried the increase in such “megadeals” in recent years, from a $1.3 billion incentive package that lured Tesla to Nevada to Wisconsin’s $3 billion gambit to win jobs from Foxconn. If a big company attracts lots of new people to a region, there are inevitably public costs: hiring more teachers, fielding more 911 calls, widening roadways. And if the company is getting a pass on contributing to public coffers, that can push the quality of services down while driving other tax bills up. “There’s no such thing as free growth,” LeRoy says, just as there’s no guarantee a big deal will break even for taxpayers over time.

Leaders in San Antonio were initially excited to submit a proposal, but the prospect of a “bidding war” made Mayor Ron Nirenberg reconsider. On Oct. 11 he co-wrote a letter to Bezos, saying the fast-growing city would not put forth a formal bid. San Antonio would welcome Amazon, Nirenberg tells TIME: “We’re just not going to mortgage our future to do it.”

Plenty of other cities will still compete, and Amazon will set a key precedent when the company announces, and explains, its decision in 2018. Many observers believe that human capital — pools of highly skilled workers — will matter most, and Amazon may be drawn to incentives like university partnerships as much as tax freebies. In the meantime Seattle city council member Lisa Herbold recommends that bidding cities prepare for a growth bonanza by bolstering affordable housing. “When you have a lot of economic prosperity in a city, there are some people who will benefit,” she says, “and some who will suffer.”

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