Virginia got a deal on its half of Amazon’s HQ2 compared to New York, but is it really ‘zero risk’?

By: - November 14, 2018 2:53 pm

Amazon CEO Jeff Bezos. (Wikimedia/Creative Commons)

The early reviews are in, and by all accounts, Virginia looks like it got a comparative bargain on the deal it struck to bring half of Amazon’s HQ2 to Arlington County.

“Basically, New York’s incentives look like they’re ultimately going to be about 10 times what Virginia offered,” says economist Tim Bartik with the Upjohn Institute for Employment Research, who calculated that New York state’s up-front offer of $1.5 billion in direct incentives for its half of the headquarters deal is about twice the national average.

Meanwhile, Virginia’s offer of $573 million works out to about a third what companies typically get nationwide, he said.

Another economic development watchdog group, Washington-based Good Jobs First, concurred, telling Bloomberg, “if that’s all the money Virginia is giving, it’s not obscene. It’s way below our megadeal threshold.”

State officials sounded pleased as they briefed the House of Delegates budget committee on Tuesday, members of which asked the state’s chief of economic development, Stephen Moret, for a comparison.

“I’m so sorry, I’ve been busy all day and don’t have that detail, but my understanding is New York’s offer is considerably bigger – nearly double,” he said, smiling.

Why did Virginia pay less?

Virginia’s offer wasn’t only less than New York’s, but it was less than the offers made by other cities and states that have been made public since Amazon announced its selection Tuesday.

Maryland, for instance, reportedly put forward an incentive package valued at $8.5 billion. Georgia offered $2 billion, plus an exclusive airport lounge and a dedicated car on Atlanta’s light-rail network, according to  The Atlanta Journal Constitution.

Amazon has said it prioritized things like access to skilled workers and airports over incentives and state officials said a $1.1 billion initiative to pump out 25,000 more computer science degrees out of state colleges was instrumental.

But also, Virginia just doesn’t have a history of offering huge cash incentives, Bartik said.

“I think they got a better deal because these are the incentives that they have and that’s been their usual practice,” he said, noting New York has a history of offering companies bigger cash grants. “These discretionary incentives, once you start handing them out, any company you get is going to say, ‘Wait, we think we’re at least as valuable as these other firms.’”

Moret said the $22,000-per-job that Virginia offered wouldn’t crack the state’s top 10 most expensive economic development deals. He said the state never planned to put forward a deal that hung on a big cash giveaway.

“We knew we weren’t going to win this on incentives,” he said.

Pitched as ‘zero risk,’ with no payments to Amazon until the state has pocketed revenues

Moret stressed to lawmakers that Virginia’s commitments to Amazon require no direct payments to the company until they’ve delivered the tax revenues to pay for them – four years after a job is created.

“Effectively, there’s zero fiscal risk,” he said.

It’s a departure from past deals where companies get upfront cash grants that the state then attempts to claw back if employment targets aren’t met, which hasn’t always worked well. Virginia is still trying to get back $5 million it gave a Chinese paper company to open a mill in Chesterfield that never materialized.

The approach has led to some concern about elements of the contract, with critics zeroing in on the fact that Virginia has made a 20-year commitment to Amazon, but Amazon has the right to bail on the project with just five days notice.

Moret said that’s simply a function of Amazon not getting state incentive money until after they’ve created jobs and generated revenue that exceeds the value of the incentives.

“You can’t have it both ways,” he said. As for the five-day time period, he said it’s not practical to imagine Amazon picking up and leaving. “What should it be, 90 days?”

If there’s uncertainty, it’s in the promised investments in education and transportation

As part of its pitch, the state promised $1.1 billion for higher education programs and $223 million for transportation improvements — money Moret conceded the state wouldn’t get back if the deal doesn’t work out as planned.

But he said the changes represent a larger benefit to the state — the education programs and transportation plans benefit the community and would make the state and Arlington more attractive to other companies.

“My personal view is that the only real risk is that you’re accelerating something that might not have been accelerated,” he said.

The experts agreed, noting that unlike with cash handouts, companies don’t take education or infrastructure improvements with them if they leave.

“I don’t really know whether you can classify that as an incentive,” Bartik said. “You hear the same arguments about road improvements states will promise. Isn’t the state supposed to build roads where there’s demand for roads?”

Affordable housing, infrastructure strain represent biggest unknowns

If there’s a critique to be made about the Amazon deal in Virginia, experts say it lies in unanticipated costs that would accompany any plan to plop 25,000 new jobs into an already busy suburb.

The state’s analysis estimates $3.2 billion in new general fund revenue over 20 years, but the only spending increases it takes into account at the state level are higher state subsidies for public education in Northern Virginia.

Bartik said that’s not entirely realistic, and that spending on public services and infrastructure needs are bound to increase as a result. “They make pretty extreme assumptions,” he said.

Moret responded that the state funds transportation projects outside of the general fund and that Arlington and Alexandria have committed $570 million to transportation projects in the area on top of the $195 million the state is committing.

He said the state believes other potential budgetary strains, such as increased Medicaid or corrections spending, will be negligible.

Still, affordable housing concerns are already generating anxiety.

“Seattle famously has high housing costs, it’s causing a lot of problems up there. Can you tell us what we’ve done to try to address that?” asked Del. Mark Sickles, D-Fairfax, echoing concerns raised by neighborhood groups in and around Arlington, which is already facing an affordable housing deficit.

Moret told him that the issue is primarily being considered at the local level, with county officials pledging to create and preserve about 2,200 “affordable and workforce units” around Amazon’s headquarters.

And then there are those who take issue with the idea that a company owned by the world’s richest man is getting any public incentives.

“Amazon is leaving Seattle precisely because they made Seattle too expensive to live in,” wrote Del. Lee Carter, D-Manassas. “Now Virginia’s falling all over itself to have Amazon do the same thing here, and paying them for the privilege!”


Correction: This story has been updated to reflect the fact that the state’s economic impact estimates account for an expected increase in public education throughout Northern Virginia, not just in Arlington County.

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Ned Oliver
Ned Oliver

Ned, a Lexington native, has been a fulltime journalist since 2008, beginning at The News-Gazette in Lexington, and including stints at the Berkshire Eagle, in Berkshire County, Mass., and the Times-Dispatch and Style Weekly in Richmond. He is a graduate of Bard College at Simon’s Rock, in Great Barrington, Mass. He was named Virginia's outstanding journalist for 2020 by the Virginia Press Association.