Amazon HQ2 will portend greater scrutiny on incentives for corporate site location projects

In September 2017 Amazon issued a Request for Proposals (RFP) to Metropolitan Statistical Areas (MSAs) in North America to bid on a second Amazon headquarters.  The prize for winning HQ2, as it was called, was $5 billion in new capital investment and 50,000 new jobs. Amazon received 238 proposals for HQ2. In the end, Amazon chose to split its second headquarters into two locations; Crystal City in Northern Virginia and Long Island City in New York.  It has been reported that local and state incentives offered by these locations is nearly $5.5 billion over the life of the incentives.

Since the announcement of the HQ2 location and the economic development incentives offered, a slew of critics has come out to cry foul for the use of incentives for a company that “was just going to locate there anyway.”  

According to the Upjohn Institute, the cost of economic development incentives in 2015 was $45 billion.  The question for every economic development official in North America is whether the benefit of these economic development incentives outweighs the cost of these incentives.  In announcing that his state had won Amazon HQ2 Governor Andrew Cuomo was quoted as saying “for every dollar we invest, we’re going to get back $9”. In 2017 JobsOhio, the private sector economic development corporation for the state of Ohio reported that for its $225 million investment in economic development projects it reported helping private sector companies create 22,788 new jobs, $1.1 billion in new payroll and $9.6 billion in capital investment; an impressive return on investment.

The Amazon HQ2 project was unique in its approach to corporate site location; the RFP was issued in public through the news media and all MSAs were invited to submit a proposal.  The corporate site location process is normally conducted through a hand selected RFP process to those communities that meet the upfront criteria that the company requires. Amazon decided to open up the process and show a transparency that is not often seen in these types of projects.  For communities that submitted a proposal, it forced them to collaborate on a regional basis due to the size of the requirement. It also forced communities to organize and put forth their best proposal at the outset. For Amazon it provides them a database of sites, buildings and economic development incentives across North America.  It deepens the relationships that Amazon has with economic development officials and elected officials in the communities that submitted a proposal, and even deeper relationships with those that made the first and second cut.

Long Island City, New York and Crystal City, Virginia are facing intense scrutiny of the economic development incentives each offered in the wake of the HQ2 announcements.  Community officials that submitted a proposal to Amazon but didn’t win are getting asked at Rotary Club, Chamber of Commerce events, at the grocery store, and at the golf course the value of the Amazon project and the value of incentives.  The Amazon HQ2 project puts greater scrutiny and a need for greater transparency on economic development incentive projects due to its scale and scope and publicity. Economic development incentives are not going away as development projects become grander in scale and competition becomes more intense for new jobs.  Communities that adopt strategic plans targeting certain industries; communities that target geographic areas of their communities for development; and communities that use return on investment calculations when making investments will have a much greater chance of defending the use and role of incentives and have a better chance of winning the next HQ2 project.