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Amazon HQ-I Told You So
So many of us tried to warn you, Virginia.
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The sign in the picture above is from the announcement of Amazon’s so-called HQ2, the new office it agreed in 2018 to open in Northern Virginia for around $800 million in state and local subsidies.
At the time, Amazon had just completed a nationally-embarrassing bidding war in which localities all across the country leaped at the chance to offer millions, and in some cases billions, of public dollars to one of the most powerful and profitable firms on Earth for a share of its new office spoils. I warned then and for a long time before that Amazon’s auction was a gigantic sham, and indeed, the fact that Amazon settled on the outskirts of the nation’s capital and the world capital of finance showed that it was never truly interested in the subsidies it demanded: They were merely icing on top of the cake it was building anyway, in two of America’s most important power centers.
But after picking Virginia and New York City, an interesting thing happened: Virginia’s politicians plowed ahead in the face of some opposition, while New York residents, activists, and elected leaders protested, causing Amazon to pull the plug there.
Which leads us to today’s news, proving that Virginia may be for Amazon lovers, but Amazon doesn’t necessarily love Virginia back: The mega-corporation has put a pause on its Virginia HQ2, amid, supposedly, dueling pressures regarding remote work and tech industry layoffs. There is no new date for the corporation to begin construction again, according to Bloomberg News. Of the 25,000 promised jobs at the new office, about 8,000 currently exist somewhere in the region, Amazon claims, but who knows when or if that number will grow again.
So, I don’t hate to say it: I told you so. As did many other folks, who are taking a deserved victory lap today.
Indeed, and this is not even the first time HQ2 opponents have been vindicated, considering Amazon subsequently expanded in New York City, without a specific subsidy deal, after backing out of its branch of HQ2 there.
Now, yes, failing to fulfill its promises on investments and job creation means Amazon will not receive some percentage of its subsidy deal from Virginia. I can already hear folks chirping about how this freeze doesn’t prove that corporate subsidies as a policy tool are a failure, because all the money won’t flow out the door unless Amazon un-freezes construction. That misses the forest for the economic development trees, though.
Why? First, to be clear, some funds are gone and can’t be recouped, whether they were for infrastructure aimed at benefitting HQ2, or grants that weren’t tied to investments, or the time and money spent greasing the skids for its regulatory approvals.
But there’s also the fact that the region has spent several years orienting its entire economic development strategy around a facility that may now never exist. Other opportunities to attract people and new businesses may have been missed, other programs that may have needed funding have gone begging, and residents who may have come to the area but were dissuaded by the promise of a lot of Amazon-related hoopla will now never arrive. And the housing pressures caused by the anticipation of HQ2 have continued apace.
Those are real costs, even if they don’t show up on a government ledger.
Indeed, this episode reveals the peril and folly of corporate subsidy dealmaking in a way few have, and perhaps none since the catastrophe that was Wisconsin’s deal with Foxconn. Corporations all the time — for reasons legitimate and nefarious — make major changes to their plans. On one level, you can’t really blame Amazon for re-thinking the very concept of a large centralized office now that the pandemic has significantly challenged the idea that full-time in-person work is necessary and superior. (Oh, hey, I warned about that too!)
But states and localities get into long-term financial arrangements with fickle corporations, don’t protect themselves from inevitable changes in the economic climate or even just a CEOs mood, and wind up serving money up to corporate America while getting very little in return, or worse, left holding the bag when a project simply never happens.
The lesson is to follow the ample evidence and real-world experience showing that corporate subsidy programs fail to provide any of the benefits they are supposed to, and instead just entrench the economic and political dominance of large, politically-connected corporations.
Again, I told you so.
SHAMELESS SELF-PROMOTION: My colleague Lee Hepner and I wrote a piece for Governing about how state governments have a golden opportunity this year to rein in monopoly power. You can read it here. Then my colleague Helen Brosnan and I wrote a piece for the Albany Times Union about why the New York legislatures needs to reject Gov. Kathy Hochul’s request for massive new corporate subsidy spending. You can read that one here. And finally, I wrote a piece with Melody Shank, an activist in Asheville, North Carolina, about why North Carolina should ban secret corporate subsidy deals. You can read that one here.
UPDATE: I wrote last year that Texas corporate interests were not going to let the expiration of that state’s notorious Chapter 313 subsidy program stand without a fight. And indeed, here comes the lobbying blitz to resurrect it in all but name. Stay tuned to this one.
UPDATE II: Wisconsin’s Supreme Court ruled last week that the “dark store” theory — which big box retailers like Walmart, Lowe’s and Target use to scam localities into lowering their property tax bills — isn’t legal under state law. Wisconsin joins a few other states that have eliminated the dark store theory, such as Maine and New York, though the latter did it through legislation. Good news!
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— Pat Garofalo