retail news in context, analysis with attitude

Amazon, as expected, yesterday announced that it has chosen to split its second North American headquarters between New York’s Long Island City, just across the East River from Manhattan in the borough of Queens, and Arlington, Virginia, in the Crystal City neighborhood, adjacent to National Airport and just across the Potomac River from Washington, DC.

And, in an unexpected move, Amazon said that it would open a new operations center in Nashville, Tennessee, committing to creating some 5,000 jobs there.

Axios reports that “New York is giving Amazon $1.5 billion in tax credits and other incentives; Arlington, Va. is offering $573 million and Nashville $102 million.”

Almost as soon as the announcement was made, criticisms of the process - and especially what the cities paid to lure Amazon - were aired.

The New York Times writes that the numbers don’t even “include what could amount to hundreds of millions of dollars in infrastructure spending, worker training and other government assistance.

“Economists have long criticized tax incentives as inefficient and unnecessary, arguing that they pit cities or states against each other and leave less money for education and public works that ultimately do more to lift local economies and improve livelihoods. Research has shown that incentives play at most a small role in corporate decisions, meaning governments often end up paying businesses to do what they would have done anyway.”

For example, the Times writes, New York City “pledged to help Amazon with infrastructure upgrades, job-training programs and even assistance ‘securing access to a helipad’ - none of which came with a price tag.” And Virginia “also pledged $250 million to help Virginia Tech build a campus in Alexandria, near the Amazon site in Arlington, offering degrees in computer science and software engineering. (Virginia, too, offered to help the company get a helipad.)”

Interestingly, in choosing New York and Virginia, Amazon spurned even higher incentives offered by New Jersey and Maryland. But it also rejected the Boston offer, which reportedly didn’t include significant incentives of any kind.

In New York, Gov. Andrew Cuomo defended the deal. The Times reports that he argues that “New York has to offer incentives because of its comparatively high taxes. At 6.5 percent, New York’s corporate income-tax rate is only modestly higher than Virginia’s 6 percent, according to the Tax Foundation. But other business and individual taxes are higher in New York.”

“It’s not a level playing field to begin with,” Cuomo says. “All things being equal, if we do nothing, they’re going to Texas.”
KC's View:
For years I have argued here that I have a problem with the idea that tax incentives generally go to big companies that make big bucks, and rarely go to smaller companies that actually can use them. So I totally get this argument.

That said, if a big chain store can get tax incentives to build a store, why shouldn’t Amazon get them to revitalize a neighborhood? I’m not nuts about the process, but I can’t blame Amazon for looking for the best deal that makes sense.

I’d like to make one other point about this beyond what I said yesterday

One of the things that always has impressed me about Seattle is not just how many businesses have grown up around Amazon, but how many have been built by former Amazon employees - it is a virtual industry. People work at Amazon, they network, they learn, they evolve, and then they move on, often teaming up with other former Amazonians, and often come up with great and disruptive business models that build on an entrepreneurial instinct.

Queens and Arlington, and surrounding communities, may find themselves to be at the center of such innovation in the future, and I’d rather be there than not. Will there be hiccups? Sure. Will there be infrastructure stresses? Absolutely. But that’s what happens with growth and expansion and ambition.