Opinion: The Amazon Sweepstakes

Why Amazon HQ2 will never come to Portland.

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If you make your living anywhere near the world of economic development or real estate, you’ve probably heard of Amazon’s HQ2 beauty contest.

Fearing it is out-growing its downtown Seattle location, the ecommerce giant has sent out a request for proposals from cities around North America to be the home of a second, full-fledged headquarters. 

The stakes are huge.  Amazon has stated it will invest as much as $5 billion over 15 years, and that it might ultimately employ as many as 50,000 workers, with an average wage of almost $100,000. This is the economic development prize of the century, and has cities around the continent salivating at the prospect.

October 19th was the deadline for cities to submit their proposals. The ecommerce giant has said it will make its decision sometime in 2018.

Why Portland isn’t in the running

Like more than 50 other cities around the country, metro Portland has thrown its hat in the ring, proposing the soon-to-be vacated Post Office site in downtown Portland, along with alternatives in Milwaukee, Vancouver and Beaverton.

But it is clear that Amazon’s HQ2 isn’t coming to Portland. The reason isn’t because Portland doesn’t offer the workforce and amenities that Amazon is looking for, or that it won’t pony up a sufficiently lucrative incentive package.

It’s that Portland is too much like Seattle.

The reason for a second location is to diversify Amazon’s locational base, particularly to recruit talented workers that will help grow the company over the next decade or more. And when it comes to green, rainy, West Coast cities, Seattle pretty much fills that bill. Vancouver is out for the same reason. 

What will decide the race

Ultimately what’s going to determine where Amazon goes is which city offers the best opportunity to recruit and retain talent. As the RFP states: “A highly educated labor pool is critical.”

What’s even more telling is that Amazon insists that communities show that they offer locations with strong bike, pedestrian and transit options: A requirement of the RFP is that: “For each proposed site in your region, identify all transit options, including bike lanes and pedestrian access to the site(s).”

The reason Amazon cares about active transportation is almost certainly because it recognizes that many of the employees it wants to hire will want to live and work in a city where each of these options is a viable means of travel. Moreover, urban locations that are walkable, bikeable and well-served by transit tend to have the level and density of urban amenities and housing choices that well-educated young adults are looking for.

Portland fits the criteria, and if we were in the Eastern Time Zone, we would be a strong candidate for Amazon HQ2.  However, our proximity to Seattle  negates all those advantages.

What about the incentives

It’s obvious that a major motivation for the RFP process is to troll for subsidies and tax incentives. Amazon repeatedly says that initial and operating costs will be critical to its decision, and that it wants states and cities to provide a detailed list of the number and value of subsidies on offer.

Already, Amazon has honed the craft of extracting money from local governments. According to the D.C. based watchdog group, Good Jobs First, the company has received more than a quarter of a billion in tax breaks and other subsidies for its warehouses around the country. Oregon has given Amazon $13 million in Enterprise Zone tax breaks for warehouses in the Portland area, and is slated to deliver an additional $176 million tax breaks for data centers in Hermiston.

The HQ2 RFP takes this game to a whole new level. New Jersey is reportedly offering tax breaks worth $7 billion. Portland apparently isn’t offering  special incentives for Amazon, though depending on the specific location, Amazon could be eligible for support through tax increment financing or state enterprise zone laws.

But at the end of the day, the Amazon’s second headquarters won’t go to the highest bidder. 

In all likelihood, the company already has two or three preferred locations.  Amazon is one of the most powerful tech companies in the world. The company has relentlessly collected billions of bits of data about everyone’s buying preferences, and manipulates its prices in real time to maximize sales and profits,

Does anyone seriously think the data driven giant will rely on information cities and other local development groupscobbled together in a few short weeks to evaluate the desirability of different locations?

The purpose of the proposal exercise and the ensuing bidding war is simply to improve Amazon’s negotiating position with the two or three cities that are already at the top of its list.  Amazon, of course, isn’t about to divulge who its favorites are, but it is difficult to imagine that they don’t have a very, very good idea of what locations would work best for them. 

In essence, what we have is a system of cash prizes for bad corporate citizenship. Amazon could have just gone about its business, and selected a location based solely on its business needs. But by dangling a lucrative prize in front of the whole nation, and getting  mayors and governors to up the ante, it will be able to extract the maximum amount of resources for its own benefit.

At least on paper, someone will  “win” the Amazon HQ2 beauty contest. But at the end of the day, the city that “wins” Amazon may find itself asking whether the deal was worth the price. But whether that victory is a triumph or a hollow one will depend on many things:  whether the city sacrifices fiscal health to lure Amazon, and whether Amazon continues its charmed run of growth.

There’s also always the danger that a second headquarters will be a kind of corporate step-child with the core functions concentrated in the Seattle mothership. 

The best way to achieve durable long run growth is not by bribing already successful firms to expand in your city, but to be the place that is continually breeding and growing its own firms.

Joe Cortright is principal economist at Impresa Consulting.