There’s been something surreal about watching cities all over the country prostrate themselves before Amazon in hopes of landing HQ2, the company’s second headquarters, which will employ some fifty thousand workers and pump $5 billion into the local economy over the next two decades. Newark has offered the internet behemoth $7 billion in incentives. Philadelphia offered as much as $2 billion over ten years. Missouri offered in excess of $2.4 billion (which wasn’t good enough; Amazon rejected bids from Kansas City and St. Louis). Other cities that have made their incentive packages public aren’t far behind. For those that haven’tincluding North Carolinait’s difficult to imagine that figure not reaching the billions.
For good reason, state and local officials see HQ2 as a game-changer. It will flood the victorious city with a well-educated workforce, expand the tax base, and, in smaller or midsize markets, put the region on the tech-world map. The company’s arrival could lead to a tech cluster with far-reaching tentacles, generating as many as five other jobs for every one Amazon creates, according to the economist and author Enrico Moretti.
So when news came on Thursday that Raleigh was included on Amazon’s list of twenty finalistsout of 238 total bidslocal leaders were giddy.
“Clearly this would be a big boost to our economy, and our talented workforce, high quality of life, and affordable cost of living are big magnets for any potential employer,” Governor Cooper said in a statement. Raleigh Mayor Nancy McFarlane echoed that sentiment, saying she was “excited and honored to be included among the finalists for Amazon HQ2.”
For all the excitement, much remains unclear. We don’t have a good sense of just what Raleigh’s chances arespecifically, whether the region’s surfeit of top-shelf universities and relative affordability will overcome a deficient mass transit system (though Wake County voters did approve a $2.3 billion transportation bond in 2016). We don’t know whether Amazon’s decision to select three finalists from the Washington, D.C., areawhere owner Jeff Bezos owns a home and The Washington Postis a tell or a coincidence. We don’t know whether the lingering distaste over HB 2 will drive Amazon to Atlanta or Denver, two cities sometimes mentioned as frontrunners.
We don’t even know whether Raleigh making the cut actually means Raleigh. Research Triangle Regional Partnership, the economic development group that handled the Triangle’s bid, submitted seven potential locations to Amazon, spanning from the heart of Raleigh to Orange and Chatham counties. Those potential locations haven’t been disclosed, though Raleigh developer John Kane has said that he pitched a “Prime” corridorget it?stretching from the Warehouse District to North Hills.
When Amazon called RTRP last week to confirm that Raleigh had made the cut, “that was pretty much the extent of the communication,” executive director Ryan Combs told the INDY Friday. “We’re still trying to identify the site they want.” On Monday, Geoff Durham, the president and CEO of the Greater Durham Chamber of Commerce, wrote in an email to Durham officials that Amazon had “confirmed what we had anticipated and it was in fact the entire region (including Durham) that was selected to advance.”
In any event, local leaders are in what Combs describes as a “holding pattern,” waiting to hear from Amazon about what the next steps are.
Chief among those next steps will be cobbling together an incentive package, perhaps Amazon’s top criterion in its decision-making process. RTRP has said that North Carolina didn’t include talk of tax breaks and other incentives in its initial bid, which is not public record.
In November, The News & Observer reported that Durham city and council officials had discussed an incentive package worth as much as $50 million. Wake County has a standard economic development package and an additional headquarters package that Amazon would qualify for, and county and economic officials have been meeting behind closed doors to discuss other goodies they could throw at the company.
Commissioner Matt Calabria told the INDY that these meetings have happened in closed session, which means he can’t talk about them. “We’re going to look at this with open eyes,” Calabria says. “The nice thing about Wake County is that we don’t have to rely on incentive packages, though I expect that to be part of the mix.”
The bigger incentives will come from the state. In last year’s budget, the legislature made allowances for a “transformative project” incentive package, which enables companies that bring more than five thousand jobs and $4 billion in investment to the state to get up to a 100 percent refund of their corporate tax bill for twenty-five years. Those transformative projects, moreover, wouldn’t be subject to the state’s incentives cap.
And, says Jon Sanders, director of regulatory studies at the conservative John Locke Foundation, which opposes corporate incentives on the grounds that they distort the free market, this would also enable the state to help finance infrastructure to suit the company. Total it all up, and you’re looking at billions of dollars, paid by taxpayers to a company that could be worth $1.6 trillion (with a t) in less than a decade.
This wouldn’t be worth it, Sanders argues. “I think that [incentives] are not efficient and they end up costing more than the benefits they would bring about,” he says. And, Sanders adds, “it’s going to be brought about by crony capitalism.”
There are reasons for liberals to be skeptical, too. Start with the fact that CEO Jeff Bezos is no fan of labor unions or regulationsboth of which, of course, bode well for North Carolina’s bid. Add to it the frequent criticisms of worker exploitation at Amazon’s warehouses in the U.S. and throughout the worldamong other things, the company has been sued for not paying workers for time spent waiting in security lines before and after workin which slim profit margins are exacted by keeping labor costs low. In that sense, Amazon operates more like Walmart than Google or Facebook. Which raises the question: Is that really the kind of company we want to be subsidizing?
But HQ2 won’t be a factory or warehouse, and it won’t be filled by blue-collar people making subsistence-level wages. Rather, it will produce a surge of six-figure, white-collar jobs. And this presents its own set of potential problems.
Sanders points out that North Carolina’s urban areas, including Raleigh, are at what economists consider full employment. “Where are they gonna get the workers from?” he asks.
If they’re coming from elsewheremeaning fifty thousand well-heeled newcomers are moving to North Carolinahousing costs could go through the roof, and the newbies will strain the area’s schools and roads.
This has already happened in Amazon’s home base of Seattle, where locals refer to the company’s neighborhood, in a formerly industrial area north of downtown, as Amazonia. As Amazon has grown, Seattle, the fastest-growing big city in the U.S., has become increasingly awash in traffic jams and soaring real-estate prices. Seattle’s median home price is $730,000, up 17 percent from just last year.
As a Seattle Times columnist explained in a cautionary note: “If there’s one thing we know in Seattle, it’s boom and bust. Both the rush, and the relapse, of the fast buck are in our civic DNA. So heads up, Other North American City: Amazon is about to detonate a prosperity bomb in your town.”
The prosperity bomb would be particularly acute in the Triangle. According to an October analysis from the website Apartment List, Amazon’s arrival would jack up rents in Raleigh more than in any other city, with HQ2 increasing rents by as much as 2 percent. And wherever HQ2 goes, a further onslaught of gentrification is almost certain to follow. Much of the Triangle already has an affordable housing crisis, especially in its urban cores. This would only exacerbate the problem.
In October, a month after Amazon announced the bidding process for HQ2, a group of seventy-three community organizations across twenty-one statesincluding the N.C. Justice Center and the N.C. League of Conservation Voterspenned a letter to Bezos laying out “some expectations of our own for Amazon.” Among other things, the letter asked Amazon to eschew tax breaks, support infrastructure that works for the whole community, and make a “significant annual contribution to supporting the development and preservation of affordable housing.”
Amazon is unlikely to forego tax breaks; indeed, incentives will be a key aspect of its decision-making process. Similarly, whatever infrastructure is built for Amazon will primarily benefit Amazon. Already, McFarlane has indicated that Wake County’s transit system could be reconfigured to meet Amazon’s needs.
All of this isn’t to say the Triangle shouldn’t pursue Amazon. There are undeniably far-reaching economic benefits if we win. But before we get swept away in Amazon fever, before we lavish a billionaire with billions of dollars, our region’s leaders should be cognizant ofand think critically aboutwhat HQ2 would actually mean and how we would cope with the consequences of its arrival, which would not be insignificant.
As the adage says, be careful what you wish for. You just might get it.
