Cities, don’t sell out to Ama­zon

Los Angeles Times - - BUSINESS - MICHAEL HILTZIK

Ama­zon’s an­nounce­ment that it’s seek­ing a place to de­posit a $5bil­lion, 50,000em­ployee com­plex as its sec­ond head­quar­ters some­where in North Amer­ica has pre­dictably set up a frenzy of civic preen­ing. May­ors and re­gional pooh-bahs from coast to coast have an­nounced their great in­ter­est in bring­ing the im­mense com­pany to their burgs, as have real es­tate firms such as Irvine Co.

Ama­zon’s idea is to sup­ple­ment its ex­ist­ing Seat­tle HQ with a co-equal head­quar­ters in some en­tirely fresh lo­ca­tion, since Seat­tle, where the com­pany al­ready ac­counts for fully one-fifth of all of­fice space, will have trou­ble ab­sorb­ing much more ex­pan­sion. The com­pany is ask­ing lo­cal­i­ties for pre­sen­ta­tions ex­plain­ing why they’re the right place for what it calls HQ2.

Ama­zon’s plan is be­ing hailed in some quar­ters as a break­through in ur­ban plan­ning. Washington Post columnist Steven Pearl­stein lauded the com­pany’s in­sight that rather than con­tin­u­ing to over­bur­den Seat­tle by mov­ing the work­ers to the jobs, “the bet­ter strat­egy [is] to move the jobs to work­ers” by cre­at­ing, es­sen­tially a new Seat­tle some­where else.

Ama­zon is act­ing as if uni­ver­si­ties, high-skilled work­ers and lo­cal and state ser­vices — air­ports, mass tran­sit author­i­ties, zon­ing com­mis­sions, etc. — will hus­tle up, jostling one an­other to give it ev­ery­thing it seeks. It may well be right, judg­ing from the ini­tial frenzy. Its eight-page “re­quest for pro­pos­als,” or RFP, for the new head­quar­ters is be­ing ex­am­ined to the last comma by civic lead­ers like steel com­pany

ex­ec­u­tives ex­am­in­ing a bid sheet for re­bar. It’s a fair bet that po­lit­i­cal lead­ers will re­spond with lav­ish tax in­cen­tives and other public grants to win the prize.

Yet a closer look re­veals that the com­pany’s ap­proach is ar­ro­gant, naive and more than a teensy bit cyn­i­cal. Nor is there any­thing es­pe­cially novel about it. In its head­quar­ters com­pe­ti­tion, it’s em­ploy­ing the same tech­nique it has em­ployed in sit­ing its dozens of dis­tri­bu­tion fa­cil­i­ties and data cen­ters — play­ing states and lo­cal­i­ties against each other for max­i­mum public hand­outs. This tech­nique has gar­nered more than $1.1 bil­lion for Ama­zon, by the reck­on­ing of sub­sidy tracker Good Jobs First. Bid­ding for HQ2 could set a record.

That would be ex­actly the wrong out­come, from the stand­point of public wel­fare. Rather than be of­fered bribes to move its head­quar­ters into a com­mu­nity, Ama­zon should be made to pay for the priv­i­lege.

Per­haps the most im­por­tant rea­son for this is that Ama­zon’s ar­rival — whether the HQ2 site is an un­der­de­vel­oped ur­ban down­town, a shovel-ready sub­ur­ban green­field or even an ex­ur­ban new town — will ren­der its host com­mu­nity un­rec­og­niz­able com­pared with what ex­isted be­fore. Com­mu­ni­ties that boast of rel­a­tively mod­est costs of liv­ing and rea­son­able la­bor costs as come-ons should rec­og­nize that Ama­zon’s ar­rival will push up land val­ues, and there­fore the cost of hous­ing and of­fice space, and pro­duce up­ward pres­sure on wages. That’s good for work­ers, not so much for ex­ist­ing em­ploy­ers.

With its plan to oc­cupy as much as 8 mil­lion new square feet over the next decade, Ama­zon is propos­ing to repli­cate its ex­ist­ing Seat­tle cam­pus, which at 8.1 mil­lion square feet al­ready casts the largest ur­ban cor­po­rate foot­print in Amer­ica, more than twice the size of the No. 2 con­tender, Cit­i­group’s 3.7 mil­lion square feet in New York, and, ac­cord­ing to the Seat­tle Times, more than the next 40 largest Seat­tle em­ploy­ers com­bined.

Ac­com­mo­dat­ing this be­he­moth won’t come cheap. Ama­zon says it’s look­ing to build on a va­cant lo­ca­tion served by good trans­porta­tion and ed­u­ca­tional in­fra­struc­ture. But those things don’t nor­mally pre­ex­ist to­gether in a pris­tine state. They ei­ther emerge or­gan­i­cally and sym­bi­ot­i­cally, or they’re forced into ex­is­tence. The first process takes time, and the sec­ond takes money, and lots of it. His­tor­i­cally, a city or re­gion gin­gerly ex­tends a ten­dril of its mass tran­sit sys­tem to­ward an un­de­vel­oped ter­ri­tory; as new prop­er­ties get de­vel­oped, the tran­sit sys­tem grows to serve them — you don’t nor­mally see full-scale tran­sit webs serv­ing va­cant land.

Yet Ama­zon doesn’t want to wait, and it doesn’t want to spend. Its RFP re­quires com­mu­ni­ties to sub­mit their re­sponses by Oct. 19, with con­struc­tion to start in 2019. The com­pany en­cour­ages states and lo­cal­i­ties to “think cre­atively” about real es­tate op­tions, but cau­tions that th­ese cre­ative so­lu­tions can’t “neg­a­tively af­fect … our pre­ferred time­line.”

Most im­por­tant of all, the com­pany is sig­nal­ing the ex­pec­ta­tion of public hand­outs. In other words, while cre­at­ing the need for vast public in­vest­ment in in­fra­struc­ture, the com­pany wants to re­duce the re­sources avail­able to make the in­vest­ment.

A few fea­tures of Ama­zon’s RFP seem de­signed to con­ceal this fun­da­men­tal re­al­ity. The term sheet fo­cuses mostly on the com­pany’s re­quire­ments for phys­i­cal and so­cial in­fra­struc­ture. Th­ese in­clude a metro area pop­u­la­tion of at least 1 mil­lion; an in­ter­na­tional air­port no more than 45 min­utes away, of­fer­ing daily flights to Seat­tle, New York, the Bay Area and Washington, D.C.; mass tran­sit ser­vice on-site and ma­jor high­ways not more than two miles dis­tant; a “highly ed­u­cated la­bor pool” and “a strong univer­sity sys­tem”; good cell­phone and fiber coverage; and a po­lit­i­cal and so­cial cul­ture that sup­ports “a di­verse pop­u­la­tion” and an “over­all high qual­ity of life.”

Ask­ing civic lead­ers to make pre­sen­ta­tions about th­ese fac­tors is very much a sham. Ev­ery item on Ama­zon’s wish list is some­thing the com­pany ob­vi­ously can find out for it­self — and prob­a­bly al­ready has.

In­for­ma­tion on only one ma­jor fac­tor rests com­pletely in the hands of lo­cal and state of­fi­cials: gov­ern­ment hand­outs.

That’s the one as­pect of the sit­ing se­lec­tion process that Ama­zon can’t de­ter­mine in ad­vance be­cause it’s go­ing to de­velop as the com­pe­ti­tion heats up. “We ac­knowl­edge,” Ama­zon says, “a project of this mag­ni­tude may re­quire spe­cial in­cen­tive leg­is­la­tion in or­der for the state/prov­ince to achieve a com­pet­i­tive in­cen­tive pro­posal.” Bid­ders need to know that “tax cred­its/ex­emp­tions, re­lo­ca­tion grants, work­force grants, util­ity in­cen­tives/ grants, per­mit­ting, and fee re­duc­tions ... are crit­i­cal de­ci­sion driv­ers,” the com­pany says.

That’s not an “ac­knowl­edg­ment”; it’s a warn­ing.

Ama­zon must know that its de­mands for salu­bri­ous public in­fra­struc­ture and ameni­ties are fun­da­men­tally in­com­pat­i­ble with its de­mands for sub­si­dies. The lat­ter are plainly what the com­pany con­sid­ers most im­por­tant; they also hap­pen to be the only qual­i­ties of the can­di­date sites that aren’t in some sense in­ter­change­able.

Lots of U.S. and Cana­dian com­mu­ni­ties of­fer big uni­ver­si­ties, youth-ori­ented ameni­ties, high­ways, tran­sit sys­tems and siz­able air­ports. Those that don’t ex­ist will spring up around any big cor­po­rate head­quar­ters of­fer­ing 50,000 jobs at more than $100,000 each, which is where the com­pany pegs the an­nual pay.

Ama­zon’s HQ2 will at­tract an ed­u­cated work­force whether it’s lo­cated in sub­ur­ban Denver, Dal­las or Baltimore, to men­tion three lo­ca­tions ap­pear­ing on not a few lists of can­di­dates ap­pear­ing in the me­dia. Grad­u­ates of first-class uni­ver­si­ties from thou­sands of miles away will beat a path to the door. If the crit­i­cal mass of work­ers and dis­pos­able in­come is great enough (it should be), restau­ra­teurs, chi-chi re­tail­ers and other car­ri­ers of the cool life­style gene will fol­low. Tran­sit lines and high­way in­ter­changes will reach out to carry this pop­u­la­tion where it wishes to go.

None of this is a new phe­nom­e­non, any more than is de­mand­ing a pay­off. The only thing dif­fer­ent about Ama­zon’s cam­paign for a new head­quar­ters is that it’s bound to be big­ger than any that came be­fore. That’s not a com­pli­ment.

Nikki Kahn Washington Post

AMA­ZON is propos­ing to repli­cate its sprawl­ing Seat­tle cam­pus, cen­ter, which at 8.1 mil­lion square feet casts the largest ur­ban cor­po­rate foot­print in Amer­ica.

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