Md.’s consolation prize

By narrowly losing out on Amazon’s new split headquarters, Maryland may have actually scored a modest — and tax sensible — victory

Our view:

It would be tempting to rack up Amazon’s decision to split its planned HQ2 in half and locate its dual “second headquarters” in New York City and Northern Virginia purely as a loss for Maryland. After all, the state went to considerable efforts to purchase the top ticket in the HQ2 sweepstakes with a staggering $8.5 billion in tax credits, incentives and grants, the largest such package ever offered by the state and possibly the most lucrative of the 20 finalists nationwide.

But the question isn’t what went wrong; it may be better to ask: What went right? With its unexpected decision to divide the project in half, Amazon turned what looked to be one of the greatest economic development prizes ever put up to the highest bidder — giving local communities visions of global preeminence in retail and technology — into what Seattle’s mayor has derisively termed Amazon’s latest “branch offices.” Each may hold 25,000 workers with salaries averaging in the six-figures, but exactly how game changing are these co-equals (with an extra satellite office in Nashville, by the way), particularly when both “winning” urban centers aren’t exactly unaccustomed to $100,000 salaries?

Meanwhile, the Crystal City location for that $5 billion half-a-half-headquarters is roughly 10 miles from Bethesda, site of Maryland’s finalist (proposals in Baltimore and Prince George’s County where the project might have done some serious social good having not made the first cut). What will that proximity mean? Clearly, it boosts the Washington area’s prospects for growth in the technology sector. As Silicon Valley has demonstrated over and over again, information technology companies prefer to cluster together. From start-ups to multibillion-dollar powerhouses, there is a competitive advantage to locating near the talent pool, and Amazon just increased the D.C. area’s pool by 25,000.

That’s not idle speculation. The same broad effect has long been felt in Silicon Valley and smaller-scale high-tech hubs like Boston, Austin, Seattle, Raleigh-Durham, and oh, Baltimore-Washington. And the D.C. area’s political boundaries have never been of great consequence when it was time to share the economic development bounty of that other massive employer, the federal government. Maryland has an estimated 147,000 federal workers (including postal employees), the fourth most of all the states. Nothing prevents some future Amazon employee from living in Montgomery County and commuting across the Potomac River.

How many will do so? Probably not that many. Officials in Montgomery County who track such things estimate that each day about13,000 commuters head from Montgomery to Arlington County with even more headed to Fairfax and Loudon. That’s significant but still only a small fraction of the county’s workforce — about 6.9 percent. The more significant boost to the local economy will be in the long term as other tech employers take their cues from Amazon’s decision and invest in the D.C. area, too — if only to poach highly-skilled employees from the Amazon workforce. That Amazon CEO Jeff Bezos has already planted a flag in the D.C. area with his ownership of The Washington Post (which he purchased in 2013) made the region’s involvement in the Amazon expansion unsurprising.

And how much will this boost in jobs and investment cost Maryland taxpayers? Well, there’s the real payoff. Legislation approved by the Maryland General Assembly and signed by Gov. Larry Hogan last spring — the so-called PRIME Act — would have left taxpayers on the hook, directly and indirectly, for many years to come. Income tax credits, sales and use tax exemptions, state property tax credit, local property tax reimbursement, you name it and Amazon was poised to receive it, making the richest man in the world even richer. On the other hand, how much will the Crystal City jobs cost Maryland? Nothing. Zip. Zilch.

Interestingly, state officials showed some prescience, if perhaps accidentally. The PRIME Act makes no provision for any Amazon investment that brings fewer than 40,000 jobs. In other words, the half-HQ2 would have been ineligible for those billions in financial aid, which, in retrospect, may have been entirely appropriate. Better to end up with half-a-half-a-loaf next door for free than to overpay for half-a-half-a-loaf. Maryland demonstrated it’s serious about economic development, Montgomery County showed it’s a top-20 candidate for a major technology relocation, and Annapolis dodged a potential tax revenue bullet. Call it the equivalent of a third-place finish in a national sweepstakes where finishing in the top two comes with a lot of downside.