Hedging Virginia’s bet
As Amazon’s HQ2 hiring slows, a sound deal protects state taxpayers
When the commonwealth enters into an agreement on a large-scale, multi-year economic development project, it’s essential any agreement be structured in a way that protects taxpayers. The nature of such initiatives means that plenty can change over time and Virginia shouldn’t be obligated to pay if things don’t pan out.
The Amazon headquarters in Northern Virginia is one such example. The online retailer has slowed hiring there amid an economic landscape roiled by the pandemic, and it’s a credit to lawmakers that the deal they struck didn’t commit the commonwealth to pay for empty offices if the company misses its job-creation targets.
The 2018 announcement that Amazon would split its coveted “HQ2” project between locations in New York City and Northern Virginia was a shot in the arm for the commonwealth. The two were selected from among 238 cities vying for the project, validating Virginia’s efforts to be an East Coast tech hub.
The company promised to invest $2 billion to create 25,000 new jobs at a new campus in Arlington by 2030 with an average salary of $150,000. As part of the agreement, Virginia pledged $750 million in subsidies, but tied the payment of that money to actual job creation — the commonwealth would pay $22,000 for each new job that met the average salary requirement.
Other spending was tied to the project. Arlington agreed to provide $23 million in incentives to the company, but made that dependent on an increase in revenue generated through hotel and short-term rental taxes, which were expected to rise
as workers flocked to the new Amazon campus.
And, separate but associated with the deal, Virginia also promised to invest $1 billion over 20 years in expanding tech education at state universities — programs such as computer science, information sciences, statistics and computer engineering. The goal is to produce 31,000 additional graduates with those degrees, further fueling the commonwealth’s tech boom.
A little more than five years since the announcement, things haven’t gone
according to plan.
The COVID pandemic radically changed how people work. More people work remotely rather than heading to an office every day, and companies have vacated commercial property they no longer need. Amazon has also reduced its workforce considerably, including cuts of 27,000 employees in the last two years, amid industry changes and decisions to shutter some parts of its enormous and expansive business.
All of that has affected the Arlington project. Hiring has slowed and the company paused construction on the second phase of its HQ2 campus. According to recent reporting by The Washington Post, the company now only employs 6,644 workers there. This comes a year after petitioning for its first installment of incentives — $153 million — for creating 6,939 qualifying jobs, meaning that site has shed 300 workers.
Had the deal with Virginia been structured differently, taxpayers might be obligated to pay Amazon millions despite the company not meeting its job-creation targets. As it stands, the commonwealth will pay $22,000 for every qualifying job, but that’s it.
The same is true of the city of Arlington. Hotel stays plunged during the pandemic and have yet to fully recover in that region. Since its deal with Amazon is tied to increased revenue collection, the city has not yet paid a dollar to the company.
Of course, the project’s slowdown also means the economic ripples expected across Virginia are likely to be smaller as well. But compare it to other large-scale projects, such as the burdensome Downtown and Midtown tunnel obligations, and it’s clear state officials smartly hedged their bets by not allowing their focus to be distracted by the allure of bringing Amazon here.
Not all economic development deals are equal. Some are wildly successful, but many do not pan out as intended. The important thing is that public money isn’t handed over to private companies recklessly.
Virginia should still be rooting for this project’s success, but state officials were smart to insulate taxpayers from risk. This roadmap should be useful for any deals in the future.