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Amazon's $2B in HQ2 incentives just bought it a lot of criticism

The winners may actually be losers in the big picture, critics say.

Ben Fox Rubin Former senior reporter
Ben Fox Rubin was a senior reporter for CNET News in Manhattan, reporting on Amazon, e-commerce and mobile payments. He previously worked as a reporter for The Wall Street Journal and got his start at newspapers in New York, Connecticut and Massachusetts.
Ben Fox Rubin
5 min read

At Amazon's Day 1 headquarters in Seattle.

James Martin/CNET

Hours before Amazon officially announced its HQ2 development was coming to New York City, incoming congresswoman Alexandria Ocasio-Cortez blasted the expected plan as an example of corporate welfare.

"Amazon is a billion-dollar company," she tweeted Monday night. "The idea that it will receive hundreds of millions of dollars in tax breaks at a time when our subway is crumbling and our communities need MORE investment, not less, is extremely concerning to residents here."

Ocasio-Cortez, a Democrat who will represent the Bronx and Queens, was part a quick and vocal backlash against HQ2, a massive development project that Amazon said Tuesday would be split between Long Island City in New York's Queens borough and Crystal City outside Washington, D.C.

New York state Sen. Michael Gianaris and City Councilman Jimmy Van Bramer repeatedly criticized the plan and helped organize a protest Wednesday against the development. In a statement on Sunday, they said they have "serious reservations" about the deal, adding: "We were not elected to serve as Amazon drones."

On Wednesday night, Democratic US Sen. Kirsten Gillibrand weighed in, saying on Twitter she was "concerned about the lack of community input and the incentives Amazon received."

The negative response, especially from New York politicians, highlights the intense scrutiny and huge expectations for HQ2 that Amazon placed on itself by launching a flashy, public bidding process for the project. Also, the development is so big that concerns have been raised for months about HQ2 causing higher rents, more traffic and strained public infrastructure. Now, after a year of weighing where to go, Amazon will have to find ways to build relations with the residents, local elected officials and workers in its new HQ2 cities, not just the folks who signed the deal.

After growing in Seattle over the past two decades, Amazon in September 2017 announced plans to create a second headquarters, dubbed HQ2, in North America. It set off a reality-show-like contest among cities to snag the development. Just before Amazon was set to make its announcement, reports came out that it would split the project in half. Now, over the next 10 to 12 years, it plans to spend $2.5 billion and hire 25,000 workers at each HQ2 site. Nashville will also gain an operations center with 5,000 jobs.

Watch this: Toronto makes its pitch for Amazon HQ2 and tech greatness

Even with HQ2 split, the project will still become the biggest job-creation development in New York state, Northern Virginia and Nashville, and the new sites are expected to build up each location as more substantial tech hubs. Amazon already employs over 2,000 people in New York City and about 2,500 in the DC area.

New York agreed to provide $1.525 billion in incentives and Virginia $573 million, pegged to the company's plans to create 25,000 jobs at each location that pay an average wage of $150,000. Tennessee is giving up to $102 million.

"We really prioritized where we could get great talent," Dave Limp, Amazon's head of devices, said this week at the WSJ Tech D.Live conference. "When you think about Northern Virginia and New York, they're just great places where people want to live and also great places where we can find people who will add to the invention culture at Amazon."

For Amazon customers, the HQ2 project offers a clear signal that Amazon and CEO Jeff Bezos have no intentions of slowing down the company's speedy growth and enormous ambition. With a huge increase in workers from HQ2, the company may be able to embark on even more electronics or delivery programs to continue bringing in more shoppers.

Questioning the price of HQ2

New York Gov. Andrew Cuomo and New York City Mayor Bill de Blasio, who helped bring HQ2 to New York, offered their strong support for Amazon's plan. Cuomo said during a press conference Tuesday that for every public dollar put into HQ2, New York expects to get back $9 in return from taxes and economic development.

"This is a big moneymaker for us, costs us nothing, nada, niente, goose egg," Cuomo said, while making a zero sign with his hand. "We make money doing this." He added that the estimated direct and indirect jobs created in New York would reach 107,000 and total economic impact would be $186 billion over 25 years.

De Blasio said the additional taxes brought in by the development will be used to help build up the city for locals. He also said the residents of Queensbridge Houses, the largest public housing project in the US, will benefit from living right by the new site, with Amazon providing training and jobs. "The synergy is going to be extraordinary," he added.

Virginia officials also provided enthusiastic backing for HQ2, saying it will be a boon for the local community.

While many top officials may be singing Amazon's praises, quite a few others have raised questions about the HQ2 process and the incentives Amazon garnered.

Stacy Mitchell, co-director of the advocacy group Institute for Local Self-Reliance, said it was obvious Amazon would end up locating in the East Coast's centers of financial and political power. Given that clear business decision, she questioned what the point was of New York and Virginia giving Amazon over $2 billion in incentives.

Meanwhile, the remaining 17 finalist cities -- which included Newark, New Jersey, and Indianapolis -- were put through a costly and time-consuming process of "imagining a better future that was never going to happen," Mitchell added.

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Amazon will now be able to use the confidential city and state data it got from the HQ2 process to locate future warehouses, stores and offices, and use the information as a competitive advantage against its rivals, she said.

Keenly aware of claims that Amazon had made up its mind a long time ago, de Blasio said Tuesday that "there were no foregone conclusions. This was a long, hard-fought battle."

It's unlikely incentive packages swayed Amazon's decision anyway, said Michael Farren, a research fellow at the think tank Mercatus Center at George Mason University. For instance, Montgomery County, Maryland, offered $8.5 billion in incentives for HQ2, but Amazon decided instead to locate nearby in Arlington County, Virginia, for billions of dollars less in funding. Also, Newark, New Jersey, which is close to New York City, offered $7 billion.

Backing up that point, an Amazon spokesman said Wednesday: "Economic incentives were one factor in our decision — but attracting top talent was the leading driver."

Farren added that the cities that didn't land HQ2 are better off using the money they offered Amazon to lower corporate taxes or invest in education, which would more broadly benefit their economies.

"We're going to keep having this outcome in the future, these massive competitions," Farren said, "unless we limit public officials' ability to offer these incentives."

First published at 1:43 p.m. PT.
Updated at 4:40 p.m. PT: Added statement from Sen. Gillbrand and more details.

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