As was expected by everyone in the entire world, Amazon’s request for bids for a new headquarters location set off a feeding frenzy among municipal and state leaders all across North America.
Upon the tolling of the Oct. 19 deadline, proposals had come in from 238 cities, states, and regions in the U.S., Canada, and Mexico. Many of these offered unimaginably lavish tax incentives — let’s face it, the equivalent of bribes. New Jersey offered $7 billion. Chicago and Illinois, $2 billion, with a broad hint that lots more could be had for the asking. That’s not counting the more childish bids for attention, such as Tucson’s shipping a 21-foot cactus to Amazon’s existing headquarters in Seattle, or the offer by Stonecrest, Ga., to rename itself “Amazon.”
In this parade of municipalities draping themselves in their most alluring swimsuits, however, one city stood apart with what may be a uniquely intelligent and innovative proposal for what Amazon labels its “HQ2.” The city is Fresno, which proposed to make Amazon a partner in financing and managing the benefits and challenges presented by the wholesale importation of 50,000 well-paid professionals into a community.
The challenge, says Larry Westerlund, Fresno’s economic development director, is managing growth on that scale without so the city doesn’t become unaffordable for average citizens and newcomers, forcing them to commute longer and longer distances. “We asked, how can you get the middle class and a corporation like this to coexist so you don’t drive people further and further away?” he told me.
To meet that challenge, Fresno is offering nothing in the traditional mode of tax abatements and other such incentives, but rather a deal to use whatever economic gains come from the headquarters project to enhance the community in a way that suits the company best.
When Amazon first announced its quest for a location for a second headquarters location to be co-equal to its existing Seattle complex, we warned of the dangers of offering the giant company too much in tax breaks and other incentives. Municipal giveaways never pay for themselves, we observed, even when the project being sought is relatively modest. Amazon’s plan isn’t modest by any definition. The creation of a corporate center on the scale contemplated by the company would be certain to transform the host location, bringing benefits but also costs.
The company said it would favor communities with good transportation links and local transit infrastructure, a first-class university and ready supply of professional talent and land for expansion; but its eight-page request for proposals also made clear that it expected to be showered with massive public handouts. In other words, while creating the need for vast public investment in infrastructure, the company signaled that it didn’t expect to pay its full share of the cost.
A few localities said “no thanks.” Among them is San Jose, an anchor community of Silicon Valley. Its mayor, Sam Liccardo, explained in a Wall Street Journal op-ed that large corporate subsidies have become a thing of the past in his city — “and happily so,” as he’s found they don’t pay and they don’t work. But San Jose is sitting pretty as a magnet for high-tech employers, since it’s already the world headquarters of Adobe and close enough to the headquarters of Apple and Google to get plenty of spillover economic development.
That brings us back to Fresno, whose offer is embodied in a letter to Amazon Chairman Jeff Bezos and signed by Mayor Lee Brand. Its core is establishment of an “Amazon Community Fund” to hold 85% of every tax dollar generated by the new headquarters. The money would be administered jointly by Amazon and the city through a board that would deploy the funds “to enhance and address community impacts generated by the HQ2 project.”
The source of the fund would be the gain in property tax revenue flowing from Amazon-controlled property as it increased in value. But instead of flowing into Amazon’s corporate pockets — and how much difference does $2 billion or even $7 billion really make to a corporation with annual revenue of $136 billion? — the money gets put to use for the benefit of the company, its employees and its neighbors. The board could decide, for example, to set aside 25% for workforce housing, 25% for transportation infrastructure, and more for parks and bike trails or for STEM education in local schools.
Westerlund says that Fresno has had experience with the traditional model of economic development handouts — it’s even providing Amazon itself with a tax abatement of up to $30 million over 30 years to build an 865,000-square foot “fulfillment center” (that is, warehouse) destined to employ up to 2,000 workers at $14-$15 an hour.
But the HQ2 project is different by many orders of magnitude. “No city in America today can take 50,000 engineers” without disruption, Westerlund says. “As these companies get bigger and bigger, they drive up housing costs, they drive up commute time, and folks get frustrated.”
Fresno’s pitch to Amazon included some of the community virtues the company says it’s looking for. Already under construction in Fresno is the first phase of California’s high-speed rail line, a phase that will connect the San Joaquin Valley city to San Jose.
“This will put Fresno within a one-hour train ride of the exceptional talent of the Silicon Valley,” observes Mayor Brand’s letter, which was largely written by Westerlund.
“Right now, highly paid technology workers are seeking homes further and further away from their Bay Area jobs so they can afford to provide for their young and growing families,” the letter says. “Already, talented people with Bay Area jobs are buying homes in Fresno and the greater San Joaquin Valley.” And why not? The median home price in Fresno is $259,000; in the Bay Area it’s $859,000. “Engineers who went to MIT say they’re just getting by on $160,000 a year in Palo Alto,” Westerlund told me.
High-tech behemoths such as Facebook and Google understand the consequences. That’s why they’re preparing to spend tens of millions of dollars to build housing for their own workforce near their own headquarters. Westerlund is proposing to give Amazon a way to use the fiscal gains of its presence in Fresno to achieve the same ends by not diverting the money needed for infrastructure into corporate coffers or the general municipal budget.
“Rather than the money disappearing into a civic black hole, Amazon would have a say on where it will go,” he says. “Not for the fire department on the fringe of town, but to enhance their own investment in Fresno.” The details of the Amazon Community Fund aren’t spelled out in the city’s proposal, but Westerlund says its board might include some Amazon executives, the mayor and city council president, and perhaps a citizen representative.
Westerlund says Fresno understands that it’s “a true long shot” in Amazon’s beauty pageant. But he figures that the city’s proposal just might appeal to Bezos, who has the reputation of a business leader given to thinking out of the box. Here’s a chance for Bezos to show he’s really open to innovative thinking.