Opinion Columns & Blogs

Amazon Search A Lesson On Economic Development

It was about a year ago that Amazon launched a search for a second headquarters. Like most things this “disruptor” company does, it turned the model for selecting a new location on its head. Instead of a mostly secret search that would hide both details and intentions, Amazon released a public “Request For Proposal” and asked potential cities and states to make their best offers.

The publicity surrounding a company pledging to bring 50,000 jobs with salaries in or near six figures served the company well. Cities and states, each wanting the bragging rights for winning this economic development Super Bowl, brought billions to the table.

Georgia, flexing its “No. 1 state to do business” brand, made a compelling offer with a headline price tag of $2 billion. That wasn’t the largest amount offered to the company, by far. Pennsylvania offered $4.6 billion – and still didn’t win. Clearly, the top line incentives were not the deciding factor.

in the end, the RFP was largely ignored anyway. There wasn’t one fully equivalent headquarters comparable to their current Seattle location. The trophy was split in half, with some jobs going Arlington, Virginia, and others going to New York City. The RFP’s desire to have a “business friendly climate” appears to have had a fairly liberal interpretation.

So Georgia won’t be getting 5,000 jobs per year from Amazon over the next decade, or even the 2,500 presuming the jobs are split equally between the “winning” cities. During the year Amazon made its decision, however, Georgia’s Department of Economic Development landed jobs across the state totaling even more than one Amazon, including an increased commitment from Salesforce to expand its presence in Atlanta.

This illustrates a point that consistently frustrates state leaders who keep hearing “if we had just taken the money promised to Amazon, we could have recruited … (insert company or location someone wants closer to them or in the industry they prefer.) Well, they did. And are doing.

The first problem with this argument is that most of the $2 billion pledged to Amazon is performance based. The state and city of Atlanta combined to offer $125 million directly to Amazon for site selection and build out of facilities. There was an additional pledge of $150 million to create an “Amazon Academy.” This would have been a joint campus of the University System and Technical College System to train workers for specific jobs/skills needed by Amazon.

The bulk of the “cost” of incentives would have come from tax abatements. These are taxes that will never be collected because the jobs didn’t come here. It’s not $2 billion sitting in a checking account waiting to be given away. It’s an inducement to create jobs in Georgia – one that is fairly standard in economic development across industries, and applies to existing Georgia companies that wish to expand as well.

Critics and Monday morning quarterbacks remain. Some object to any incentives being given to private companies on principle. That’s fine, but 49 other states play this game. Georgia’s incentive’s weren’t anywhere near the highest, and were pegged to the size of the payroll that ultimately was created.

Others want to use the headlines as an opportunity to grind their favorite ax. An analyst from a left-leaning think tank took to Twitter to proclaim that the $2 billion being given to Amazon redirected to education would “change the complexion of the state for a Generation”.

Given a 10-year incentive program, we were talking about $200 million per year, mostly in tax abatements. Georgia currently spends about $10 billion per year on K-12 education at the state level alone. Having 50,000 additional highly educated people employed and paying state income taxes and local property taxes would actually contribute more to education than yet another pledge to increase education spending by 2 percent per year. That, however, requires everyone actually understand the lessons and math involved here.

Charlie Harper is the Marietta Georgia based publisher of GeorgiaPol.com and the Executive Director of PolicyBEST, which focuses on policy issues of business climate, dducation, science, medicine, and transportation.