Be Careful What You Wish For, Loudoun

Aerial view of Loudoun County near Washington Dulles International Airport. Would Amazon’s HQ2 beget more of this?

Loudoun County is going for it. An ad hoc committee has come together in the hope of landing the economic development deal of the decade: HQ2, Amazon’s second headquarter complex. “We will be very aggressive in going after this,” said Buddy Rizer, director of Loudoun’s Department of Economic Development. “I truly believe that we’re a contender in this.”

The Loudoun Times-Mirror has the story here.

Let’s hope Loudoun does a better job of exploring the ramifications of a mega-project like Amazon than it did the costs and benefits associated with the Silver Line! (Talk about buyer’s remorse. Loudoun is joining the Washington Metro club just as the transit organization seeks to dun participating states and localities billions of dollars for decades of inept management. Loudoun’s fiscal commitment to heavy rail service is bigger than its boosters ever imagined.)

Amazon has said it is looking for a location within a 30-mile proximity to a city center, with direct access to highways and public transportation options, including bus routes, Metrorail and train, and within 45 minutes of an international airport. As I opined recently, Loudoun has as good a chance as anyone. The county has all the required assets, it’s part of a metro region with the most highly educated workforce in the country, and it has a demonstrated track record of working with Amazon’s cloud-services subsidiary.

But Amazon is seeking massive incentives (as in subsidies and tax breaks), which will suck out much of the tax benefit to any locality hosting the technology giant. There are a couple of key points to remember.

It’s one thing to subsidize a company that helps put the unemployed and under-employed back to work, and another to subsidize a company in a fully employed metropolitan economy. In June, unemployment for the Washington Metropolitan Statistical Area was 3.9%, according to the Bureau of Labor Statistics. That is generally considered full employment, allowing enough slack in the system for a normal movement of people between jobs. However, unemployment in Loudoun and neighboring Fairfax County was 3.2%, which verges on labor shortage. Another neighbor, Prince William County, had 3.5% unemployment.

Where, then, would Amazon find 50,000 workers? Many would commute from other Northern Virginia jurisdictions, overloading already overloaded highways. And many would move into the region from outside the Washington region. It’s not clear that Virginia’s system of taxation can build infrastructure and provide the government services associated with routine economic growth, and that’s when everyone is paying the taxes.

If the dominant employer is not paying taxes, or only a small share of them, then one of two things will happen. Either state/local government will be unable to keep up with the demand on schools, utilities, roads, highways and other infrastructure, or it will have to raise taxes on everyone else. If a company employs one or two thousand, that doesn’t create a regional hardship. If it employs 50,000, it can create a fiscal crisis for the host locality. If it employs 50,000 while perpetuating the sprawling and fiscally untenable land use patterns still embedded in Northern Virginia zoning codes and comprehensive plans, it can bankrupt the entire region.

I’m not saying that Loudoun and Virginia shouldn’t bid for Amazon. The company could cement Northern Virginia’s status as the IT capital of the East Coast and, as a bonus, diversify the regional economy away from the federal government. But state and county officials need to go in with eyes wide open, fully aware of not just the benefits of landing Amazon but the costs.

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9 responses to “Be Careful What You Wish For, Loudoun”

  1. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    This deal will certainly be fun to watch.

    One option might be to sell all of Fairfax County (with all its obsolete buildings) and all of eastern Loudon (including Dulles Airport) to Amazon. It is likely the only organization in the world that could fix these dysfunctional places.

  2. Reed has a point. The leading Washington urban area newspaper is already under its control.

    But why do we assume the HQ2 decision will be driven by huge local tax concessions? A factor, yes, but THE factor? Unlikely, except by some outlier community with little else to offer. And the more attractive Washington is for other reasons (eg, seat of national government!) the less leverage to extract tax concessions.

    1. Here’s my operating assumption. Amazon will narrow down the choices to Boston, Washington, Denver and Portland. Each would fit the bill; each would do the job. Then it boils down to incentives. He who comes up with the biggest incentives wins the jackpot.

  3. TooManyTaxes Avatar

    Amazon is going to have antitrust issues on its back for the foreseeable future. Being located in the D.C. Metro area and providing well-paid jobs to locals could well create some political goodwill among local pols. How much is that worth versus tax giveaways?

    What I do know is that Fairfax County would give all sorts of flexibility to Amazon or an existing landowner to bring the second HQ to Tysons. 50,000 jobs makes Capital One’s 10,000 jobs at one location seem pretty small.

    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      Likely, there would be a FIRE SALE, deals Galore on hurting buildings, plus you get a terribly underutilized airport thrown in, and miles upon miles of vacant ground around it. And you get kudos for being the White Knight in the Nations Capital who pulled off the greatest Real Estate Play of All Time save for Louisiana Purchase – still it’d be hugely complex, and very risky given all the regional problems, despite its unique opportunities.

    2. Back in the day, Mobil moved its HQ to from NYC to DC (Fairfax) I think to be closer to the political process (whereas TX would have been the natural choice). That was way before the Internet and other developments that perhaps reduced the need to be physically close to the politics action. But I could be wrong. NoVA offers low energy cost and hub of Internet, AOL etc. Metro to IAD as a plus.

      1. Reed Fawell 3rd Avatar
        Reed Fawell 3rd

        At the time, the 1987, the primary reason that Mobil gave for its decision to move to the Capital Beltway in Fairfax was that it was far less expensive to own and operate its HQ facilities in Fairfax versus Manhattan. And that, in addition, Mobil was having difficulty attracting younger executives to the New York region because of the high cost of housing and the difficulties of commuting. And that, according to Mobile, Northern Virginia had been chosen for its new headquarters site because Northern Virginia “offers the kind of environment our people want to live in without traveling an hour to get to work.” My oh my, how things change.

        In any event: It is also likely that Mobil had first gotten interested in Northern Virginia in a personal way during its 1979 acquisition of Gulf Oil’s interests in Reston Virginia that Gulf Oil had purchased from Bob Simon a decade earlier. At that time, Mobil said it was looking to diversify its businesses into real estate which was then on a tear into suburban development.

        1. Ah yes, I remember that well…(my best Maurice Chevalier).

  4. LarrytheG Avatar

    It’s going to be tough to find an urban area equivalent to Seattle in terms of a place that young folks want to be. It’s got such a diverse array of not only urban culture and life but outdoor recreation amenities from Mountain to Ocean to bike and ped trails throughout the region. – it will be hard to match.

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