by Dick Hall-Sizemore

Ivy Main, in a recent commentary in the Virginia Mercury, identified a change in the power dynamic of Virginia politics that is taking place: “Amazon is the new Dominion.”

Amazon’s presence in the Commonwealth has grown significantly over the past decade. It has taken place in three areas— distribution facilities, the second headquarters, and data centers.

When most Virginians think of Amazon, they think of the boxes or white plastic bags with the swoosh that get left on their front porch. Many, however, also think of Amazon as the source of their pay check. Surprisingly, there does not seem to be a definitive list of Amazon facilities in the state. From press releases and other material, I have pieced together the following list of localities in which Amazon has built a facility. The list includes sortation centers, distribution centers, delivery stations, and fulfillment centers. They serve different purposes, but it is not necessary to go into more detail here.

  • Ashland
  • Chester
  • Clear Brook (Frederick County)
  • Petersburg
  • Prince George
  • Richmond
  • Springfield
  • Sterling
  • Fishersville (Augusta County)
  • Waynesboro
  • Suffolk
  • Chesapeake
  • Stafford
  • Henrico

These facilities provide jobs for the communities in which they are located, ranging from 150 for the smaller facilities to 1,000 for the larger fulfillment centers.

The announcement that Amazon had selected Arlington for its second headquarters (HQ2) made national headlines. Virginia officials were jubilant.  The $2.5 billion project was expected to result in 25,000 new jobs, mostly high-paying, high-tech jobs. As part of the deal to locate HQ2 in Virginia, the General Assembly authorized paying Amazon up to $750 million in subsidies over 15 years. It also authorized the issuance of $300 million in bonds for Virginia Tech to build an “Innovation Campus” in Northern Virginia to offer graduate programs in computer science.

Even giant corporations hit rough spots sometimes. Last week, Amazon announced that it was “pausing” construction of the HQ2 campus. One office building is complete and will open in June and the company has hired approximately 8,000 employees. However, a larger, three-building complex, encompassing three million square feet of office space has been put on hold indefinitely.

The company, like other high-tech corporations, has realized that it overextended during the pandemic and is cutting back. It recently confirmed that it was laying off 18,000 workers in its corporate workforce. It is also trying to gauge the effect that the new trend of workers wanting to work from home will have on its need for office space.

The retail operations are the most public face of Amazon. However, the real money is in another aspect of the company’s corporate structure. Amazon has three business segments. Two are related to its retail operations, the other provides cloud services. Of the three segments, only the cloud service (Amazon Web Services or AWS) has made a profit in recent financial quarters.

Amazon controls about a third of the global cloud market. According to one source, Amazon has more than 50 data centers in Northern Virginia. Amazon estimates that it has spent $35 billion in Virginia on data centers, supporting more than 13,500 jobs in the Commonwealth, with 8,800 of them being full-time jobs with the company.

In total, some accounts report that Amazon has brought 30,000 full-time jobs to Virginia. Governor Youngkin has stated that Amazon’s investments over the last decade “have helped create over 96,000 indirect jobs on top of Amazon’s direct hires.”

A company with this much presence in Virginia will inherently have an interest in action by the legislature. There were several issues in the just-completed session that directly affected Amazon.

The proposal by Dominion to increase its permitted return on equity was of great interest to Amazon. According to the Virginia Mercury article, Amazon’s data centers make up over 21 percent of Dominion’s load. Accordingly, AWS was one of the members of the coalition lobbying against the Dominion bill.

Citizens, especially in Northern Virginia, have begun to complain about the proliferation of data centers. Sen. Chap Petersen (D-Fairfax) introduced legislation (SB 1078) to limit the siting of data centers. Del. Danica Roem (D-Prince William) introduced HB 1974 and HB 1986, which would have put restrictions on a data center proposed for Prince William County. These bills were all killed in committee. Petersen also introduced a resolution for the state Department of Energy to study the impact of data center development. That passed the Senate but died in the House. It is a safe bet that Amazon lobbyists had a keen interest in these pieces of legislation.

The issue that Amazon was probably most interested in, and which got little media attention, concerned bills related to Amazon’s announcement early this year of its intention to spend $35 billion by 2040 to expand its data center business across Virginia. As Governor Youngkin’s press release made clear, his office had provided Amazon some sweeteners, subject to General Assembly approval, in return for this commitment. These agreements are set out in HB 2479, which passed overwhelmingly in both houses.

One part of the deal was the creation of the Cloud Computing Cluster Infrastructure Grant Fund. Money in the Fund is to be used for grants to “qualified” companies that construct data centers in the Commonwealth. To qualify, a company must enter into a memorandum of understanding with the state to spend at least $50 billion and create at least 1,500 jobs by 2040. (Those criteria are above Amazon’s announcement, but it is assumed that the company had no objection.) In their budget amendments, both the House and the Senate included authorization for a grant of up to $140 million, to be paid on the basis of number of jobs created.

The state exempts data centers from paying sales tax on equipment acquired for the facilities. That exemption is scheduled to expire in 2035. The other part of the deal struck with Amazon had to do with extending this deadline. The legislation provides that, for any company which enters into a memorandum of understanding with the state to spend at least $35 billion on data centers and create a 1,000 new jobs, the sales tax exemption would be extended to 2040. If the agreement was for an investment of $100 billion and the creation of 2,500 jobs, the exemption would be extended for another ten years to 2050.

The state constitution forbids the General Assembly to pass any special legislation “granting to any private corporation, association, or individual any special or exclusive right, privilege, or immunity.” HB 2479 is technically general legislation because it does not name a specific corporation; it just sets out general criteria. But there can be no doubt that the bill was written for, and applies only to, Amazon.

Currently, the sales tax exemption costs the Commonwealth about $130 million per year. The Joint Legislative Audit and Review Commission (JLARC) reports that the exemption has cost the state in total more than $1.0 billion. Given these numbers, the fiscal impact statement for HB 2479 makes the surprising assertion that extending the exemption would not have a fiscal impact. The reasons given for this finding are outrageous. The first reason given is that an extension beyond 2035 is “outside the official revenue forecast.” To clarify, the revenue forecast looks out six years and 2035 is further away than that. However, no one is asking for a complete revenue forecast. The question concerns how much potential sales tax revenue would be lost if the sales tax exemption were extended as proposed by the bill. Surely, a tentative estimate could have been developed. (Perhaps the new revenue forecaster hired by the Department of Taxation is not up to the task.)

The second reason given was “the general fund revenue forecast generally assumes extension of expiring tax provisions.” If true, this practice is irresponsible.

Like other companies which could be affected by the General Assembly, Amazon makes campaign contributions. Nevertheless, its total of $1.6 million since 2014, as reported by the Virginia Public Access Project, pales in comparison to many campaign donors such as Dominion and Michael Bills. However, 90 percent of its donations were made in the last four years. Maybe it is just getting warmed up.

Like most donors, it gave to members of both parties. Its largest donation was $125,000 to Youngkin for Governor.

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26 responses to “A New 800-Pound Gorilla in Virginia Politics”

  1. LarrytheG Avatar

    One of the things not well recognized is just how many small businesses are on the Amazon platform including AWS and payment services.

    Millions of small businesses who once were more or less confined to a local presence now can reach potential customers around the world – and do. And Amazon rides herd on the not-so-wonderful types also.

    The data center thing is ironic but expected. People want electricity, water, sewer, internet, highways, etc but not close to their homes…. They need to be off somewhere in the country but they still want their Amazon stuff.

    They not only don’t want data centers, but solar and won’t want SMRs either is my bet.

    1. Stephen Haner Avatar
      Stephen Haner

      Yes, Larry, the demand created by this exploding data center industry is why anybody with an IQ in double digits understands the “wind and solar can do it all” myth is ridiculous and will never materialize.

      1. Nancy Naive Avatar
        Nancy Naive

        Have you seen “The Matrix”? They have ways of getting reliable power.

      2. LarrytheG Avatar

        Anyone who says wind/solar will do it all, need their head examined. The key issue is wind/solar cheaper than gas and when/if it is why would we not use it?

        Some folks on the right have trouble understanding this concept.

      3. LarrytheG Avatar

        What Amazon , Microsoft, others are doing are buying the amount of solar power that is equivalent to their total 24/7 use. They’re willing to buy that power thus there is a market for solar farms that can provide it.

        Is it cynical PR or is it something that their customers like them doing?

        And yes, the customers ARE paying for it, embedded in their costs which Amazon can and STILL be competitive with other non-Amazon sellers.

        So what is the problem? Amazon is willing to pay for it and their customers are okay with it.

        Why I bet the same naysayer conservatives like Bacon and Haner also “support” Amazon… bet you!

      4. Agreed, it will be interesting indeed to see how Amazon threads the needle between its commitment to green energy and its voracious demand for a reliable, uninterrupted supply of electricity at a competitive price for its data centers.

        1. DJRippert Avatar

          As far as price – as long as the other hyperscalers (notable Google and Microsoft) toe the clean energy line, it won’t be a competitive disadvantage for AWS. Their product is so much cheaper than an onsite datacenter the cost of electricity is not enough to get people out of the cloud. Now uninterrupted … well, that would apply to public clouds and private datacenters. All businesses suffer when the grid is unreliable (except maybe those business selling candles and generators).

        2. LarrytheG Avatar

          Need to also understand the difference between “new” demand and existing demand transferred from bricks/mortar to cloud. Amazon is serving existing demand more efficiently IMO.

        3. The only green that Amazon is committed to is the color of money. Green energy is a marketing tactic to build a brand name. It’s not a serious strategy for Amazon based on its actions.

  2. Carter Melton Avatar
    Carter Melton

    Great article….thanks for posting.

    When you look at the power and influence of Dominion Power, why do I get the feeling, that with Amazon, Virginia is like the dog about to catch the pickup truck ?

  3. Nancy Naive Avatar
    Nancy Naive

    Amazon’s logo is apropos.

  4. James C. Sherlock Avatar
    James C. Sherlock

    Wait until interruptions in the power grid providing green energy start dumping power to those data centers.

    I’m going to guess that data centers that take up that percentage of Dominion’s load have trouble providing backup power, but maybe someone knows.

    1. Nancy Naive Avatar
      Nancy Naive

      Amazon will just build it’s own grid. When it comes to those kinds of power drains (and noise) nothing beats cryptocurrency.

    2. Nancy Naive Avatar
      Nancy Naive

      Amazon will just build it’s own grid. When it comes to those kinds of power drains (and noise) nothing beats cryptocurrency.

    3. Nancy Naive Avatar
      Nancy Naive

      Amazon will just build it’s own grid. When it comes to those kinds of power drains (and noise) nothing beats cryptocurrency.

      BTW, the data centers get power during outages for the surrounding areas… wonder how that works?

      1. DJRippert Avatar

        Cloud datacenters have extensive backup and generation capabilities onsite – usually not at all green.

        1. LarrytheG Avatar

          as does Walmart, Lowes, and most hospitals and 911 dispatch, etc…

          1. f/k/a_tmtfairfax Avatar

            FCC regulations and best practices have required telecom companies to have backup power for decades. If something is essential to public safety or the economy, it damn well better have backup power. Ah, that made me feel like Director Vance.

          2. LarrytheG Avatar

            backup systems are normal and not going to go away anytime soon… I supposed it’s possible, they may eventually go to battery backup systems but for a place like WalMart, it would have to be a huge honker ….. for 12, 24 hours.. days..

    4. James McCarthy Avatar
      James McCarthy

      The Shadow knows what evil lurks in the hearts of men. Oldie but goodie.

  5. Stephen Haner Avatar
    Stephen Haner

    Meet the new boss. Just like the old boss. When I wrote about the coalition running an ad to oppose Dominion’s profit-raising bill, I specifically mentioned Amazon. Ten years ago on those issues the data center industry refused to engage, but Amazon does and will. And don’t forget who owns the Washington Post. Even Dominion never thought of that!

    The idea of granting a sales tax exemption only to those who meet certain capital spending or hiring goals is, let us say, creative. Not seen that elsewhere but perhaps I’m missing something. Also not sure it passes constitutional muster if somebody has the cohones to challenge it. As to the fiscal impact estimate….Dick, you can’t be so naive as to fail to understand those are often tilted.

    1. Nancy Naive Avatar
      Nancy Naive

      Massachusetts offered a tax break for hiring/payroll to Raytheon in the 1990s. You really can’t leave loopholes. If I recall correctly, they closed a plant, increased pay to ULM and officers resulting in a loss of jobs AND a tax break.

      Legislatures are amateurs when compared to corporate legal offices.

      1. DJRippert Avatar

        “Legislatures are amateurs when compared to corporate legal offices.”

        Legislatures are amateurs when compare to just about any competently run operation. And our legislature is part-time and heavily funded by special interests.

    2. Dick Hall-Sizemore Avatar
      Dick Hall-Sizemore

      In the past, legislative impact statements were not “tilted” very often. DPB used to challenge the agencies on their estimates and provide its own projections. Now, I see less and that, with DPB serving as a compiler of what the agencies contend would be the impact. As it did in this LIS, DPB just passed the buck by saying, in effect, “This is what the Dept. of Taxation says…” And, yes, I strongly suspect that the Governor’s office had a strong say in how this one read.

  6. James C. Sherlock Avatar
    James C. Sherlock

    Good work Dick. You and Haner have the franchise on reporting on such matters.

  7. Kathleen Smith Avatar
    Kathleen Smith

    This was an outstanding article. Thanks for providing.

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