A New 800-Pound Gorilla in Virginia Politics

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.