Amazon Deal Highlights Virginia’s Competitive Advantage Over Maryland

Many Virginians have qualms about the $550 million in job-creation incentives plus more than $1 billion in promised transportation and higher-ed investments it took to recruit a $2.5 billion Amazon facility to Northern Virginia. But things could be worse. Maryland offered an $8.5 billion package — and didn’t land the deal. The Washington Post is asking if the Old Line State, which pitched a Montgomery County location, has lost its economic-development mojo.

For the record, Maryland officials are putting on a positive face. They are delighted that Montgomery County was one of Amazon’s 20 finalists, and they say that the facility’s location in Arlington/Alexandria will send positive economic ripples throughout the Washington region.

But Montgomery County — the Fairfax of Maryland — has studiously refashioned itself over the past few decades as a walkable urban community with access to abundant mass transit, just the kind of urban fabric Amazon was looking for. The county has access to the same high-tech labor pool as Arlington and Alexandria, which snagged the deal. And the state offered $6 to $7 billion more in inducements than Virginia.

Anirban Basu, chairman of the Maryland Economic Development Commission, has been asking himself, “Why would Amazon turn away billions of dollars in subsidies to go across the river?”

Experts quoted by the WaPo pointed point to site-specific factors that favored Virginia. National Landing (the rebranded location in Crystal City and Potomac Yard that Amazon selected) is closer to downtown Washington, D.C., and so close to Reagan National Airport that Virginia has offered to build a walkway to link it to the Amazon office complex. National Landing has direct access to a Metro station, which the Commonwealth has offered to upgrade. And most of the property involved in Virginia’s bid is owned by a single developer, JBG Smith.

And who would believe this? Northern Virginia’s transportation infrastructure compares favorably to that of Maryland.

Northern Virginia’s transit and road networks also outpace the Maryland suburb’s. Virginia recently expanded its part of the Capital Beltway with tolled express lanes, and the second phase of Metro’s Silver Line, which will extend the subway to Dulles International Airport and into Loudoun County, is slated to open in 2020.

Finally, Basu cited Virginia’s “creative stroke of genius” in lining up $1.1 billion in higher-education support to build the computer-science talent pipeline. Virginia’s plan includes $250 million toward Virginia Tech building a $1 billion “Innovation Campus” near the future Amazon hub.

I would add another factor not mentioned in the WaPo article. Amazon has a history of working closely with Virginia officials and its largest utility, Dominion Energy, fostering development of Amazon’s cloud-services business in Northern Virginia. The company knows it can get things done in Virginia, whereas Maryland, where it has had little experience, is more of a cipher.

But Maryland’s competitiveness issue runs deeper. “One of the reasons Maryland created such a large incentive package for Amazon is because we know our business climate is not as competitive,” said Basu, whose Baltimore firm, the Sage Policy Group, conducted the state’s economic impact study of Amazon’s potential benefits but was not involved in the bid.

As the WaPo quotes regional economic analyst Stephen S. Fuller, 25 years ago economic activity in the Washington region was split equally among Northern Virginia, Washington and the Maryland suburbs. By last year, Northern Virginia’s share had grown to 48 percent, while the Maryland suburbs held about steady with 31 percent, and Washington had dropped to 21 percent.

Think about that. For all of Northern Virginia’s horrendous problems with traffic congestion, autocentric land uses, skilled labor shortages, lack of a top-tier research university, local-government unfunded pension liabilities, and some of the highest taxes in Virginia, it has been kicking Terrapin butt for two-and-a-half decades as measured by job creation. Writes the WaPo:

[Basu] has concluded that Amazon must have rejected the state’s “antiquated” regulations and higher taxes for corporations and top-earning residents. Amazon has said salaries at the new headquarters will average $150,000. Unlike in Virginia, Maryland jurisdictions impose a local income tax in addition to the state tax.

According to the Tax Foundation, Virginia is has a more favorable tax climate than Maryland almost across the board.

Personal income taxes
Virginia ranked 35th
Maryland ranked 45th

Corporate taxes
Virginia ranked 10th
Maryland ranked 22nd

Sales taxes
Virginia ranked 10th
Maryland ranked 18th

Property taxes
Virginia ranked 30th
Maryland ranked 42nd

Only in “unemployment insurance taxes” does Maryland compare favorably to Virginia, with a 28th ranking compared to Virginia’s 43rd.

Bottom line: Virginians get to keep more of their paychecks. When you’re  a company recruiting high-end business and technical talent, that counts for a lot.

Update: I have edited the original version of this story to distinguish between Virginia’s “incentives” paid directly to Amazon and state and local promises to invest in transportation and higher-ed.

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22 responses to “Amazon Deal Highlights Virginia’s Competitive Advantage Over Maryland

  1. Location, location, location. Amazon is coming East to move into the government contracting world in its usual big way, so proximity to the Pentagon, the letter agencies downtown and in other Virginia suburbs, the Capitol, all tilted in Virginia’s favor. NSA and NIH are out on the Maryland side, but most of the customers are in Virginia or a short Metro-hop away, along with a huge concentration of the possible competitors/partners. The airport and educational component sealed it.

    Many of the tax policy and other differences with Maryland you point to are already less pronounced than they used to be, and within a few short years the two equally-blue states will be indistinguishable. The next census and reapportionment will just move that further along. Arlington and Alexandria are already well known “People’s Republics” so a low-regulatory, laissez-faire environment was not the goal.

    • “Amazon is coming East to move into the government contracting world in its usual big way, so proximity to the Pentagon, the letter agencies downtown and in other Virginia suburbs, the Capitol, all tilted in Virginia’s favor.”

      Amazon overall is a very private-sector focused company. AWS, which has its growing East Coast Campus in the Herndon, is Amazon’s big player in federal contracting.

      Virginia’s MOU for Amazon includes a provision allowing a maximum of 10% of incentivized jobs to be those associated with federal government contracts. To be clear, the company never talked about federal contracting related to HQ2. VEDP proposed the 10% provision as a safeguard measure, because a principal driver of Virginia’s interest in HQ2 was/is economic diversification.

  2. Don’t forget that section of Arlington took an economic hit during sequestration, with loss of jobs and leaving vacant office space. So the Amazon project helps to diversify away from the gov’t job dependence.

    Also don’t forget “lower tax” Virginia bifercates into a higher tax half and a lower tax rural half. So I am not sure how much advantage that is.

    • Yes, Crystal City had peaked and was in decline and due for a re-fresh, which this will provide nicely. Still a matter of location….My brother works for a a company there and told me of a co-worker who lives there. His lease was due to recycle and was notified of a $700 per month increase in his rent….just the beginning!

    • Correction: bifurcates (sp)

  3. Crystal City is a good location for many reasons.

    And I think the county income tax in Maryland made a difference. Taxes in NoVA are clearly becoming excessive but not having a local income tax is an economic advantage.

  4. Mr. Moret – well, I didn’t know about that provision in the MOU (never seen that before), and that does undercut my thinking somewhat, although that location was still a huge advantage for VA, and people hang around Washington to lobby as well as to sell. Time will tell….and 2500 jobs focused on that one activity are still better located there than out in Bowie.

  5. There is also an international IT cable connection in VA. and Chrystal City is a ‘future’ city designed to be walkable etc. for the generation that doesn’t want to live and drive in the Burbs.
    I also think VA’s promise for VA Tech’s “Innovation Campus” is a big thing as Steve said.

  6. Below is press release from the Maryland Public Policy Institute:

    Lessons Learned from the Amazon HQ2 Race

    ROCKVILLE, MD (December 3, 2018) — Maryland should forego subsidies for individual companies like Amazon and instead focus on broad-based corporate tax relief, regulatory reform, and a stable minimum wage to encourage job growth statewide.

    Those are the findings in a new Maryland Public Policy Institute report after Amazon chose not to locate its new headquarters in Maryland, declining $8.5 billion in state incentives. The report from Senior Policy Analyst Carol Park, titled “Maryland’s Lessons Learned from the Amazon HQ2 Race,” can be viewed at mdpolicy.org.

    “The most important lesson from losing Amazon’s headquarters race is that Maryland needs to improve its overall business climate instead of relying on targeted subsidies and tax incentives to attract companies,” said Christopher B. Summers, president and chief executive officer of the Institute. “Amazon didn’t succeed at retailing by opening another retail store. It reinvented retail. Likewise, Maryland should reinvent its economic development philosophy to create a level and competitive playing field for all job creators.”

    The report’s recommendations include:

    Lower Corporate Income Tax Rate: Maryland has one of America’s highest corporate tax rates at 8.25 percent. Lowering the corporate tax rate to 6 percent would actually improve Maryland’s real per capita corporate income tax revenue by approximately 7.4 percent, according to the Institute’s research.

    Stable Minimum Wage: To protect jobs and small employers, Maryland must reject efforts to mandate a statewide $15 per hour minimum wage. In fact, a National Federation of Independent Business Research Foundation report estimates that a $15 minimum wage will reduce Maryland’s private sector employment by around 99,000 jobs over a decade.

    Judicious Regulatory Reform: Governor Larry Hogan has made tremendous progress identifying regulatory obstacles to economic growth, but more work remains to be done. The Hogan Administration must continue working to modify or repeal the 657 state regulations flagged as problematic by the Governor’s Commission on Regulatory Reform.

    Read the full report at mdpolicy.org.

    About the Maryland Public Policy Institute: Founded in 2001, the Maryland Public Policy Institute is a nonpartisan public policy research and education organization that focuses on state policy issues. The Institute’s mission is to formulate and promote public policies at all levels of government based on principles of free enterprise, limited government, and civil society. Learn more at mdpolicy.org.

  7. Jim – your theory would hold more water if the other half of Amazon’s HQ2 were somewhere other than Queens. Hard to believe that Amazon pick that locale based on low taxes.

    I agree with Mr. Moret that the feds weren’t a big deal. Lots of other companies have bigger exposure to the federal government but see no reason to move any part of their headquarters to the DC area … IBM, HP, Cisco, etc.

    Crystal City and Potomac Yards offered both a lot of unrented office space and, as I recall, a lot of greenfield development opportunities as well.

    My guess? DC had the talent pool and Northern Virginia had the greatest flexibility with regard to contiguous development. The Virginia Tech move was icing on the cake – but very good icing nonetheless.

    • Yep, I agree on the tax thing. Also, Amazon could have a “presence” in this region as their Govt interface but this is about a lot more jobs than that.

      There was a big kerfuffle in Seattle over a “head tax” that was associated with housing affordability. Amazon was not happy and had made threats about it.

      The problem is – anything you can say as a negative about Maryland – is equally bad or worse in NY (including taxes AND rent control) so I’m not sure folks have really “figured out” Amazons “thinking”.

      So again, I agree with DJ. There is a fair amount of high-tech talent in the Wash METRO area – a lot of it fueled by the govt desire and it’s not govt employees, it’s contractors which I predict is going to make it tougher for the Feds to get quality contractors… I bet they’re all dusting off their resumes as we speak.

    • I’d like to see some sort of nod, at least, towards Jack Herrity’s foresight (among others for sure) in promoting the Dulles Tech Corridor and its antecedents long before it took off and gained the critical mass it has today.

    • Taxes are still relevant. Amazon decided it wanted a big presence in both NYC and DC. That makes sense. If you want a presence in NY you suck it up and deal with the taxes. If you want a presence in DC, you can suck up less by locating in Virginia.

      Crystal City has a lot of obsolete buildings built in the 1970s and 80s. It’s ripe for redevelopment. And there’s some new construction. Amazon can start out with either and then build the buildings it needs as it expands. The only thing I puzzle about is whether DCA building height restrictions will present a problem.

      Also, Bezos may be thinking Amazon will be split up in the foreseeable future due to antitrust concerns. What greater planning than to have three headquarters operating for a likely antitrust breakup.

      • Well.. Amazon proved that if the other factors that are important to them are present – they’ll pay the higher taxes. I still don’t think low taxes was what brought them to Arlington. I suspect Arlington’s “blue” governance and willingness to work with Amazon on development, accessibility and other urban amenities like parks, trails,etc.

        So it could have been that Maryland was “close” – perhaps ahead of a lot of other places – perhaps in the top 5 or 10… who knows?

        Ironic also – for all the gloom and doom criticism about METRO – pretty clear that Amazon would not have chosen this location without METRO.

        • Larry – you are ignoring the impact of state and local taxes on employees. Arlington has lower real estate taxes than does Fairfax County and there is no Virginia local income tax. So Amazon can offer perspective employees the ability to live near where they work and not pay an extra income tax and likely lower property taxes. Had Amazon picked Montgomery County or the District, its employees wanting to live near where they work would have to pay higher income taxes.

          Any large-scale building effort by Amazon will require proffers for schools, parks, transportation, etc.

          Taxes aren’t the only factor in a business’s decision where to locate but they are a factor that goes into the mix.

  8. smoretva says:

    “Amazon overall is a very private-sector focused company. AWS, which has its growing East Coast Campus in the Herndon, is Amazon’s big player in federal contracting.”

    Throw “AWS, which has its growing East Coast Campus in the Herndon” into the hopper along with Crystal City, Pentagon City, Potomac Yard, Virginia Tech Campus, Alexandria City, Pentagon, Metro, R/B corridor, Arlington and Alexandria Counties’ superb housing stock, National Airport on Potomac, four bridges into DC, along with Dulles Airport at Herndon: put all of that in your hopper, and you Got the Deal Made in Heaven for all concerned.

    Another words: Everybody in Virginia gets their cake and eats it too.

    • PS- Except Alexandria, no longer a county, has been a city now for nearly a 100 years.

      • Carving cities entirely out of counties, plus the Dillon Rule, combine to make Virginia’s levels of regional governmental cooperation among the worst. It’s hard to be worse than Montgomery versus P.G., MD, but Virginia has several examples that rank up there.

        • I expect Fairfax County officials to do what’s best for county residents. Arlington, Alexandria, Montgomery County and the District each have their own local governments, which, presumably, look out for their residents.

          This can be well illustrated by one of the policy goals in Visualize 2045, the new CLRP for the National Capital Region. One of the goals calls for balancing employers and jobs more equally between the east and west sides of the Potomac. Despite this, I expect Fairfax County to go after new businesses and high-paying jobs even though it’s not fully consistent with regional cooperation.

  9. The post story referred to below quotes by Steve Fuller:

    “Stephen S. Fuller, an economist and professor at George Mason University, said he, too, believes Maryland and Montgomery, the state’s economic engine, have work to do.

    Losing the Amazon bid to Northern Virginia “should be a confirmation of an ongoing problem, that [Montgomery] has lost its competitive edge in the region,” Fuller said. “It was still in the national finals, so it’s not a total defeat, but the county needs to understand what its competitive advantages are in the region and in the global economy. . . . It was a test, and they didn’t win.” END QUOTE

    I have been listening to Steven Fuller spout bogus information about Northern Virginia traffic and development now for 35 years.

    Here my take on his comment, posted several years ago here.

    reed fawell III | October 9, 2013 at 11:33 am | Reply

    There are many key sentences worth pondering in the Ladies of Pageland Lane. One of them is: “The Pageland ladies aren’t anti-development, and they are certainly not anti-business.”

    No, in fact the Pageland ladies are on to something that is the reverse of anti-business. And something that is nothing even close to NIMBYism.

    The issues at stake here is far bigger and far different from NIMBYism or anti-business, or standing in the way of progress. No, these ladies are standing in the way of destructive business practices, and the ruination of where they and we all live. They are standing in the way of those who, for too long, have taken control of local government, local institutions, and public monies, using a whole variety of devices to wield destructive business practices for their own financial gain and for their own personal advantage.

    Thus opposition to these forces includes the idea that the pro-growth business interests and powers that have run Northern Virginia for the past forty years by gaining control over roads, land use policies, airports, public transit and private taxing and tolling authority are now imposing policies and decision that are now obsolete and counter-productive to the point of now running not only Northern Virginia, but the entire region, into the ground. In the process these policies are wasting vast sums of money while they create ever more dysfunctions that leave wastelands in their wake, while at the same time lining the pockets of a few with public funds, or private profits derived from the fruits or misapplication of public funds.

    The out of control forces are strangling this region. They are shutting down transit and commerce throughout our region. They are severing community from community. They are forcing interstate traffic (whether into, out of, and through our region) to a grinding halt. Jacked up tolls and traffic rob workers of the livelihood, and their families of their time. They are killing off small business. They killing off healthy growth and wealth creation and quality of life. They are killing old neighborhoods, running them down into ruin in their quest to gobble up and spit out ever more cheap land to profit themselves at public cost through the building of ever more roads that breed ever more traffic and congestion, rather than diluting it and diverting it in creative ways that allow our region and all its parts, whether old or new, suburban, or urban, or rural, to thrive and prosper in a modern world that is leaving these old policies and ways of “doing business” behind.

    The obsolete short sighted policies of these entrenched business interests are wasting public monies on a vast scale. Look at the gigantic waste – the million dollar bus stop, the 1.6 billion dollar crystal people mover, the grotesque waste on the silver line, all of its going into somebody’s pocket. And these folks are doing it in pursuit of their own interests that now are resulting in failures that grow ever more apparent as they increasingly litter our landscape from Quantico, Virginia to Frederick, Maryland.

    Look at the wealth killing rush hours that now shut Maryland off from Virginia. Look at the traffic that shuts off DC off from Loudoun. Look at the interstate traffic that daily turns our region into a functional mess because Tyson Corner steals its road every business day of the year. Look at the failing Dulles Airports whose future has been mangled and throttled by the misguided, selfish, over reaching, counter productive actions and policies of its own private special interest boosters and proponents, those all too eager to make a quick buck for themselves at the expense of the taxpayers who use the airport and the whole region that depends on it.

    More and more it becomes plainly apparent that Northern Virginia, and its citizens, and the citizens of the entire region, are being abused by special interests who have held the levers of power for decades and now are pushing obsolete policies that use the public’s money in ways that bring far more harm than good to the vast majority of the citizens who pay the bills, and whose money goes to line the pockets of a very few who make the decisions but take no responsibility for them, and take only the profits.

    This is what the three ladies of Pageland Lane are up against. They need all the help they can get.

    reed fawell III | October 9, 2013 at 12:26 pm | Reply

    PS – and now these business interests contrary to their most recent but ever changing story want to build a corridor called a “Parkway” that goes at the airport from all the way south to I-95 that will be filled with trucks that serv warehouses, distributions centers, and light industrial zones to be built nearby. This project will jump start and feel their latest vision of Dulles Airport and future development along points south to I-95, and east to the Capital beltway, and west and north through the Virginia Piedmont to 1-81 and Point of Rocks (and wherever else they can bust some roads and rail lines through).
    reed fawell III | October 10, 2013 at 11:04 pm | Reply

    For more information on this subject, including tactics and methods, see two articles and commentary below on this website –

    1/ “MacDonnell Team to Spend $289, ooo in Taxpayer Money to Sway Taxpayers on Bi-County Parkway, and

    2/ Air Cargo Case for Dulles Crashes and Burns, Will MacDonnell Pivot to New Justification?

    And also numerous others.

    See: The Ladies of Pageland Lane Posted on October 8, 2013 by James A. Bacon

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