The most unprecedented thing about the state and local incentive package for Amazon announced yesterday is its transparency. Never has this much detailed information been provided to the general public immediately upon announcement, outside the protection of a non-disclosure agreement, and apparently the details will continue to flow.
Virginia Economic Development Partnership President Steve Moret had a long set of slides for the House Appropriations Committee meeting in Harrisonburg yesterday, and presumably will offer the same presentation to Senate Finance tomorrow in Williamsburg. Please take some time to flip through it, along with the highlights on Governor Ralph Northam’s website.
No question, everybody involved knows there is a sales job ahead before the General Assembly votes on the elements it must approve.
The cash flow chart, reproduced above, shows the benefit of working with a company that is so wealthy, so confident of its economic future, that delayed gratification is fine. Too often the C-Suite Occupants cannot wait beyond two or three quarters to collect the incentives, and really want them up front so the net present value of their own investment is reduced.
Secretary of Finance Aubrey Layne was quoted in the Richmond Times-Dispatch this morning saying there would be only a minor cost to the state in this current budget cycle, and the chart bears that out. This is a deal for the long haul. Which may add to the impression that Amazon really was coming to be close to the Capital Region all along and the incentives were not the driving force here.
Not that a company like Amazon in this corporate environment was going to come without incentives. But the initial impression is New York had to fork over far more, an indication that location was the one truly in play for economic magnets. For us the competition was Maryland. The second location in New York also adds credence to earlier doubts that Virginia could really host and support the full proposed operation.
What the state and localities have promised to do for Amazon and its supply chain closely mirrors the specifications the company laid out in its request for proposals. There are to be major investments in transportation assets, of obvious value to others in the region, and in higher education. A similar, if smaller, investment in higher education was made to lure Rolls Royce to Petersburg, and while that plant has not met expectation, I suspect the high-value engineering programs created persist.
There is a somewhat symbolic promise of money to K-12 education, but that’s going to be the rub: Can Virginia’s network of public and private K-12 schools produce the thousands of additional college-ready computer science applicants? Clearly Amazon is interested in building that supply chain locally, as well, and watch Maryland match Virginia’s efforts. But right now more 7th and 8th graders need to buckle down in math. Will the lure of working for Amazon focus them?
While the major cash incentive of $22,000 per job (and the company has said it might be hiring 37,850 eventually) is paid only after the jobs and tax flow are in place, it is still a massive precedent. The next deal discussion will start there. This package and the earlier Micron incentive package blow away previous examples, and while Virginia can continue to brag it is cautious, and the taxpayers have some protection, the word “conservative” is out of the discussion.
An interesting footnote in the outline of the proposed memorandum of understanding: Jobs paying in excess of $850,000 will not count toward the promised average salary of $150,000. Having negotiated deals on behalf of a shipyard paying hourly wages, that rarefied discussion is mind-bending to me.
Virginia is now right in there with everybody else, buying the business. Yes, New York paid more and yes, many of the things being bought by Virginia taxpayers will have overall value to the region and the Commonwealth. But the tail is wagging the dog.
Those who watch the business channels know that one of the lingering stories this week has been the slow death spiral of the Amazon of an earlier age, General Electric. There are cycles to these things, and the excitement of the moment must be tempered with the truth that the disruptive innovation that built Amazon will take it down one day, or shatter it. But if the 37,850 jobs, or even the 25,000, do not come to pass or do not linger, perhaps the roads and Metro enhancements and the higher education campus will.