Nailed It (with the Help of $$2.5 Billion in Incentives)!

The suspense is over. Amazon, Inc., has officially announced that it will invest $2.5 billion to establish a new headquarters in Northern Virginia. The facility will be located in the Pentagon City and Crystal City area of Arlington County and the Potomac Yard in the City of Alexandria. In addition to the 22,000 jobs created directly by Amazon, the project is expected to generate an additional 22,000 direct and indirect jobs in Virginia.

“This is a big win for Virginia—I’m proud Amazon recognizes the tremendous assets the Commonwealth has to offer and plans to deepen its roots here,” said Governor Ralph Northam in a press release today. “Virginia put together a proposal for Amazon that we believe represents a new model of economic development for the 21st century, and I’m excited to say that our innovative approach was successful.”

Virginia offered a substantial incentive package to induce the commitment from the online-retailing and cloud-services giant, which received 238 proposals from across North America. Originally, the company said it would invest $5 billion in a single second headquarters, but in the end decided to split the project between Northern Virginia and Long Island.

Said Northam: “The majority of Virginia’s partnership proposal consists of investments in our education and transportation infrastructure that will bolster the features that make Virginia so attractive: a strong and talented workforce, a stable and competitive business climate, and a world-class higher education system.”

“Virginia’s biggest employment growth opportunity in the years ahead will be in tech—from artificial intelligence to cloud computing to cybersecurity, and everything in between,” said Stephen Moret, CEO of the Virginia Economic Development Partnership, which led the recruiting effort. “The tech-talent pipeline investments that Governor Northam and the General Assembly are launching will position communities across the Commonwealth for healthier, more diversified economic growth.”

As part of the Commonwealth’s long-term incentive agreement with Amazon for the creation of at least 25,000 jobs, Virginia will:

  • Provide post-performance incentives to Amazon that will be paid annually based on job creation and wage levels, with minimum average wages of at least $150,000. Subject to General Assembly approval, the company will be eligible to receive up to $22,000 per job or up to $550 million in incentives. Additional incentives would be available if Amazon creates more than 25,000 jobs; and
  • Invest up to $195 million of non-general fund money in transportation projects that will improve mobility in the region, including additional entrances to the Metro stations at Crystal City and Potomac Yard, improvements to Route 1, a connector bridge from Crystal City to Washington National Airport, and a transitway expansion supporting Pentagon City, Crystal City, and Potomac Yard. Additional funding would be available if Amazon creates more than 25,000 jobs.
  • In addition, Arlington County and Alexandria will fund another $570 million for transportation projects, including including rail connections, transit facilities, multi-modal streets, and corridor connectivity serving the site.

To support the growth of the technology sector across the Commonwealth, Virginia will:

  • Make performance-based investments in bachelor’s degree programs in computer science and related fields that will be distributed statewide based upon a negotiated agreement with each public university or community college that wishes to participate;
  • Make performance-based investments of up to $375 million over 20 years for new master’s degree programs in computer science and related fields at George Mason’s Arlington campus and for Virginia Tech to establish a new Innovation Campus in Alexandria, both of which are subject to a one-to-one match from the universities with philanthropic funds; and
  • Invest $50 million over 20 years in K-12 tech education and internship programming to connect higher ed students to tech jobs.

According to press reports, incentives will total about $2.5 billion.

Bacon’s bottom line: The announcement is exciting news for Virginia and should prove transformative to Northern Virginia’s economy. If inducements must be made, I would much rather see them in the form of infrastructure improvements, K-12 and higher-ed investments than in payments to Amazon.

As Reed Fawell has opined elsewhere on this blog, a corporate and public investment investment of this magnitude represents a once-in-a-lifetime opportunity to create a functional transportation system in Northern Virginia’s urban core. Will the transportation investments serve the region or just Amazon? The devil is in the details, but the potential benefits are enormous.

The one provision that triggers my gag reflex is the $550 million — up to $22,000 per job created — paid directly to Amazon. Where will those employees come from? How many will be recruited away from other Northern Virginia companies, accentuating shortages of critical skills in a tight labor market and reducing their competitiveness? While many will welcome the coming of Amazon, I would expect others to resent the hefty subsidy. I will be interested in hearing the justification for this particular element of the deal.

Note: I have updated the total figure for incentives to reflect reporting I did not have available when I initially filed this post.

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15 responses to “Nailed It (with the Help of $$2.5 Billion in Incentives)!

  1. Jim,

    You have made a very valid point. My son works in the IT sector and lives in Crystal City. Let’s say he is enticed by a higher salary to join Amazon. A new job has not been created in the area. His old employer is now left with a job to fill, while Amazon has been given a $22,000 taxpayer funded subsidy but did not create a new job in the area (although the old one needs to be filled). It is easy to see how the existing employers would feel that they are now at a significant disadvantage.

    Why not spend the money on expanding the number of skilled employees that are available to all employers instead? Build a better ecosystem for skills and transportation/housing/amenities, etc. Others shouldn’t have to suffer for Amazon to succeed. Make things better for everybody.

    • Tom:

      By that logic Silicon Valley never grows because when one job is filled another disappears. That’s not true. People will move here for the jobs at HQ2 as well as the ones potentially vacated by your son.

    • “Why not spend the money on expanding the number of skilled employees that are available to all employers instead? Build a better ecosystem for skills and transportation/housing/amenities, etc. Others shouldn’t have to suffer for Amazon to succeed. Make things better for everybody.”

      Most of the state’s financial commitment related to the project is to expand degree production in computer science and closely related fields, which tend to be the biggest single source of talent for intense tech jobs, such as software development engineering, machine learning/AI, and UI/UX. At the same time all existing tech employers will benefit from the market having another attractive tech employer, particularly one not principally tied to the federal government.

    • “Why not spend the money on expanding the number of skilled employees that are available to all employers instead? Build a better ecosystem for skills and transportation/housing/amenities, etc. Others shouldn’t have to suffer for Amazon to succeed. Make things better for everybody.”

      Earlier this year, I interviewed a bunch of tech executives in Northern Virginia about this potential project, asking them in part what it would mean to their company if HQ2 were to come to Northern Virginia. Here are representative quotes from them:

      Fortune 500 CEO: “The economic lift that we get in Virginia, the branding part of it, would be a strong positive for our recruiting efforts. Clearly we will be competing for talent, but that’s fine. I think it’s important for regions to have a diversity of employment options. The economic lift and intellectual lift for the region is a strong, strong positive. I would like to see us get selected.”

      C-level exec of a Fortune 500 company: “In the short run, it will entail some competition for talent. But it’s very powerful for the region for the long term. We’ve made Virginia our hub. The fastest growing part of our ecosystem is tech – we hire thousands of associates [every year]. We want to have an ecosystem where new tech grads stay here and where there is a desire of folks from around the country to move here.”

      Startup tech company founder: “Short-term it may create some additional distraction in terms of hiring and growing and retaining talent. … In the mid- and long-term, it will make us better – the best thing you can have is a strong competitor.”

      CEO of a midsize tech company: “It would be a big [positive] deal for us. It would tie into our value proposition [for talent] of how high tech the area is. … Now we’ve got HQ2 in our backyard.”

      Overall the sentiment was that there would be some competitive pressure in the short-term but that in the medium- and long-term, we would have a bigger, more diverse, more attractive tech talent market.

  2. Exciting news.
    I just have a couple of unrelated perceptions:
    (1) I recall the news some months ago saying office vacancy was fairly high in Arlington. So that may help explain that there was room to grow there.
    (2) Reagan National airport is so nice, just flew out of there. So National prevailed over Dulles (yet again)
    (3) Reminds me when Mobil relocated to the DC Beltway perhaps to have a better say in the Beltway politics. Not sure how that worked out in reality, but at least NoVA has a (more permanent?) replacement for that job loss to the area’s economy.
    (4) Yes it seems clear NoVA development direction is going for the “internet of things”. Sometimes I need to reflect that anti-industry leftist eco attitudes around are here are due to complete lack of industry presence. But just because NoVA feels the answer for NoVA is “internet of things” does not mean other areas of the state/Country have that same jobs/career option.

  3. https://www.governor.virginia.gov/amazon/

    That link takes you to more information on this deal than I’ve ever seen provided on behalf of any other deal, which is good – but I want to spend more time absorbing this before making some comments. There are other moving parts not expressly scored. For example the locality may be providing additional tax relieve under a Technology Zone ordinance. My bet this is closer to $2 billion when all is said and done. By far, without any competition, the largest package Virginia has ever put together by any measure you can imagine. Payments of $550 million (in effect a state income tax kickback) will be a line item in the state budget for how long? Need to see a cash flow chart….

    • re: ” Payments of $550 million (in effect a state income tax kickback)”

      perhaps one way to look at it is that NoVa is getting it’s own income taxes back rather than have RoVa get them and instead of frittering it away on faux economic development boondoggles for RoVa – it’s going to do REAL economic development!

      😉

    • Additional details on local incentives as well as the state fiscal impacts are available at http://www.hqnova.com.

  4. Potomac Yard! Now that makes a whole lot more sense than just Crystal City.

    • Potomac Yard is key. I makes the deal work transportation wise. Plus Potomac Yard give very synergistic component. A powerful mix. 2+2 = 7. Without Potomac Yard the deal falls apart, just another traffic monster in precisely the wrong place.

      • Before all the Monday Morning Quarterbacking begins, congratulations are in order for those people in Richmond who made this deal happen against all odds, given the competition. This is sure proof of highly competent operators at work in Richmond, and I sense it not their last big show. First class operators don’t come around very often either, anywhere, particularly in government. Virginia is fortunate to have such public servants.

    • re: Potomac Yard, if I recall correctly, DJ called that area as the most suitable target back when this thing was first floated.

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