Unprecedented Details Available on Amazon Deal

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.

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12 responses to “Unprecedented Details Available on Amazon Deal

  1. “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.”

    Steve, I don’t totally follow your point here. Virginia has provided discretionary incentives for hundreds of economic development projects prior to this one. While the $/job incentive for Amazon is larger than average in Virginia, it would not make the top 10 of past Virginia projects. More notably, it represents one of the smallest $/job packages for a mega project in the last 10-20 years nationwide, and that’s without considering the wages are roughly three times what is typical for big economic development projects.

    Good Jobs First, an incentives watchdog organization, maintains a mega projects file on incentive packages. That can be accessed at https://www.goodjobsfirst.org/megadeals. See the link where it says, “updated list of Megadeals in spreadsheet form (June 2018 revised)”. While the file mainly is focused on incentives for big projects, it effectively also provides a good place to find some of the biggest historical economic development announcements. Be careful with the job numbers, however, as I think some of the job counts include retained jobs (e.g., 28,000 retained jobs for the 2010 Ford announcement in Michigan), not just new or expansion jobs. My quick scan of the data in that file suggests Virginia’s $/job incentive for Amazon will place among the smaller end of projects in that relatively comprehensive database.

    What is exceptional about the Amazon project is the number of jobs (possibly the biggest in U.S. history for a single, competitive economic development project), which means that even a rather unexceptional $/job value results in a substantial total incentive value.

  2. This I wrote before seeing smoretva’s comment.

    “But the tail is wagging the dog.”

    No, I disagree. And say that here, in this instance, the dog is wagging all of Northern Virginia all the way to C’ville instead, and much else besides.

  3. Steve – first, don’t get me wrong – damn good job! It is wonderful that the bulk of the focus is on building the infrastructure around this project. I especially appreciate the openness with the data. That’s stunning – but also a new precedent! The old VEDP cash flow charts I’ve seen were always highly confidential.

    You are dead right that the incentives compare well with what Virginia has done before and deals around the U.S. and my comment about the tail wagging the dog is in large part about the whole process, the environment of corporate incentives we have created in this country. Virginia did hold itself aloof once upon a time. But without question Virginia is making large and expensive decisions about roads, higher education, K-12 education, mass transit driven by the goal of making a single company happy and rich. I have been a part of that process myself so can throw few stones, but I agree with much of the critique the Mercatus people put out.

    We cannot just do this deal and ignore things that need to be done for the basic economic health of the entire business climate, and for the workforce that will not be getting one of these subsidized jobs. And stand by because we’ll be telling you how!

    • “…driven by the goal of making a single company happy and rich.”

      From the very beginning of the process, we worked to craft a proposal that would benefit all tech firms and corporate headquarters in Virginia. The higher ed expansions in computer science and related fields will benefit employers and citizens across Virginia — those are not envisioned to be designed just for one company. And the transportation projects will benefit the whole area in the vicinity of National Landing, in particular Arlington and Alexandria. All of those things are investments we should make even if Amazon had chosen a different location. Indeed, our state strategic plan for economic development envisions exactly the kind of higher ed expansion described in the Amazon proposal — and that plan was created without the expectation of HQ2 coming to Virginia.

      Even many critics of incentives praise state investments in infrastructure and education/training, particularly when those investments are not designed to benefit a single company.

      • Well, yes, there is an Apprentice School building down in Newport News built by the state (and now owned by the company) for a similar set of reasons – long term growth in submarine construction jobs. Education and training indeed. I’m actually very supportive of all this, but just grousing about how the world now works.

      • Steve –

        I think one of the big ideas that we need to more fully explore here, and try to get our arms around, is the CUMULATIVE impact that this transaction is quite likely to generate here on this location, and how that potential is most likely to expand and generate out into the future, including all the aspects of life in the region it is likely to touch directly or indirectly.

        That impact in all it any aspects is unusually likely to be immense. Indeed it’s beyond our imagination and/or calculation. This is quite typical with modern capitalist’s systems. It happens all the time. Look at Amazon’s size in year 2000 versus today, 2018.

        Plus:

        Remember, here, right now and into our future, we are not talking about just Amazon and its growth. We are also talking concurrently about the growth of an entire region, one that otherwise has been in decline. Yes, in decline!!!!

        And yes, that includes Crystal City (incl. Pentagon City), and Potomac Yard not to mention substantial parts of Arlington, and most all of Fairfax, relative to their assumed potential before 2008, a potential that we have watched evaporate into failure.

        But now with Amazon the ripple affects of perhaps the most successful MIXED USE Company in the world will be enormous, so large and so varied, with so MUCH known and unknown potential, we cannot even begin to quantify that growth and its benefits now. To me, after only a brief glance so far, it looks to me that these gov. guys in Richmond who put this deal TOGETHER were and are very aware of this potential and tailored their deal accordingly.

        One way to start thinking about the deal in that light is to reread the post and comments to it here on Bacon’s Rebellion called “The Fiscal Fix.” It was posted here on June 18, 2012. It can be found at:

        https://www.baconsrebellion.com/wp/the-fiscal-fix/

        Think about some of those principles discussed THERE as they apply to this case.

  4. Steve H., I agree with you that the transparency of the incentives package is much to be applauded. Regardless of what one might think about the Amazon project, that is a big step forward and whoever made the decision to make the information available should be applauded.

  5. Can Virginia’s network of public and private K-12 schools produce the thousands of additional college-ready computer science applicants?

    This is an interesting question — so interesting, in fact, that I think I’ll devote a blog post to it.

    • I believe they can and further this is an excellent opportunity for schools and VDOE to more precisely DEFINE the specifics of the type of education that Amazon and similar are looking for. That would put schools on notice as well as actual goals for the kids and their parents – many of whom would have to up their game in math, science and reading/writing proficiency.

      Amazon is an enormous opportunity in this regard. It presents in-your-face realities for Virginians who say they are serious about 21st century jobs.

    • “Can Virginia’s network of public and private K-12 schools produce the thousands of additional college-ready computer science applicants?”

      At least some of our colleges and universities do not have enough computer science slots (due to funding limitations for faculty, etc.) to meet demand. So the question is not just one of demand from qualified applicants — it’s also one of supply. For example, many students who apply to Virginia Tech for computer science and don’t get in ultimately attend a CS program at an out-of-state institution.

  6. re: “unprecedented transparency from folks in Richmond”.

    I guess it would be rude and ugly to compare this to the Grid Transformation and Security Act eh?

    Which actually makes me a bit fearful that very the same folks who found that abomination pretty wonderful probably are going to rip Northam , Moret and Layne for not being “conservative” enough…….with Amazon.

    Sometimes it seems that the way Virginia operates is to purposely and ignorantly run the state into the economic ditch…

  7. Different take. Is Amazon preparing for an inevitable breakup of the Company, either as a result of antitrust action or to prevent it? Moving HQ operations for different internal businesses to different locations could be a different type of business planning than we think.

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