<i>The Week in Public Finance</i>: The Unexpected Cost of Trying to Land Amazon's HQ2

In bidding for the company's second headquarters, many cities may have tipped their hand on tax incentives.

In the race to win Amazon's second headquarters, states and localities have revealed just how far they are willing to go to win the online retailer's business. And it may be resulting in bigger-than-necessary payouts to Amazon.

According to the latest data available from Good Jobs First, which tracks tax incentives, state and local governments have already promised a minimum of $1.6 billion in corporate subsidies to Amazon since 2000. The company’s HQ2 search could easily double that amount. Arlington, Texas, was prepared to offer nearly $1 billion in state and local subsidies, while Atlanta and Columbus, Ohio, are reportedly offering more than $2 billion.

“This is basically Amazon's way of gathering a lot of information for free in a short amount of time and understanding the incentives those localities are willing to offer,” says Kasia Tarczynska, who curates the data on Amazon for Good Jobs First.

Take the Birmingham, Ala., metro area. It was one of hundreds that bid for Amazon’s HQ2 and didn’t make the short list released in January. But just weeks ago, Amazon announced it would open a new distribution center there -- the first in the state -- and create 1,500 jobs. For doing so, the company will receive $51 million in state, county and local tax incentives, on top of an unspecified amount in local occupational tax incentives.

The deal was hailed by regional leaders as a huge win. “Whenever a company of Amazon’s panache enters a community, things improve,” Jefferson County Commissioner David Carrington said in a press statement.

But some have begun to question the price tag. Standing out in stark contrast to the deal in Alabama is one made just weeks before for a similarly sized distribution center in Tulsa, Okla., that will also create 1,500 jobs. That deal cost Tulsa just $2.3 million in reported local subsidies.

Noting that Birmingham is the nation’s largest metro area without an Amazon distribution center, local businessman and former chair of the region's Chamber of Commerce David Sher questioned whether the giveaway was necessary. “Birmingham’s the largest metro in the state,” he wrote in an op-ed for the local newspaper. “Did anyone think Amazon was just going [to] skip us?”

Furthermore, an analysis of tax incentive deals for similar-sized warehouses by the Birmingham Business Journal found that the incentives awarded for the Amazon facility were far higher than the norm. Most other deals ranged from $5 million to $19 million, with the highest coming from Fresno, Calif., for $30 million.

The wide range in offers between Birmingham and Tulsa reflects a larger disparity: Good Jobs First’s Amazon database shows a huge variance in reported subsidies -- from $50,000 for a distribution center in Taylor County, Ky., to multimillion-dollar deals for facilities in Maryland, Michigan and Ohio, to name a few. 

Amazon isn't the only large company to benefit from Alabama's largesse. In recent years, the state has promised nearly $1 billion to Mazda and Toyota to build a car plant, and roughly half a billion to the pharmaceutical company Bayer for renovating and restoring a historic building in Birmingham.

By comparison, Oklahoma’s major tax subsidies don’t top $200 million on any reported deal.

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*CORRECTION: A previous version of this stated that Arlington, Va., was prepared to offer nearly $1 billion in state and local subsidies for Amazon's second headquarters. It was actually Arlington, Texas.

Liz Farmer is a former GOVERNING fiscal policy writer.
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