Chicago Offers Amazon $2 Billion to Locate HQ2 There

Billing Illinois and Chicago as an "extraordinary opportunity for Amazon" to locate its second headquarters, state and city political leaders entered the nationwide competition to land the online retail giant's 50,000 jobs by offering $2 billion in incentives while hinting they were willing to dig even deeper, sources familiar with the bid confirmed Monday.

By Monique Garcia and Bill Ruthhart

Billing Illinois and Chicago as an "extraordinary opportunity for Amazon" to locate its second headquarters, state and city political leaders entered the nationwide competition to land the online retail giant's 50,000 jobs by offering $2 billion in incentives while hinting they were willing to dig even deeper, sources familiar with the bid confirmed Monday.

In an official letter to Amazon executives attached to the state and city's bid, Gov. Bruce Rauner, Mayor Rahm Emanuel, Cook County Board President Toni Preckwinkle and the legislature's top four leaders laid out the big-ticket series of state tax breaks, property tax discounts, infrastructure spending and other incentives. In the letter, obtained by the Chicago Tribune, the politicians also offered to spend an additional $250 million that would not go to Amazon directly but would pay to train up a workforce from which the mega tech company could hire.

And, the elected officials wrote, there could be more money and tax breaks should Amazon deem Illinois and Chicago a worthy finalist for the company's so-called HQ2 and the $5 billion it has promised to spend on it.

"Finally, when you have narrowed the field and are engaged in more specific conversations with us, we are prepared to promptly consider other incentives that represent sound economic policy for Illinois and the greater Chicago area," the letter reads. "We all want to ensure that Illinois and the greater Chicago area are well understood to have a constructive approach to technology and innovation."

The package includes $1.32 billion in EDGE tax credits and $172.5 million in sales tax and utility tax exemptions from the state; $61.4 million in property tax discounts from Cook County and Chicago; and $450 million in to-be-determined infrastructure spending from the Illinois Department of Transportation, Chicago Department of Transportation, Chicago Transit Authority and other agencies, sources familiar with the bid confirmed.

Rauner, Emanuel and Preckwinkle's offices declined to address specifics, citing the competition that saw Amazon get pitches from 238 locales.

"Everything offered in round one of the Amazon bid is consistent with current state law," Rauner spokeswoman Patty Schuh said in a statement. "The state offered nothing for free. We continue to believe we are the best location based on educated workforce, innovation networks, and transportation infrastructure and look forward to working with Amazon."

The statement from Rauner's office echoes comments Emanuel made last week to the Tribune Editorial Board.

"Look, I don't want to make a prediction, because they're pretty sensitive, but let me just say this: Over the last six years, it is rare for Chicago, given the strengths that are inherent and we've developed, not to be competitive," Emanuel said. "My guess is the way this goes is it goes from X amount of cities, down to Y amount of cities, down to Z amount of cities. And when you look at the strengths of the city and how it answers some of the openings in Amazon, we are incredibly competitive."



The bulk of the financial package offered to Amazon comes in the form of the revamped Illinois EDGE tax credits.

The old credits, which expired in May, used to give employers promising to add jobs a tax break equivalent to 100 percent of their employees' income tax withholdings over a period of time. The new EDGE credits, signed into law this summer, offer a break equivalent to 50 percent of those income tax withholdings.

In the Oct. 16 proposal to Amazon, the state lays out a 17-year schedule of tax breaks based on the company's estimate that it would add 50,000 jobs over 17 years. The schedule assumes 2,500 employees in the first year making an average of $100,000 per year, and concludes at 50,000 employees earning an average of $160,000 per year in the 17th year. Such a payroll would make Amazon a larger employer than the city and would result in a tax break totaling $1.32 billion.

The proposal to Amazon notes that the incentives are not a pure tax giveaway since the credit is only 50 percent, meaning "the state and our local municipalities benefit by an amount equal to the Amazon benefit," the letter reads.

In addition, the offer includes $172.5 million from the state's High Impact Business Program. More than $145 million of that would come from exempting the state sales tax on Amazon's purchase of construction materials while also incentivizing the company to purchase those products in Illinois. The exemption would be issued to each of Amazon's construction contractors and subcontractors, and could last up to 20 years, according to the proposal.

Another $11.8 million would come from investment tax credits tied to construction and $14.9 million in utility tax exemptions under the state program. In its bid, the state estimates Amazon would build 6 million square feet of space at a cost of $2.3 billion, not including the cost of land.

The pitch to Amazon also plans on $61.4 million in Chicago and Cook County property tax breaks for the company. Normally, the offer notes, commercial property would be taxed at 25 percent of market value. The property tax breaks would reduce that to 10 percent in the first three years, 15 percent in the fourth year and 20 percent in the fifth year, and Amazon would be allowed to renew that benefit for an additional five years. The $61.4 million total break assumes no growth in the local tax rate, noting that the "incentive is greater if property tax rates increase."

The value of the state and city's $2 billion incentive package was first reported by WTTW-Ch. 11.

Last week, the state and city announced it had offered 10 specific sites to Amazon, eight of them in Chicago and two in the suburbs. A pair of those sites are government-owned -- the city-owned old Michael Reese Hospital in Bronzeville and the state-owned Thompson Center that Rauner has sought to sell to private developers. It's unclear whether the city and state have offered those sites to Amazon free or at a discount, but the proposal notes the possibility of "contributed land" with no further details.


Road ahead

City and state officials have taken note that Amazon has had more than 8,000 jobs it has been unable to fill at its Seattle headquarters. So they've been stressing the diversity of the local economy, the large number of colleges and universities nearby, and the relative low payroll costs in Chicago compared to other, more expensive larger cities.

As part of the package, the city, county and state have committed to spend "at least $250 million" in education, workforce development and city economic development grants. Some of it would come from Emanuel's "neighborhood opportunity fund," a program that charges developers fees for building taller high-rises downtown and in the West Loop and sets much of the money aside for economic development on the South and West sides. The mayor's office declined to comment on how the money might be spent.

The letter to Amazon, however, presents the $250 million as money that will "help ensure that all residents of Illinois and the greater Chicago (area) see and participate in the value that Amazon HQ2 will bring to our region."

Although the fact that the letter was jointly signed by so many Illinois politicians might be viewed as an accomplishment in itself, the incentives pitch to Amazon did not touch on the state's frequent political gridlock.

But Amazon is certainly capable of doing a Google search. To that end, the letter assured the online retail giant that Illinois politicians are rowing in the same direction: "Please know that we are prepared to undertake legislative action as a condition to your selection and look forward to better understanding your timing needs in that regard."

The letter, however, also left unaddressed the state's backlog of unpaid bills and deep deficit that make higher taxes down the road a likelihood.

Rauner last month conceded those factors are a "drag," while Emanuel last week called them a "factor, but not the factor."

The governor also often complains that Illinois is driving businesses away with regulations and taxes that are more burdensome than its neighbors. He said earlier this month those were concerns he'd heard from Amazon, which has recently opened several new facilities in Illinois.

"I reminded everybody, let's send a message that all of us in Illinois are committed together to keeping our taxes down to reasonable and keeping our regulations -- I'm hearing this from Amazon," Rauner said. "This is not coming from me, I'm hearing it from Amazon and other businesses."

Like Emanuel, though, Rauner has been more in sales mode of late, also noting the strengths of O'Hare International Airport, the quality of life in the Chicago region, the large influx of recent college graduates to the region. "I think we've got a great chance to get them," Rauner said of Amazon.

Asked last week to analyze the city's chances, Emanuel said Chicago is competing just as much against Seattle's drawbacks as it is against other cities' strengths.

"That's how we're first going to get measured, not just against Dallas, Denver, Boston, Atlanta, D.C. We're going to be measured against why you are even looking for a second headquarters," Emanuel said before offering his Amazon elevator pitch. "Our strengths: On Day One, you can get to any market in the world conveniently. On Day One, you can hire anyone you want from some of the top universities in the world. On Day One, your workers can afford to live within 20 minutes -- and afford their home in that area. That's a tremendous advantage."

Chicago Tribune's Kim Geiger contributed.

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Caroline Cournoyer is GOVERNING's senior web editor.