Connecting state and local government leaders

Looking for ‘Win-Win’ Approaches to the Amazon HQ2 Deal

 In this Wednesday, Dec. 20, 2017, file photo, a clerk reaches to a shelf to pick an item for a customer order at the Amazon Prime warehouse, in New York.

In this Wednesday, Dec. 20, 2017, file photo, a clerk reaches to a shelf to pick an item for a customer order at the Amazon Prime warehouse, in New York. AP Photo/Mark Lennihan

 

Connecting state and local government leaders

Economic experts on Tuesday discussed some considerations that surround the pending project.

Whatever place Amazon might eventually decide to locate its planned second headquarters will be in a position to see gains in jobs, population, economic output and government revenue.

But there are some related considerations that economics experts highlighted during an online seminar held on Tuesday. They noted for instance that the future site of the “HQ2” project will also likely face increased government costs and upward pressure on consumer prices.

That’s not to say these factors will necessarily cancel out economic benefits that might arise from the proposed Amazon installation.

They may, however, be worthy of consideration as states and local governments around the U.S. jockey to attract the online retailer with hefty—and often secretive—incentive packages, which reportedly include perks like tax breaks and promised infrastructure upgrades.

“It’s going to be important for the region, the city, the county, the state that Amazon locates in to be able to find a win not only for Amazon but also for the state,” said Peter Evangelakis, senior economist with Regional Economic Models, Inc., which provides economic modeling services.

Amazon announced last year that it was looking for a site to serve as a second headquarters to its current corporate mothership in Seattle. In response, 238 places expressed interest in hosting the company. In January, Amazon announced 20 locations as finalists.

The company says it expects to invest over $5 billion in the new corporate headquarters, and to create as many as 50,000 jobs.

Details that have emerged about what governments are willing to offer the company have revealed beefy packages, like one worth $8.5 billion in Maryland, where Montgomery County is a finalist, and another valued at $7 billion in New Jersey, where Newark is a contender.

Chicago is among the other cities still in the running. Hector Vielma, a senior economist with the Illinois Department of Revenue, shared an analysis at Tuesday’s event showing what HQ2 could possibly mean at the state level for Illinois if the Windy City were to be selected.

“Amazon really doesn’t need any city or state, but many cities and states do need Amazon,” he said.

Vielma showed “high end” estimates suggesting that if HQ2 were to locate in Chicago, it would spur an increase of over 168,000 private sector jobs in Illinois over 15 years ending in 2032. Some of the most significant anticipated jobs gains would be in fields such as construction, retail, professional, scientific and technical services, and management.

“The positive effect on employment is across the board, some sectors more than others,” Vielma said of the state’s estimates.

During the same timeframe extending through 2032, the state’s gross domestic product would grow 2.9 percent more than the current baseline scenario where the state is not selected as the site for the corporate headquarters, based on the high end estimates.

That estimated GDP gain for the state would translate into a roughly $29 billion increase annually—compared to the baseline scenario.

Personal and disposable income would also see gains in the state, as would its population, by about 129,000 people, based on the estimates.

A main negative affect Vielma noted would be upward pressure on prices for consumers. A price index he referenced would increase by an estimate of nearly three-tenths of a percent above where it would be otherwise by 2032 in the event Amazon set up shop in Chicago.

This upward price pressure would affect categories of goods ranging from housing, to clothing, to transportation. Driving the price increases would be higher wages and employment.

But even with the expected increase in prices, Vielma said the overall result of Amazon possibly locating in Chicago would be largely positive, even when using more constrained “low end” estimates that the state modeled. He said that these positive effects would extend to Illinois’ budget, but did not offer specifics.

Evangelakis offered a hypothetical involving Connecticut, a state not in contention for HQ2, that illustrated how the corporate headquarters might affect state revenues. Personal income tax revenue, and sales and use tax collections would have notable grow, he said.

But Evangelakis also pointed out that population increases fueled by the Amazon headquarters have the potential to force greater state spending, if per capita spending levels were maintained. This spending might go to cover costs like education, or new infrastructure.

“There’s going to be a big increase in revenue, but there is also going to be an increase in carrying costs,” he said, using a term to describe the spending to serve added residents.

So, when weighing incentives packages, Evangelakis said states should be considering the net gains in state revenue, after accounting for the costs of population growth. He said it could also be useful to think about tying incentives to investments Amazon might make in areas like infrastructure and workforce development.

“That could certainly be a win-win,” he said.

Bill Lucia is a Senior Reporter for Government Executive's Route Fifty and is based in Washington, D.C.

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