In Cities Rejected by Amazon, Some See Upsides to ‘HQ2’ Process

Like dozens of other cities around the U.S., Gary, Indiana submitted a bid last year to host Amazon’s proposed multibillion dollar second headquarters, dubbed HQ2, which the company announced this week would be split between sites in New York City and Arlington, Virginia.

For the once-booming industrial hub east of Chicago, which has struggled in recent years, the effort to attract the online retail behemoth was by any measure a long shot. The city was knocked out of the running early on when the Seattle-based company winnowed the 238 initial applicants to a shortlist of 20.

But Mayor Karen Freeman-Wilson doesn’t describe the bid, which cost the city about $60,000 to put together, as a waste. “Even though we didn't even make the first cut, there's a hiring fair tomorrow for a distribution center, an Amazon distribution center, that will be in Gary,” she said during a phone interview on Wednesday.

“While that’s light years away from HQ2, it is very significant to our community that Amazon understands and sees some of the assets that we touted and the opportunities that are associated with having a location in Gary,” Freeman-Wilson added.

Gary’s Amazon headquarters bid featured options that could have provided the company over $2 billion in state and local incentives, according to news reports. But the distribution center, Freeman-Wilson said, will not require these sorts of perks from the city.

The competition for Amazon HQ2, with its promise of $5 billion of investment and about 50,000 jobs, drew substantial national attention, along with scrutiny over the billions of dollars in subsidies that states and local governments dangled before the company.

It also put a spotlight on trends and fault lines that exist across the U.S., as various regions and cities attempt to carve out a place for themselves in the high-tech economy.

Since Amazon announced the two winners—both located in thriving metro areas—some critics have questioned whether the process was in earnest, or if the company was able to gather intelligence on cities’ plans while settling on obvious choices in the end.

Moody’s Investors Service noted in a report on Tuesday that each of the 20 HQ2 finalists had competitive advantages like highly skilled labor pools, robust higher education institutions and medical centers, transportation options and high quality of life offerings.

“It is clear, to me at least, that Amazon's decision did come down, in this case, to getting the requisite technical talent at scale,” Joseph Parilla, a fellow at the Metropolitan Policy Program at the Brookings Institution said by phone Wednesday.

“Their future, in terms of innovation, is built on getting the best people,” he added.

Citing 2016 U.S. Census Bureau data, the Moody’s report notes that around 35 percent of the population in New York City, and over 70 percent of Arlington area residents have at least bachelor’s degrees. That’s compared to a rate of 33 percent for the entire U.S.

The populations in both places, along with the 18 other HQ2 finalists, also tend to be younger than the nation as a whole.

Drew Klacik, a senior policy analyst at the Indiana University Public Policy Institute, assisted with the HQ2 proposal focused on Indianapolis, which was one of the finalist cities. He noted that colleges and universities in the region surrounding the city churn out thousands of engineering and computer science graduates each year.

"There's an incredible amount of talent being produced around us,” Klacik said. But he explained that Indianapolis doesn’t do as well as some other cities when it comes to convincing those young, educated people to stick around after they finish school.

“The question is: how can we step up our game and capture more of those folks?” he said. Doing so, he added, would likely make the region more appealing for companies like Amazon, or create a foundation of entrepreneurs who may build similar companies locally in the future.

Klacik said his take on the HQ2 selection process was that Amazon was likely considering the “global coastal” cities on the list and Indianapolis had little chance of landing the deal.

Or, alternatively, that the company was eyeing about a half-dozen locations like Indianapolis that Klacik describes as “semi-cool, convenient and affordable,” such as the Raleigh area in North Carolina; Pittsburgh; Columbus, Ohio; Austin, Texas; and Nashville.

Amazon ended up announcing on Tuesday that Nashville would be the site of a future operations facility that would employ about 5,000 people. But Indianapolis and the other cities Klacik mentioned were passed over. “They apparently wanted global and coastal,” he said.

Philadelphia was another one of the jilted finalists on the HQ2 shortlist.

John Grady is president and CEO of PIDC, a longstanding joint venture between the city and the local Chamber of Commerce that concentrates on economic development.

“We’re disappointed,” he said.

Even so, Grady describes a number of upsides to the process and its outcome. For instance, he said it was a chance to “develop a bit of a new story” about Philly, and that marketing materials and data it assembled have been “de-Amazonified” for more general use.

He also believes that the sites the company did select reinforce for large employers that Philadelphia’s home in the Northeast is a desirable place to be.

“I think the challenge and the opportunity for us is to make sure we differentiate ourselves in the Northeast corridor,” Grady said. “We don’t want to just say we’re located halfway between New York and D.C.,” he added. “There’s no differentiation, or value proposition associated with that.”

Grady noted that the city has seen people relocating from New York in recent years, some in search of more affordable living. “One of the things we really promoted to Amazon,” he said, “is we are the most affordable big city on the east coast.”

“We have this capacity to support more growth,” Grady added.

Klacik highlighted similar selling points for Indianapolis. “If you look at our housing prices relative to the coast, you almost faint,” he said.

But Klacik says it’s more than housing prices that give Indianapolis its appeal.

“If you're a young hipster millennial, we're probably only semi-cool,” he said. “But most hipster millennials eventually morph into having partners and children. And when you're trying to balance your career and your family life, a city the size of Indy gives you opportunities.”

As he discussed the HQ2 process, Parilla, with Brookings, emphasized that getting selected as one of Amazon’s finalists is not the only metric by which to measure a city’s economic prowess.

"But I think it does signal that, by making that shortlist, they're viable players in the modern economy, at least judged by a big tech firm finding them attractive,” he said.

Parilla later added: “I think the ultimate takeaway is that what led Amazon to select a site was probably not, like, the quality of the marketing materials, or the size of the incentive package. It was about what are the assets in that place.”

Those assets, such as transit, broadband access, airports, real estate, and an educated workforce, he pointed out, can take significant amounts of time and money to develop.

Apart from HQ2, Freeman-Wilson noted a commitment this year by U.S. Steel to invest $750 million in its flagship plant there. “While they don't employ the number of people that they used to,” she said, “they're still our largest employer.” The company in the early 1900s was largely responsible for the city’s rise. But by the 1970s and 1980s layoffs and industrial declines had taken a heavy toll on Gary.

The city’s population had fallen to roughly 76,000 last year, from around 151,000 in 1980, and about 36 percent of residents are in poverty, according the most recent Census Bureau figures.

Freeman-Wilson says the city’s HQ2 pitch suggested that, just as Amazon has been a game-changer in the retail sector, and with its other business lines, it could take on a similar role helping drive a transformation in a city that is in the process of making a comeback and shedding its Rust Belt reputation. And it could do so just 30 miles away from Chicago.

The mayor sees regional efforts as a key ingredient for making economic progress in her city.

Parilla has a similar perspective. He says places like Gary, with eroded tax bases, simply don’t have the muscle to go it alone, and notes that Amazon sought out regional HQ2 applications.

Towns that aren’t nearby or connected to better-off cities, and that lack assets like colleges and sound infrastructure, are in a tough spot in this regard, and Parilla says that turnarounds in some of those places will likely require federal attention.

“We have to decide: is this a national interest issue?” he said.

Freeman-Wilson says that just going through the HQ2 process helped her city build stronger ties with state and regional economic development organizations, and serves as a reminder of the importance of investing in workforce training and education.

“It wasn't just a sense of winners and losers in this,” she said. “It was really a sense of how do you use this experience to strengthen your economic development efforts.”