Dreaming the Impossible Dream

Amazon headquarters in Seattle. Really, would you pay hundreds of millions in subsidies for architecture like this?

Amazon’s announcement of its intention to build a second headquarters complex somewhere in the United States, generating $5 billion in investment and up to 50,000 jobs, sparked some lively punditry around Virginia. Reactions varied widely.

Central Virginia would be an ideal location, opined the Richmond Times-Dispatch. The region meets the threshold population of one million, it has a stable, business-friendly environment, it has a strong university system and access to a major airport and mass transit, and it offers a strong logistical system.

The big drawback, suggested the editorial, is Virginia’s aversion to subsidies and tax breaks. Amazon has made clear its interest in incentives. “Fabulously rich companies shouldn’t get handouts from the taxpayers,” says the libertarian-leaning editorial page. But with a prize as big as Amazon, it conceded, “It’s highly unlikely that the state’s political leaders will let any laissez-faire principles stand in the way of a project that could transform an entire region.”

The Virginian-Pilot editorial writer didn’t have much use for Amazon. Noting that Virginia Beach Mayor Will Sessoms hopes to pitch the technology-intensive retailing giant, the Pilot figured that Hampton Roads faces an uphill climb. Sure, the region does have the requisite one million population, and it soon will have access to huge trans-Atlantic broadband links, but the Amazon announcement may be no more than a marketing ploy — “a plan to wring tax breaks out of cities and states stepping on each other for the chance to capture some of that Amazon magic.”

“While communities in Virginia — including Virginia Beach — should certainly try to lure the retail giant here, officials should be wary as well,” the Pilot concluded. “Bending over backward for this or any company carries risk that needs to be worth the reward.”

Then there is the starry-eyed Roanoke Times which, despite a regional population less than a third of the one-million minimum, proceeded to make the case that Amazon should think transformationally: “If you go to some conventional big city, that’s simply a case of the rich getting richer. There’s no glory in that. If you come to Roanoke, a promising city that sits on the edge of Appalachia, you are single-handedly changing the rules of the game.”

The editorial writer touted the region’s high quality of life, its creativity in making deals work, and its proximity to Virginia Tech and Liberty University. “Our region has more undergraduates per capita than Boston, San Francisco-Oakland, Raleigh-Durham, or Austin, Texas. ”

Sad to say, I don’t think Amazon is looking for glory in its new headquarters complex. It’s not looking to transform the world with its corporate real estate strategy. I have to agree with the Pilot on this: Amazon is looking to convert its name into hundreds of millions of dollars in subsidies and tax breaks. And who can blame the company, as long as there are local governments around the country willing to sell their souls?

Landing a mega Amazon corporate center would be an economic game changer, it is true. The Times-Dispatch is right to relax its libertarian scruples enough to at least contemplate the idea of incentives.

But I have yet to see anyone conduct a rigorous cost-benefit analysis of a major economic development project. Studies invariably are framed in such a way as to bias the outcome in favor of the desired outcome. Thus, a study on the “economic impact” of an Amazon headquarters undoubtedly would show billions of dollars of positive impact — but would exclude the liabilities associated with providing government services not only to the Amazon corporate campus but to fund the growth in infrastructure and government services associated with 50,000 direct jobs and perhaps another 100,000 or more in “multiplier” jobs. Rarely will any consultant’s study reveal the net benefit — the benefit after costs have been deducted.

A region like Roanoke would be totally overwhelmed by the impact. Even Roanoke or Hampton Roads would be hard-pressed to accommodate such a surge in investment and jobs. Frankly, only Northern Virginia has the size, assets and wherewithal to play Amazon’s game. The rest of us need to dream more modest dreams and husband our resources for projects that (a) we realistically might win, and (b) we won’t regret it if we do.

Update: The New York Times crunches the numbers for Amazon, and narrows down the final four list to Portland, Denver, Washington and Boston. The optimum pick: Denver.

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25 responses to “Dreaming the Impossible Dream

  1. Agreed. NoVa is the only region of Virginia that should have any interest in this project. Would they look at Loudoun?

  2. This reminds me of the early 1990’s Disney Civil War proposal. Amazon would blow up northern Virginia from the north end of Shenandoah to the Capital Beltway and everything in between. A Developers dream. A Nightmare for most everyone else.

    Central Shenandoah makes sense but for Airport problem. If that could be solved in and around Roanoke, that makes for provocative idea! A very Provocative Idea!

    Watch out for those many Virginia special interests that will sell the state (incl. everyone in it) lock stock and barrel for bucks in their pockets.

  3. So what is one of the most important “needs” of Amazon? I’d say it’s a well-educated, tech-savvy workforce and in turn what kind of a place that workforce would be attracted to – in addition to work – to live and play.

    So would young tech-savvy millennials want to live, work and play in the Washington DC MSA?

    I could be wrong but I don’t see it.

    In Seattle, young folks have innumerable opportunities for outdoor recreation from Ocean to Mountain to in between as well as a diverse and affordable housing environment – and what does Washington DC .. offer?

    Washington DC’s primary claim to fame is that it is KING of the mega-exurban counties commute… and I just don’t see the kind of employee that Amazon wants to be like the average govt/contractor dweeb who commutes 50+ miles a day solo in a car…

    I’m going to go with places like Asheville, NC and Greenville, SC.. who will no doubt also bend over backwards with incentives.

    Let’s face it .. NoVA sucks at lifestyle amenities.. people who work there can’t wait to escape the place with retirement or other better options… and Virginia.. to this point – has not demonstrated any real interest in anything other than Fed Govt jobs.. the new ED guy from Louisiana may come through on that..we’ll see ..

    If Virginia were to do the infrastructure things necessary to entice Amazon to Charlottesville or Roanoke/Blacksburg.. maybe a chance… but I just don’t see young folks touching NoVa with a ten foot pole.

  4. Sounds like a natural for Reston or Loudoun and Dulles Airport. Metro coming in and under-utilized airport.

  5. A key factor to consider is the requirement in the Tysons Comp Plan for growth up to 113/116 MSF, the Orange Line must be extended to at least Centreville and two other unnamed heavy rail lines must be extended as well. It would make sense to consider those expansions in dealing with a potential Amazon deal.

    Two possible rail line possibilities include extension of the Purple Line to Tysons and constructing a new line following Route 28 from Manassas to the Silver Line at Dulles Airport. If this were to occur, it would make sense to extend the Orange Line to Manassas, rather than to Centreville and to construct a second bridge next to the American Legion Bridge at Cabin John. To me, this suggests an Amazon campus near Dulles or somewhere along the Route 28 corridor.

    • Who is going to pay big time through the nose for all of this heavy urban hard-scape to accommodate Amazon? Plus that’s only the beginning. I fear you’re “dreaming the impossible dream.”

      • my thoughts also… who will pay for that?

      • Of course, there are no financial plans for paying for an extension of the Orange Line or the construction of two new rail lines. This if for Tysons. Need I write more?

        Yet, at the very same time, Fairfax County has no idea when real estate tax revenues from Tysons will reach the point where their growth avoids the necessity to raise the rates, as the R-B corridor in Arlington does.

        If you want an urban area with access to multiple rail lines, only downtown D.C. meets the criteria.

  6. Ohio got a Amazon Web Services datacenter and analysis showed the subsidy per job was nearly $800K. Other subsidy packages have gone up to $2M per job. Let’s hope someone looks closely at cost-benefit.

  7. I suspect Amazon will want a state that uses market-based sourcing in the apportionment of income taxes, a change Virginia has only begun to consider. There may be other things outside the normal realm of “incentives.” Yes, what Amazon asks for and what Virginia is willing to offer will be very interesting, and frankly on the outside none of us will ever know. I’m still trying to wrap my head around a 50,000 employee “second HQ” complex. Add that to the first HQ and what is the company’s long term plan for growth? Bigger than DoD?

    • “I’m still trying to wrap my head around a 50,000 employee “second HQ” complex.”

      Good insight.

      Amazon suddenly, among many other things, is an enormous logistics Company – warehouse and distribution by air and ground, whether national, international, regional, and/or local. Do these suddenly important rolls play a dominate part in site selection, and bifurcation of Amazon HQs, if indeed this expressed need is not a ruse?

    • Amazon already has 340,000 employees. Accenture has 411,000, IBM has about 400,000, GE has 300,000, Deloitte has 250,000. While many of these employees are outside the US there are still a lot in the US. Deloitte, for example, claims 80,000 US employees.

      50,000 additional employees for a company growing like a weed shouldn’t shock you.

  8. First things first – if this is about datacenters nobody should care. They don’t generate any meaningful level of employment. They also need cheap power and high bandwidth network connections.

    I assume this is about expanding the corporate functions of Amazon. Normally, this would be an interesting idea but not a fascinating idea. However, Amazon is a technology company. Much of the expected work would be in the broad area of software and systems development. If that is true then this becomes a fascinating idea. Remember that Silicon Valley was nothing more than a large swath of fruit orchards in the 1960s. Then came HP. Then came Fairchild. Fairchild begat Intel. Intel begat Cisco. And so on and so on.

    In the Washington metropolitan area there is a hospitality cluster that grew up around Marriott. Hilton Hotels is headquartered in Tysons, Sunrise Senior Living is in McLean, UberOffices in McLean, Marriott is still in Bethesda and that company is “merging” with Starwood adding to the overall hospitality cluster in the DC area. The developers that Amazon will hire will invariably leave Amazon and start new companies. I can already think of one such company in DC founded by ex-Amazon Web Services people – Fugue. If the Washington area can attract a big piece of Amazon there will be many more start-ups founded by ex-AWS people.

    As far as putting the new Amazon facilities in Roanoke or even out by Dulles Airport – those are not winning ideas. Why did Amazon build their new headquarters in downtown Seattle? They could have acquired land a whole lot cheaper out in Redmond or some other outlying area. They put the HQ in Seattle because that’s where the talent (especially the young technical talent) wants to work. Stop thinking about the Virginia suburbs and start thinking about Arlington or Alexandria – urban places with population densities similar to Seattle that are close to large pools of talent that can serve as the source for hiring. Places in proximity to real technology universities like the University of Maryland with its top tier computer science program.

    Finally, the ridiculous belief that Northern Virginia is some kind of terrible place that people are dying to leave needs to be put to sleep. Go to Seattle or Silicon Valley or Austin and tell me how you like the traffic in those places. Look at the housing costs in those places and tell me how unaffordable NoVa is. Hit the bars this Saturday night in Arlington or Old Town Alexandria and ask the millennials you meet how they like living here. Half the commenters on this blog live in a fantasy land where the endless carping of fifty-somethings living in the exurbs and commuting to the city to work means something. For a company like Amazon they mean nothing at all. Real technology companies could give a rat’s ass about packs of fifty-somethings that spend their lives whining about how tough their lives are.

    • I agree with DonR. Go to a bar in Old Town on Friday nights and see how many 20 & 30 somethings you bump into who are making six figures. They’re not harping about “getting out of NoVa.” That is probably the last thing you’d hear them talk about… It is amazing that so many on this blog have no clue about the 20 & 30 somethings in this state, yet feel compelled to write their narratives.

      It’s just like the higher ed posts…the blog and commenters, “These kids are drowning in debt and live horrible lives.” I know 2 kids who graduated in the past 5 years. One got an engineering degree from VPI. One got a Commerce degree from U.Va. Both are making $80K+ in their 20s. Obviously, only two data points, but I just wish they’d come on here and comment sometimes to stop this ridiculous echo chamber of 60+ year old white men writing the narrative for 20 and 30 somethings.

      • Obviously, the guys who graduate with engineering degrees are doing fine, regardless of debt. When I talk about the indebtedness issue, it’s kids who never complete their degrees, or who complete a degree that has little value in the labor market. I would wager there are two or three of those for every engineering or computer-science grad who’s knocking down $8 brewskis at a brew pub.

  9. One last point to Terry McAuliffe – why stop at Amazon? What other companies are growing? Google. Microsoft? Apple. Huawei. Oracle.

    Why wouldn’t they all want to diversify their corporate footprint?

    Why wait until they begin a competition for a second headquarters? Why not get out and start talking to them now?

    • You doing surveys in Georgetown bars is another image I don’t want to have in my head….No, I agree, somewhere on or inside the Beltway on the VA side ought to be a contender. The issue will be the goodies. I don’t know what Washington State does for Amazon, but I’ve seen what it does for Boeing.

      • I’ve been doing surveys in Georgetown bars since 1976 or so. The only difference now is that I can use my real drivers license to get in.

        Giving out goodies to get employers to move into your area is the price of myopic state government. Back in 1977 when I went to Charlottesville to get educated the University of Maryland was essentially a commuter school for DC’s Maryland suburbs. At least that was the perception. But the State of Maryland made a long running concerted effort to build up Maryland’s computer science credentials. It took decades but they did it. When my older sons were in high school representatives of the University of Maryland went to their high school looking for high potential students interested in computer science. Their message was clear, “If you’re a top student who loves technology and computers Maryland is the place you want to go. And … we have scholarship money to help make it all the easier for you to come to Maryland.” When I asked my sons if any Virginia colleges or universities came recruiting like that the answer was “no”.

        The enhanced reputation of UMD in CS allowed the university to start a successful technology start-up incubator adjacent to the campus. It also established their credentials as a university that could license the intellectual property developed on campus to technology ventures. In the 30 years that UMD’s Office of Technology Commercialization has been operation it has generated $30m in licensing and royalty fees. More interestingly, $20m of that $30m has been generated in the last 10 years.

        While Maryland focuses on organic capability development Virginia writes checks for goodies.

  10. Don – put on record – I could not disagree more. It will be interesting to see how this thing plays out.

  11. re: NoVa is not a terrible place…. and just as good as Seattle..

    fair enough…

    Here’s what Amazon says:

    ” Our Urban Campus
    Several years ago we outgrew our space and we made a conscious choice to invest in downtown Seattle—even though it would have been cheaper to move to the suburbs. We now employ more than 40,000 people in Seattle who come from all around the world. Our employees tell us that they love being in the heart of the city. In fact, about 15% live in the same zip code as their office and about 20% walk to work. And they frequent the restaurants, food trucks and shops that have popped up all around South Lake Union, the neighborhood in Seattle we call home.”

    Anyone who has ever been to Seattle… how about weighing in on an area in NoVa comparable … perhaps DJ is right…

    • You can’t really compare the city of Seattle to NoVa. You need to compare the city of Seattle to Arlington and Alexandria. The city of Seattle has about 700,000 residents over 84 sq mi of land. Arlington and Alexandria combined have about 360,000 residents over 41.5 sq mi.

      Virginia doesn’t have any real cities. We have counties pretending to be cities (like Virginia Beach), high density neighborhoods within undersized low density cities (The Fan in Richmond, as I understand it) and some undersized counties pretending to be cities (Arlington).

      If Alexandria annexed Arlington and some of the nearby high density areas of Fairfax County you’d get close to having a city. Similarly, if the high density areas of Richmond combined with the high density areas of Henrico County you could probably cobble together a real city.

      But, of course, the Imperial Clown Show in Richmond put a temporary halt to annexations in order to study the matter. That temporary halt has been in place something like 30 years.

  12. He is likely right. The most comparable area would be something like Alexandria. The tech clusters are becoming more urban, with San Francisco and smaller areas like “Silicon Beach” in Los Angeles being the trendsetters.

    I think he is also right that if Virginia pursues this, it needs to think toward a cluster, because that is the way tech moves. I think only NOVA has the base attributes for this in Virginia.

    It could be, though, that Amazon intend to keep the “creative” types in Seattle and move other operations elsewhere. The makeup of the jobs shifted would determine the location. Apple, for instance, has the new spaceship campus in Cupertino, but support is out of Austin.

  13. ” Jeff Bezos: Companies have short life spans Charlie [Rose]. And Amazon will be disrupted one day”

    from: ” Amazon’s Jeff Bezos looks to the future
    Amazon is the world’s largest online retailer, serving 225M customers. What’s next for the company that prides itself on disrupting tradition?”

    https://www.cbsnews.com/news/amazons-jeff-bezos-looks-to-the-future/

  14. The Charlie Rose interview is fascinating. Not least because it was done in the year 2013, the Stone Age insofar as concerns Amazon’s explosive growth, particularly as to logistics, warehousing, and distribution.

    This interview leads to many ideas, one of which might be:

    The building of an AIR CARGO TRANSPORT CENTERED AIRPORT in the Roanoke to Lynchburg Area of Virginia. The new air transport facility would be tied into the fabulous north-south Interstate Road Network already in place. This airport would spark the rapid emergence on Virginia’s INLAND EMPIRE up the Shenandoah and down into Carolina’s to Florida, and vice versa.

    One key advantage here would be the double hitter of diluting present and future Gridlock that is strangling Northern Virginia that now is in its death throes.

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