• Amazon Closes in on its Final Selection for Hq2
  • April 13, 2018 | Authors: David M. Kall; David D. Ebersole; Honor D. Banvard
  • Law Firms: McDonald Hopkins LLC - Cleveland Office; McDonald Hopkins LLC - Columbus Office
  • More than once last fall, we addressed Amazon’s search for its second headquarters, known as HQ2. For example, in an October piece, we noted that a number of states and cities were throwing themselves at Amazon’s feet, offering many tax subsidies and other benefits in return for being named the chosen one. Detroit, Cleveland, Chicago, and the state of New Jersey, were among the competitors.

    Amazon’s request for proposal, launched on Sept. 7, 2017, stated a preference for:
    • • Metropolitan areas with more than one million people
    • • A stable and business-friendly environment
    • • Urban or suburban locations with the potential to attract and retain strong technical talent
    • • Communities that think big and creatively when considering locations and real estate options
    In a November 2017 post, we pointed out that the controversial nature of massive corporate subsidies remains alive and well. We described research at institutions like Pew Charitable Trusts, Good Jobs First, W.E. Upjohn Institute for Employment Research in Kalamazoo, Michigan, and the Arkansas Center for Research in Economics, all of which suggest that jurisdictions’ financial prostrations could well not produce the promised results.
    Nevertheless, the battle to lure Amazon’s HQ2 continues. On Jan. 18, 2018, the retailing behemoth announcedits short list of 20 cities, narrowed from 238 proposals within the United States, Canada and Mexico, as follows:
    1. Atlanta, GA
    2. Austin, TX
    3. Boston, MA
    4. Chicago, IL
    5. Columbus, OH
    6. Dallas, TX
    7. Denver, CO
    8. Indianapolis, IN
    9. Los Angeles, CA
    10. Miami, FL
    11. Montgomery County, MD
    12. Nashville, TN
    13. Newark, NJ
    14. New York City, NY
    15. Northern Virginia, VA
    16. Philadelphia, PA
    17. Pittsburgh, PA
    18. Raleigh, NC
    19. Toronto, ON
    20. Washington D.C.
    In its short list announcement, Amazon re-emphasized that it “plans to invest over $5 billion and grow this second headquarters to accommodate as many as 50,000 high-paying jobs. In addition to Amazon’s direct hiring and investment, construction and ongoing operation of Amazon HQ2 is expected to create tens of thousands of additional jobs and tens of billions of dollars in additional investment in the surrounding community.”
    Forbes reported that Georgia’s initial incentive package exceeded $1 billion, Illinois’ tax breaks reached $2 billion, and Newark’s topped out at $7 billion, $2 billion more than what Amazon projects the deal to be worth. Boston offered to build a $100 million gondola system, and Miami is thought to have an edge because it is the hometown of founder Jeff Bezos.
    Amazon’s next steps are to continue “to dive deeper into [these] proposals, request additional information, and evaluate the feasibility of a future partnership that can accommodate the company’s hiring plans as well as benefit its employees and the local community.” It expects to make a decision this year. Currently, the company employs more than 540,000 workers worldwide, ranks No. 1 on Fast Company’s Most Innovative Companies, No. 2 in Fortune’s World Most Admired Companies, No. 1 on The Harris Poll’s Corporate Reputation survey, and No. 2 on LinkedIn’s U.S. most desirable companies list.
    OTHER MEGADEALS: WISCONSIN AND FOXCONN
    In our November post, we mentioned that Wisconsin’s deal with Foxconn, the flat screen maker, sat at No. 3 on Good Jobs First’s list of the largest U.S. megadeals, at $4 billion. A late December CNN Money piece opined that “Foxconn got a really good deal from Wisconsin. And it's getting better.”
    Three-quarters of that $4 billion are tax incentives, and “associated sweeteners,” like local government incentives and various infrastructure projects, such as roads and highways, sewer and power lines, account for the rest.
    Aside from fiscal considerations, another public concern is that Wisconsin officials have allowed Foxconn to “skip state environmental rules and oversight it would otherwise have had to follow,” reported CNN Money. And now, a March 13, 2018 article in the Journal Sentinal made it known that state officials have asked the U.S. Environmental Protection Agency (EPA) to relax federal regulations on factories and other large sources of air pollution, on the grounds that “meteorological and air emissions data show that Illinois and Indiana are primarily responsible for pollution that blows north along the lake and creates smog.” Observers are awaiting an EPA decision pertaining to possible ozone standard violations in nine Wisconsin counties, which could impact Foxconn’s costs.
    Other worries are creeping in as well. Wisconsin has a low unemployment rate, 3.2 percent, so Foxconn may have trouble finding 13,000 employees for the promised jobs. CNN Money quoted the CEO of the Fox Valley Workforce Development Board, who bemoaned what, in other circumstances, would be a good problem: “[w]hat I'm hearing from my employers is they can't fill the jobs they have available now. I've heard companies not able to add another shift, not being able to take on orders because they can't fill them. Foxconn doesn't worry me today, but it'll worry me two or three years from now. It's another competitor for the labor we don't have here."
    Even if those jobs were to be filled, CNN Money asserted that “it's mostly the overall deal's rising price tag that has made it so controversial. It is poised to become a major issue in the 2018 governor's race in which Walker is seeking a third term.”

    NEVADA

    The Silver State merited mention in our November post also, for the fact that the deal it struck with Faraday Future, the electric vehicle maker, was not going to proceed after all. In December 2015, Gov. Brian Sandoval signed a tax incentive package enticing the California-based business to launch a $1 billion, 3 million square foot state of the art production facility in Las Vegas. We described this in detail at the time. But by last November, Faraday had backed out. A March 12, 2018 article in electrek disclosed that the persistent company is still hoping to bring its first car to market in 2018, but instead of in Nevada, in an “old tarp manufacturing facility in a farm town between Los Angeles and San Francisco.”
    Tesla, Elon Musk’s company, and a Faraday Future competitor, has a better relationship with Nevada. Good Jobs First’s subsidy tracker shows that in 2014, the state gave Tesla a $1.3 billion subsidy for its electric car battery factory. The deal anticipated 6,500 jobs with an average wage of $25 per hour and full benefits.
    Tesla, in a joint venture with Panasonic Electronics North America, received additional benefits from Nevada last fiscal year. A Dec. 21, 2017 Las Vegas Review-Journal piece valued this at $151 million, consisting of $115 million in tax abatements, and transferable tax credits of about $37 million. As of Oct. 1, 2017, the firms reported that there were 1,335 Nevada residents working at their plant, 896 for Tesla and 439 for Panasonic. From 2014 through June 30, 2017, the venture had recorded a combined capital investment of $2.6 billion. They expect the 6,500 workers to be in place by 2020.