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18 June 2019

“The Hunger Games for cities” – inside the Amazon HQ2 bid process

How America prostrated itself before one of America’s largest corporations – and how New York took a stand.

By Nicky Woolf

When Amazon announced with fanfare that it was opening its search for a second headquarters, bringing with it the promise of 45,000 new jobs, it launched what became known as “the Hunger Games for cities”. As American towns genuflected en masse before one of the biggest corporations in US history, it begged one burning question. Just how much sacrifice was it right to offer up on behalf of the taxpayer in service of that most holy of political deities: jobs?

The Hunger Games comparison would prove more apt than anyone realised. As the sheer scale and depth of the offerings America’s municipalities made to try to entice the e-commerce behemoth became clear, a backlash began to stir. But at the beginning, nobody would have thought that this story’s rebellious District 12 would turn out to be New York City.

And nobody could have predicted that the story’s answer to Katniss Everdeen, the rebel who overturns the system in The Hunger Games – known as the Mockingjay – would be a pair of New York state legislators named Ron and Michael.

Golden ticket

By the summer of 2017, Amazon’s incredible growth had made Seattle “America’s biggest company town,” according to a lead article in the Seattle Times. The piece’s authors, business reporters Mike Rosenberg and Ángel González, wrote that, “While Seattle’s booming economy is often attributed to a wide variety of factors, increasingly, it’s all about one company. “Amazon now occupies a mind-boggling 19 per cent of all prime office space in the city, the most for any employer in a major US city. Amazon’s rapid rise has fuelled an economy that has driven up wages and lowered unemployment.”

But the picture was not entirely rosy. Seattle had been in a state of emergency since 2015 over the city’s expanding homelessness crisis – which by 2017 showed no signs of abating. Amazon’s presence, Rosenberg and González noted, had “produced gridlock on the roads and sky-high housing prices.”

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Having just purchased the upscale grocery chain Whole Foods for $13.7bn, Amazon – which had just reached a landmark valuation of $750bn (it would later become America’s second trillion-dollar company after Apple) – fired the starting-gun for a huge nationwide sprint to win its affections by announcing it was opening up a bid process for the location for its second headquarters.

The company said this new development would be the “full equal” to its Seattle HQ: 8 million square feet of office space and the promise of the eventual creation of 50,000 new jobs in whichever lucky city won out. It was one of the biggest development prizes in living memory – the municipal equivalent of Willy Wonka’s golden ticket.

As it played out, the HQ2 bid process would go on to raise a lot of uncomfortable questions – about the relationship between America’s citizens and its biggest corporations, the behaviour of gargantuan tech-era monopolies, and the ability of huge companies to force cities to compete against each other for the promise of jobs and development. These questions encapsulated a defining moment in modern America.

Amazon City

As the word spread and the 19 October 2017 deadline to file applications approached, cities across the country started to get the Amazon bug. Giant Amazon delivery boxes were installed in Birmingham, Alabama, to drum up buzz for its bid. The mayor of Kansas City, Missouri, personally bought 1,000 items on Amazon, giving each a 5-star review which said things like: “I live in beautiful Kansas City where the average home price is just $122k, so I know luxe living doesn’t have to cost a ton. That’s why at $14.99, these wind chimes are music to my ears.”

A group representing Tucson, Arizona delivered a 21-foot cactus by truck to Amazon’s Seattle office. The city council of Stonecrest, Georgia, voted simply to hand over 345 acres of land for the tech giant to build its own municipality, a new town which would be called Amazon City. The night before the filing deadline, New York Mayor Bill de Blasio lit every light he could, from the rooftops of One World Trade and the Empire State Building to all of the city’s wifi hotspots, in Amazon’s signature shade of orange.

Not all of the 238 bids Amazon received have been made public, and some may never be fully revealed. But some dogged reporting, especially at local and municipal newspapers across the country, meant that, soon after the deadline had passed, enough had come to light that people could start to see that the offers weren’t all as light-hearted as Tucson’s cactus or Birmingham’s giant boxes.

Take Chicago’s bid. Among other tax breaks totalling more than $2bn, Chicago mayor and former Obama chief of staff Rahm Emanuel was offering to let Amazon take back and pocket as much as 50 per cent of the total income tax its employees paid, in a scheme called Economic Development for a Growing Economy (EDGE) credits. It was quickly re-dubbed “paying taxes to the boss”. (A spokesperson for Emanuel defended the offer, saying: “For every dollar from a new job that Amazon creates, the State gets a dollar. So if Amazon creates enough jobs to get $1.32bn in incentives, the State gets $1.32bn in new taxes to pay for schools. If Amazon doesn’t come, the state gets zero.”)

Boston and San Francisco both offered to devote teams of full-time city workers, paid for by the taxpayer, whose sole job would be to directly serve Amazon’s wishes on matters like fast-tracking the processing of zoning permits. Atlanta offered Amazon its own dedicated train car on its subway system, and an exclusive lounge for its employees at Hartsfield-Jackson International Airport. At least three other bids, of the ones we now know about, offered tax breaks or incentives worth more than $7bn.

Some places went further still. In a bid the Fresno Bee described as “the economic equivalent of a Hail Mary” – and the Guardian described as “insidious” – officials said that in the event HQ2 was granted to Fresno, in California’s Central Valley, 85 per cent of all city taxes would get put into a “community fund” to be jointly controlled by the city and the company. Extraordinarily, the proposed agreement would lock Fresno into being jointly run by Amazon for 100 years.

This wasn’t just offering Bezos a key to the city – it was offering to hand over its jewellery, wallet, and PIN number as well.

Thanks, but no thanks

By January 18, 2018, when Amazon announced the 20 finalists for the bid, a backlash was starting to build against the extraordinary contortions America’s local governments had twisted into in order to tempt Amazon to come to town.

In New Jersey, the day after the finalists were announced, governor Phil Murphy signed an executive order mandating an audit of the Economic Development Authority (EDA), the agency responsible for the state’s ballooning tax incentive programs. This audit included an extraordinary $7bn in total tax breaks for HQ2 in its Newark bid, which had just been announced to have made it into the final 20 the previous day. When it reported its findings a year later, the Office of the State Comptroller said it found that the EDA “lacks sufficiently detailed data to confirm whether jobs were actually created or retained and has led to overstated and overpaid incentive awards”.

Murphy did not suggest changing the details of the Amazon bid, which he still considered a positive opportunity. But others were beginning to sour. In February, James Eldridge, a Massachusetts state legislator whose district just outside Boston was 30 miles from the proposed development site, told Bloomberg that “greater Boston is better off without Amazon.”

Rich Madaleno, a state senator who was running for governor of Maryland at the time, said that the $5bn his state had earmarked to woo HQ2 could be better spent on education. (In fact, the total Maryland offered would later turn out to have been a truly astonishing $8.5bn – still behind what seems to have been the largest bid, Pittsburgh, which reportedly offered a jaw-dropping $9.7bn in incentives and land.)

Though Amazon had not specified a favoured region, the finalists were skewed towards the north-east. Denver and LA were the only two cities west of Texas to make it onto the shortlist. Fresno didn’t make the cut; nor did San Francisco. Some figured the fix was in. “It all comes down to two locations: it’s either the metro area of New York or DC,” Scott Galloway, a professor at New York University’s business school, said in February. He had previously correctly predicted Amazon’s purchase of Whole Foods, and was to be proved right again.

Others were starting to find the secrecy a bit much. In some cases, according to a report by the New York Times, even some elected city officials were finding themselves blocked from seeing the details of the bids their own municipalities had made. An Indianapolis city-county council member, Jared Evans, said he had been told “absolutely nothing” about the bid that had won his city a spot in the final 20. In many cases, including Indianapolis, as well as Austin, Miami, and Atlanta, the bids had been filed by private economic development groups or chambers of commerce, and so weren’t subject to Freedom of Information Act requests.

It didn’t make much difference, though. On 4 September 2018, with the final decision-day approaching, Amazon became valued at more than a trillion dollars. Two months later, on 5 November, the news leaked that Amazon had made its decision. It planned to split its second headquarters in two: one would be located in Crystal City, across the Potomac river from Washington DC in northern Virginia, and the other would be in Long Island City, Queens. All in all, Amazon would pick up close to $3bn in tax breaks between the two cities.

Not everyone was happy with the outcome.

“Feudalism of the Lord of Amazon”

It wasn’t just the question of exactly how these second and third corporate offices could even be called “headquarters,” and it wasn’t just that the eventual winners had been the heavy favourites all along – it was the whole look of the thing that stuck in the craw. Details like the offices featuring a helipad – as Slate put it: “because of course it will” – and house prices in Long Island City surging upwards after the announcement helped stoke the flames of local opposition.

“Knowing that, ‘hey, we’re giving $3bn of your taxpayer money to the richest man on Earth,’ [constituents I speak to] overwhelmingly don’t approve of that,” Ron Kim, a state senator whose district is in Queens, told me.

font-family:"Arial",sans-serif;color:#333333″>Deputy majority leader of the New York State Senate Michael Gianaris, and Jimmy Van Bramer, a city councilman, both of whom represent the neighbourhood where Amazon’s new headquarters was to be built, refused an invitation to join a local advisory committee for the project. In a statement, they said that “we oppose the deal to bring Amazon to Long Island City and continue to fight against it. We will not participate in the Community Advisory Council, whose purpose is to give local validation to a project we are working to stop in its tracks.”

font-family:"Arial",sans-serif;color:#333333″>The other winning half of the bid, from the Washington, DC, area, was more secretive: it emerged that Virginia had signed a legal agreement to give Amazon written warning of any Freedom of Information Requests “to allow the Company to seek a protective order or other appropriate remedy”. Much of what we have seen of Virginia’s offer to Amazon is heavily redacted.

font-family:"Arial",sans-serif;color:#333333″>Alexandria Ocasio-Cortez, a rising star on the Democratic left – who just a week earlier had won her midterm election to become one of the two youngest women ever to serve in the House of Representatives – said on Twitter that “the idea that [Amazon] will receive hundreds of millions of dollars in tax breaks at a time when our subway is crumbling and our communities need MORE investment, not less, is extremely concerning to residents here.”

font-family:"Arial",sans-serif;color:#333333″>New York, Kim told me, has a history of pursuing antitrust and anti-monopoly policies. “But for the last four decades, by design, we’ve stripped away our ability to go after these companies,” he said. “Even the rules that we have on the books, we refuse to enforce them, because we somehow exist in this mindset that these mega-corporations are best fit to manage our money, and they are productive and efficient.”

font-family:"Arial",sans-serif;color:#333333″>“It is no longer, in my opinion, capitalism,” he continued. “We’re living under feudalism of the Lord of Amazon. Because what Amazon has created, unlike previous super-monopolies, is that they are not only controlling the market – they have become the market, you know? Everyone else is just scrambling for scraps.”

font-family:"Arial",sans-serif;color:#333333″>“You can’t really blame Jeff Bezos or any one person. They’re in a designed system that allows this to happen,” Kim said. “Fortunately, because we designed it, we can go back and make it better for everyone.”

It was not just the progressive left that was outraged by the HQ2 process. Fox News’s Tucker Carlson even said: “I hate to admit it, but Alexandria Ocasio-Cortez has a very good point” about HQ2. Even on its own, this would make for an arresting dovetail of interests – but the Amazon bid was making for some strange bedfellows.

font-family:"Arial",sans-serif;color:#333333″>With phrasing that echoed the objections of the progressive Democrats, officials representing Americans for Prosperity, a super-Political Action Committee, and the Freedom Partners Chamber of Commerce – both groups backed by the hard-right billionaire Koch brothers – said in a joint statement that “Americans are fed up with wasteful corporate welfare, yet cities and states are breaking the taxpayer bank to give carve-outs to huge corporations.

font-family:"Arial",sans-serif;color:#333333″>“We need a level playing field where businesses can succeed by creating value for others – not a group of politicians cobbling together massive subsidy packages that almost never deliver the jobs they promise,” the statement continued.

font-family:"Arial",sans-serif;color:#333333″>New York’s bid united two other historical foes – governor Andrew Cuomo and mayor Bill de Blasio. The two had often been at loggerheads over the budget – as governor of New York, Cuomo controls the purse strings for much of New York City, including the much-maligned and desperately underfunded Metropolitan Transportation Authority, which runs the subway. The Times has called their relationship “one of America’s ugliest political feuds,” describing it as “so nasty, petty and prolonged that even in the cutthroat politics of New York, few can remember ever seeing anything quite like it.”

font-family:"Arial",sans-serif;color:#333333″>But the pair was simpatico on HQ2. “De Blasio and Cuomo have had a, shall we say, publicly awkward relationship,” Steven Strauss, a professor at Princeton focusing on urban development who served as managing director of the New York City Economic Development Corporation under mayor Michael Bloomberg, told me in December. “I do think it’s quite a pleasant surprise that they were able to work together on this, I think they both deserve kudos for that.”

font-family:"Arial",sans-serif;color:#333333″>Strauss was sanguine about the outlay New York made, though, telling me that, from the point of view of New York City overall, it seemed “like a pretty good win”. He added that most of the tax breaks being offered were set to come from the state, not the city’s coffers – and though of course New York City residents pay New York State taxes too, this seemed like good news to Strauss, especially as the bulk of the tax breaks in both New York and Virginia were contingent on Amazon actually creating the jobs it promised.

font-family:"Arial",sans-serif;color:#333333″>Amazon didn’t just gain an enviable deal for its new headquarters, though: some experts suggest it had also gained an incredible amount of corporate intelligence through the process. “Amazon, which is a growing corporation, has now accumulated a massive database of what people were willing to offer to get a particular project,” Strauss said. In the future, as it expands, “Amazon may be in a position to come back around and go, ‘well it’s not a HQ, but it’s going to be this resource centre and the jobs have similar characteristics to the corporate centre – can we get some of the package you were willing to do for the HQ?’”

font-family:"Arial",sans-serif;color:#333333″>That database may have already proved useful. Despite not winning the HQ2 bid, Nashville – one of the 20 finalists – seems to have impressed Amazon to the extent that it announced it would be building a new operations centre there, which the company said would create 5,000 jobs.

font-family:"Arial",sans-serif;color:#333333″>However, Strauss told me “there’s a bigger point in all of this which is: should states be competing [against each other] on tax breaks? Is this really a useful form of competition?”

font-family:"Arial",sans-serif;color:#333333″>“It may be individually rational – and again, I happen to think it’s individually rational for New York City,” he continued. “[But] that doesn’t mean it’s good policy nationally. That doesn’t mean it’s good policy to the state.”

font-family:"Arial",sans-serif;color:#333333″>“But the rules are the rules,” he added, “and if you’re Mayor de Blasio you’d have probably been crazy to have said no to this.”

In New York, however, Amazon was coming under increasing pressure as local opposition grew. The day Amazon announced its new locations, Ron Kim introduced a bill called the New Yorkers Financial Freedom Act, which would take back the subsidies offered. “What it would do,” he told me, “is divert the corporate incentive and subsidy money … and conduct a five-year phase-out of all those corporate welfare funds to focus on investing directly into the people of New York – specifically, the writing-down of student debt, which is out of control.”

In a city council hearing in January, Brian Huseman, a vice-president at the company, got a grilling when he said Amazon would oppose any effort by its employees there to unionise. Asked about Huseman’s comments at a press conference that day, Mayor de Blasio said: “Welcome to New York City; this is a union town. There’s gonna be tremendous pressure on Amazon to allow unionisation, and I will be one of the people bringing that pressure.”

From early on in the process, city-level opposition to the deal had been stymied. By making the deal at state level, de Blasio and Cuomo had, in effect, done an end-run around the city government. But in February 2019, Amazon faced its first real roadblock: the nomination of Michael Gianaris, one of the city politicians who had spoken out against the deal from its announcement, by the majority leader of the State Senate (control of which the Democratic Party had wrested from Republicans the previous November) to the Public Authorities Control Board (PACB).

Unlike the Community Advisory Council – which Gianaris, along with Van Bramer, had refused to join back in November – the PACB had real teeth. If the issue was brought before it, the PACB could even have power of approval over the final deal – and, as the board has only three voting members, any one of them, Gianaris included, had the potential power to block a project.

Whether or not they would actually get the chance to do so, however, was unclear. The board’s chair is a gubernatorial appointment; the position is currently held by Robert Mujica, who was picked by Cuomo, and who said the capital grant for HQ2 did not need approval by his committee. Theoretically, Cuomo could also block Gianaris’ appointment (though in the end, perhaps fearing a clash with the new State Senate majority, he declined to do so). The battle-lines were drawn.

But then, abruptly, on 14 February, it was all over. Amazon pulled out of the New York part of the deal.

Re-thinking “corporate welfare”

Ron Kim was elated. “This is a huge victory for the grassroots activists and community leaders who spoke out with one collective voice to say no to Amazon,” he texted me after the news came out, adding that he felt “empowered and hopeful that our democracy can still work”.

Adding to the general sense that Amazon was behaving pretty huffily, neither de Blasio nor Cuomo were informed the company was pulling out until minutes before the statement was posted, the Times reported. The two men reacted very differently. Cuomo was – and remains – outraged: in a radio interview in February 2019 he called losing the Amazon deal the “greatest tragedy” of his political career.

De Blasio, however, neatly pivoted. “You have to be tough to make it in New York City,” he tweeted in response to the news that the deal was off. “We gave Amazon the opportunity to be a good neighbor and do business in the greatest city in the world. Instead of working with the community, Amazon threw away that opportunity.”

The way Amazon pulled out “shows why they would have been a bad partner for New York in any event,” Gianaris – whom New York magazine would later call “the Amazon Slayer” – said. “Rather than seriously engage with the community they proposed to profoundly change, Amazon continued its effort to shakedown governments to get its way.”

He said it was “time for a national dialogue about the perils of these types of corporate subsidies”. The HQ2 debacle is just the tip of the iceberg. American states and municipalities offer companies between $45 and $80bn in what critics call “corporate welfare” every year, in deals which often turn out to be bad for the taxpayer.

In New Jersey, the audit started by Governor Murphy the day after the finalists had been announced released its findings in January 2019. They paint a grim picture. The office of the state comptroller found the state’s $11bn in tax incentives had been offered without any real oversight into whether the companies were making good on their promises – and many weren’t. One unnamed company, the report found, received $29m in tax breaks while actually reducing its employment headcount.

Change to this deeply ingrained system will come slowly, if it comes at all. Several experts told me that, despite the Amazon backlash, they remain pessimistic about the likelihood of a change in America’s approach to luring corporations with tax breaks. The incentives for political pandering remain as strong as ever. Politicians can still find an easy win by sacrificing taxpayers’ money on the altar of jobs, jobs, jobs.

Still, New York’s repudiation of HQ2 was a landmark moment. Because of the preposterous scale of the competition it triggered, Amazon set off a much-needed national conversation about corporate welfare in America – and got burned in the process.

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