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Why Don’t the 20 Cities on Amazon's HQ2 Shortlist Collectively Bargain?

179 points by rohanshah 9y ago

nordsieck 9y ago
Seems like a pretty dumb idea. Amazon is limiting its self to those 20 cities. It can always back out and choose another if it wants.
- optimuspaul 9y ago
  I tend to agree that this is a dumb idea... but think about this. There are a few clusters on the east coast, the clusters could work together to push amazon to one of the other cities in exchange for deals that help the others out. If I'm being totally honest though I don't think there is much advantage to any of the cities to give Amazon incentives to picking them. I also think that Amazon has already decided.
  - strebler 9y ago
    That's definitely possible they've already more or less decided. Either way, they're pulling off an impressive optimization to obtain maximum taxpayer funded subsidies.
- ABCLAW 9y ago
  Nothing better than torpedoing your own RFP to get people chomping at the bit to give you more free stuff.
OrBaruk 9y ago
Because city number 21 will race to the bottom and win the bid.
- virmundi 9y ago
  Is this a race to the bottom? 19 cities won’t get any tax revenue by definition. The one that gets the building will probably wave taxes so it’s getting the same amount of direct tax revenue as it was before namely 0. So the city does get sales tax revenue from the new jobs due to new spending. It might get income tax that it didn’t get before. Where is the bottom?
  - sjm-lbm 9y ago
    If a city waves taxes for Amazon, they'll still have increased costs - say, increased road maintenance around HQ2 as those roads get used much more. Those costs still need to be paid for, and the burden will then move to smaller companies with less clout to negotiate a special deal. Trying to get an ever-increasing amount of money out of people and organizations with less ability to pay that amount of money seems bottomish for me.
    - JumpCrisscross 9y ago
      They also have the opportunity to collect payroll, income, property and sales taxes in respect of the employees; seed a technology district; and collect taxes down the road. It wouldn't make sense for San Francisco to do this. But it can make sense for a Tier 2 city to pay Amazon for densification over sinking a similar cost into the riskier proposition of renovating a downtown plaza or whatever.
  - OrBaruk 9y ago
    Was paraphrasing the article that mentions the race to the bottom, but I believe that there is a net positive on the city that receives the HQ2 and that's why they are competing with each other.
    - virmundi 9y ago
      I wasn't trying to pick on you. I've seen this kind of argument elsewhere and thought this would be a good place to start a dialogue.
  - thesumofall 9y ago
    It’s a race to the bottom because it goes beyond tax revenues to include free land (that could be sold to someone else), infrastructure investments (that are likely not needed otherwise), etc.
kodablah 9y ago
Because the non-collusive city will come out ahead in this prisoner dilemma.
- bryanlarsen 9y ago
  This isn't a prisoner's dilemma, the cities are allowed to talk to each other, and to gang up to punish those who break ranks.
  - dnautics 9y ago
    Punish how?
  - guyzero 9y ago
    What possible penalty could one city impose on another?
    - tzahola 9y ago
      Revival of medieval city-state wars!
    - matte_black 9y ago
      Imagine a future where cities go to war with each other to win the favor of massive corporations.
      - internetman55 9y ago
        Its lit!
      - rlanday 9y ago
        More relevant to the topic under discussion would be a future where cities go to war to keep each other from winning the favor of massive corporations.
    - bryanlarsen 9y ago
      Any sort of collusion agreement can have a penalty clause, so presumably punitive damages. And damages to reputation are also possible.
root_axis 9y ago
Because the cities are rivals in a competition for Amazon's HQ, not colleagues who all stand to benefit from a collective bargain. In this case, there will be one winner so the incentive to cooperate is greatly diminished.
- thesumofall 9y ago
  But the chosen city would win even more if they were to cooperate. Sure, the cooperation would quickly break down but that is why the federal government should decide on such benefits (basically to ensure companies stay within the country, if that is deemed beneficial) rather than local government. It’s for me mindbaffling how anyone believes HQ2 would bring back billions of USD - even if you include secondary and tertiary effects
  - deleted 9y ago
    [deleted]
  - cortesoft 9y ago
    Right, but there is always going to be the incentive to defect; if 19 of the cities agree to cooperate, the 20th can just offer slightly more and win the contract.
  - Brockenstein 9y ago
    >But the chosen city would win even more if they were to cooperate. Right and the 19 losers are cooperating why again? >Sure, the cooperation would quickly break down Good job undercutting and highlighting the faults in your own argument. If you can figure it out in two sentences I think there's probably a few people directly involved who this is obvious to. So since cooperation isn't viable in your own estimation, might as well try to win. >but that is why the federal government should decide on such benefits Unfortunately that proposition doesn't appeal to everyone, so good luck there.
- typomatic 9y ago
  It's almost like you don't know anything about non-zero-sum games.
thebiglebrewski 9y ago
Just want to add the opinion to the comments section that I think it's completely ridiculous that Amazon gets incentives from cities to go there, as if they need the money. This is monopolistic behavior to the detriment of cities, citizens, and smaller firms.
- LostInTheWoods2 9y ago
  There is nothing wrong with Amazon getting an incentive. The question is are these cities doing their math and offering incentives that are both competitive and reasonable, that won't leave their citizens out to hang.
- berbec 9y ago
  Tell that to major sports teams. Want to see real hostage taking? See what happens when a team wants a new stadium.
  - perkee 9y ago
    There is a fantastic pair of episodes of Citations Needed on exactly this topic. They cover the Olympics, HQ2, and sports stadiums. And you're right: city after city gives the whole farm away for these big ticket things that never really pay out, and cities can't deficit spend the way a country can to eat the loss. CN 19 https://www.stitcher.com/podcast/citations-needed/e/52555894 https://www.stitcher.com/podcast/citations-needed/e/52555894 CN 20 https://www.stitcher.com/podcast/citations-needed/e/52636015 https://www.stitcher.com/podcast/citations-needed/e/52636015
- pythonaut_16 9y ago
  Honestly I think Amazon is as or more interested in the cities' overall plans than just tax incentives being offered. There's a lot of logistics to build a campus as large as they're planning with as many employees as they're planning. I think they're also very interested in zoning and regulatory hurdles. They're probably looking for a city that won't bog the project down in zoning permits, etc. Kinda like how Google Fiber was killed by regulation rather than capital or technical concerns. The tax incentives play into the overall cost to Amazon for their location, but so does the rest of the plan.
LonelyStapler 9y ago
Each city could select a champion and hold a tournament for victory and glory!
kevin_b_er 9y ago
Because it is a race to the bottom. Who can sacrifice the most tax dollars NOW for a hope at more down the line? This reminds me of how NFL operates at extracting huge concessions and expenses from cities for the privilege of having their team stay in town.
- grasshopperpurp 9y ago
  That's what I thought of, as well. It's always a terrible deal for the city.
alkonaut 9y ago
Here's an idea: don't let states make targeted tax breaks to race to the bottom. That seems to work in the EU. Apple paid 1% in Ireland and simply had to pay up the difference to the normal tax rate.
- doggydogs94 9y ago
  Don’t let ... The only one that can do that is the US Supreme Court.
  - alkonaut 9y ago
    Somehow it always ends up there, like that's a "legal no go". I.e. "that would have to go through the supreme court" or "that's the constitution". I realize it's hard to change some things (like how is Gerrymandering for political views allowed?) but is it that hard that it's meaningless to attempt? Doesn't that mean (in the case of the Gerrymandering example) that US democracy is fundamentally broken AND can't be repaired?
    - walshemj 9y ago
      Passing an amendment to the constitution is very hard.
  - dragonwriter 9y ago
    Congress could do it just by imposing a 100% tax on income attributable to an agreement providing an abatement of generally-applicable state or local taxes.
zaroth 9y ago
I completely disagree with the “race to the bottom” framing of the idea that cities shouldn’t compete to provide the best services for the commercial enterprises which reside there. At the 50-75 year timeframe we are talking about at least hundreds of billions of dollars of economic value, if not trillions. The clustering effect of becoming Silicon Valley 2 cannot be overstated. My personal opinion is cities should be talking about the Billions they will be committing to supporting infrastructure improvements rather than the billions in tax cuts. HQ2 needs a fuck ton of support systems, akin to building an Olympic City which never shuts down. Of course city governments should be working hard to bring this kind of value creation and massive economic engine to their constituents. Of course Amazon should be asking tough questions of cities akin to “and what are you going to do to support me” before spending $5 billion building a new campus. Personally I think the cities that only have tax incentives to offer will not come out the winner. Amazon cares a lot more about the surrounding infrastructure and ecosystem than a short term $1 Billion. It’s completely irrational anti-capitalistic knee jerking to whine that cities shouldn’t be working hard to support HQ2 in their backyard. We are watching capitalism at its finest here folks - and market efficiency driving negotiation and competition is creating significantly better outcomes than the “fuck Amazon they don’t need handouts” crowd would arrive at. If someone came to your town and said, I want to build a $20m community arts center with a theater, coworking space, parks, gardens, and playground — would you want your town to say “good luck with that” or would you want them to say “that’s amazing what do you need from us to make that happen?!” Just because Amazon happens to be for-profit, their presence in your city is an extraordinary asset and it makes perfect sense to entice them to come. In fact, you can’t even consider building at anywhere near HQ2 scale without an intimate partnership with the host city which is, in one form or another, going to require somewhere on the order of dollar-for-dollar public investment to match the private investment. We’ve proven that this public/private partnership is basically the most effective growth engine we’ve got. I certainly hope my city would do everything possible to roll out the red carpet. It’s the most effective dollars they could possibly spend, because it’s effectively corporate matching of public funds.
- joeax 9y ago
  > At the 50-75 year timeframe we are talking about at least hundreds of billions of dollars of economic value, if not trillions. The clustering effect of becoming Silicon Valley 2 cannot be overstated. Back in 2004 when I was working at Microsoft, I remember sitting in a bar in downtown Redmond and tossing back some local brew IPAs. This guy sitting next to me was an older dude and longtime fisherman. He was going on and on about how in the 80's, the eastside (the collective suburbs i.e. Redmond, Bellevue, etc) was just farmland, and that Seattle's main industries were fishing and logging. He was both lamenting and boasting how Microsoft came in and transformed Seattle and surrounding area into the tech mecca it is today. So you are right. All it takes is one anchor company to totally transform an entire city. Too bad they chose cities with established infrastructures and talent pools, and not a city like Milwaukee or San Antonio that would have had the same dramatic transformation as 80's Seattle.
40acres 9y ago
I don't understand people who are conflating the search for HQ2 with Olympic bids and sports stadium bids. The Olympics are most likely a one time thing for a month, although in the future I could forsee it revolving around qualified sites, it takes a lot to convert facilities used for the Olympics into regular infrastucture (see Atlanta and LA). Stadiums I think overall have a better impact, as they can create or revitalize an economic area, provide longer terms jobs, and sports teams provide back to their communities. Amazon is on a completely different level. They will bring thousands of skilled workers, and generate trillions in economic activity. HQ2 will stand for a long time, it can completely change the trajectory of a city. There are many many issues with bringing Amazon to your city, home prices and infrastructure to name a few -- but isn't this a problem you'd rather have than not?
- tbirrell 9y ago
  As someone who will probably never work at Amazon, or in any way benefit from their presence, the issues of housing prices and infrastructure are important to me. I'm not willing to pay an effective Amazon-tax in both my rent and commute time for for the dubious honor of saying I live in the same city as HQ2.
  - TheCowboy 9y ago
    I'm not a fan of cities dishing out perks, but what you said amounts to NIMBYism. I'm sympathetic to those concerns but housing prices aren't solved by keeping out newcomers or being against development. There can also be an indirect income boost that comes with an increased demand for labor, and it can help make the local economy more robust. I do think the concern about unforeseen infrastructure costs are warranted, especially if a city doesn't excel in urban planning or has problems with NIMBYism derailing good plans. But I think most of the cities on the shortlist are fair game and could handle a project of this scale.
    - dragonwriter 9y ago
      > housing prices aren't solved by keeping out newcomers or being against development. Housing prices aren't solved by forcing homeowners to subsidize commercial development, either. Ml
squozzer 9y ago
If the benefits would split 20 ways, collective bargaining might work. But it doesn't seem that they would, especially given the geographical dispersion of the finalists. Regions (such as US Northeast, or Nashville - Atlanta - Raleigh) might be able to assemble a useful coalition to share the bennies and any pains. Not sure if BOS and NYC wouldn't stab each other in the back.
- Bartweiss 9y ago
  > If the benefits would split 20 ways, collective bargaining might work. I'm shocked to not see this objection in the article or elsewhere in the comment section. If the shortlist were final and cooperation could be enforced, collective bargaining would still only work if the top 20 cities all had a similar chance without perks. As is, some of the cities would obviously be out of the running in a no-perks race, so collective bargaining (even over many iterations with many companies) is a clear loser for them. That undermines the entire proposal. It could be repaired if strong contenders like DC agreed to let weaker contenders offer perks up to parity with the strongest players, but that's vastly less plausible or easy to calculate than "no perks".
Animats 9y ago
(suggested) competing cities form a non-aggression pact That's been suggested before at the state level. But it runs into a Constitutional limitation. Interstate compacts have to be approved by Congress. Article I, Section 10: "No State shall, without the Consent of Congress ... enter into any Agreement or Compact with another State." US cities are legally parts of states, not standalone entities. Trying to get an anti-business deal like that through the current Congress would not work.
- Cyberdog 9y ago
  Does this apply to municipalities?
  - Chaebixi 9y ago
    >> US cities are legally parts of states, not standalone entities. A city is a municipality.
mynegation 9y ago
I commend the position of Toronto's mayor John Tory who said (I am paraphrasing here): "no tax breaks, if you come - come based on our merits as a city alone". Toronto is not likely to get Amazon for various reason (political climate being probably more important than tax breaks)
- apercu 9y ago
  To clarify, you mean the current US political climate? In all honesty, unless Amazon was going to go to Mississauga or Markham or something like that, I'd rather not have them. We need more jobs in the burbs, not more pressures on the inadequate Toronto infrastructure.
  - mynegation 9y ago
    Sauga and Markham are outside of Toronto municipality and - strictly speaking - are already not on the list. From the shortlist, they do not look like something Amazon is shooting for. They are in Seattle proper, not Kent or Everett. Yes, I mean US political climate. Ontario Provincial govt created the commission headed by Ed Clark and issued a bunch of statements[1], but I had the impression that above city level they are like whatever. [1] https://news.ontario.ca/opo/en/2018/01/statement-from-premier-wynne-and-minister-del-duca-on-amazons-hq2-shortlist.html https://news.ontario.ca/opo/en/2018/01/statement-from-premie...
    - apercu 9y ago
      Sorry I wasn't clear. Yes, I know they aren't considering the burbs. But if they were (Toronto burbs, at least Mississauga, are something like the 30th largest cities in NA)it would be better than jamming Amazon and 50k employees in to Toronto.
- burfog 9y ago
  Political climate is something that could go either way. A city like Seattle would be comfortable for existing employees. It would do nothing to attract talent that dislikes that political climate.
CodeSheikh 9y ago
Odds are in favor of Virginia (look up AWS and other data centers in that area). But it is still interesting to see how these cities are competing with each other and are throwing out tax payers money to lure in Amazon to moving in their backyard. I wonder if they would give similar incentives to small and upcoming businesses and startups.
- bpicolo 9y ago
  I'm not sure the data centers have an effect there. They don't have need for their non-datacenter employees traveling to visit the DCs (those are hyper locked down)
lucas_membrane 9y ago
Large corporations often make deals with other large corporations, and they prosper. Workers used to do better when a larger percentage of them collectively bargained. But somehow, the possibility that citizens, who are represented by various local governments, would use those governments to cooperate with each other across the lines on the map sounds like science-fiction and is disparaged as far-fetched and unworkable in many of the comments here. What is it that Americans don't understand? Do they understand that Seattle, home of HQ1, has home-grown homelessness that is rising? Do they understand that Amazon will automate away any job outside the executive suite that it can? Do they understand the power that Amazon will have over the lucky city that makes the investment? Do they understand that 50 years is now the standard term for the tax breaks that Amazon will be offered?
- matchbok 9y ago
  Homelessness is not Amazon's problem. Automation is good. Do you want us to ride horses to work? Agreed. Agreed.
  - s73ver_ 9y ago
    "Homelessness is not Amazon's problem." But it is the problem of the city. They absolutely need to keep this in mind while negotiating with Amazon, who has a reputation for driving housing prices sky high, thus exacerbating the homelessness problem. "Automation is good. Do you want us to ride horses to work?" Automation is neutral, as it does cost people jobs, not all of whom can be retrained for something else. It also drives down wages. Hell, productivity has been skyrocketing for the past 30-40 years due to automation, yet workers have seen a pittance in rising wages.
    - 40acres 9y ago
      Amazon also provides high wage workers who are taxed on their income, and who generate economic activity which can also be taxed and used by municipalities to try to solve homelessness. On net I wonder what the benefit / determent of Amazon moving to a city would have on homelessness.
bcaulfield 9y ago
Or maybe think like a corporate raider: buy a substantial piece of a company and demand it move to your city?
chaostheory 9y ago
For reasons already pointed out by others, this isn't a pragmatic idea. i.e. Amazon could just restart their search, etc.. imo what's more realistic is that cities on the top 20 list that are geographically close enough, should band together and offer combined benefits e.g. New York & Newark; Montgomery County & N Virginia & DC
nostromo 9y ago
Might this violate antitrust law?
disease 9y ago
"I've sold monorails to Brockway, Ogdenville, and North Haverbrook, and, by gum, it put them on the map!" -Jeff Bezos
mikeash 9y ago
Because they’re all starry-eyed about the possibility and don’t care what it costs. I live in the DC area. We’re on the list three times: DC itself, plus VA and MD suburbs. The prospect of cooperating on a bid was brought up, but they’re not willing to do it. They want to win and they want it all for themselves.
tc 9y ago
Collective bargaining is probably the wrong metaphor. This is the principle-agent problem. The citizens would be better off if the elected officials worked to make their city the best possible place to do business for all companies on an even playing field. The city would then attract plenty of good companies simply on its merits. The elected officials instead benefit from granting favors, being able to brag about how they brought in a big name like Amazon, and getting Jeff Bezos on their personal speed dial. This is also why collective bargaining will not happen here. The interests of the elected officials are not at all aligned. They're competing for a scarce resource, and they themselves largely do not bear the costs of trying to acquire it.
- walshemj 9y ago
  You would need every state to have the same income and sales tax then.
doggydogs94 9y ago
I feel confident that Amazon will not pick a place with cold weather or hurricanes.
debt 9y ago
I can see it now: "Amazon HQ2 Candidate Cities Decide to Collectively Bargain." "Boise, Idaho - previously not even in the running - is officially the home of the new Amazon HQ2!"
mlinksva 9y ago
Nevermind collective bargaining; company-specific incentives should be illegal.
stretchwithme 9y ago
Because there are other cities not in these 20.
jroseattle 9y ago
This entire thought process assumes that tax incentives and such are the difference maker in this process. That it's an auction that goes to the highest bidder. This is highly inconsistent with Amazon's approach for long-term projects. Do they want their HQ2 home to have some skin in the game? For sure. But what form does that take? Suppose a city could offer Amazon $50MM in tax credits over some duration of time. Suppose another city offered to invest into local infrastructure investment -- roads, transit, broadband, etc. While $50MM is a lot of money (even to Amazon), the second alternative is much more appealing. The HQ2 winner is going to be someone who is forward-thinking, not just whoever rounded up the best gift basket.
- notyourday 9y ago
  I say biggest gift basket wins. Newark, NJ
samlevine 9y ago
Because Amazon could build their own city if they had to. The US has a lot of land, power and freeways leading to international airports.
walshemj 9y ago
The main reason is the devolved nature of government in the USA in the UK Amazon would have its arm twisted by the government in a you scratch my back ill scratch yours. For example BT had development centres in all 4 countries that make up the UK mainly for political reasons - and why the BBC forcibly moved people to Manchester as part of the negations over the BBC charter.
kazinator 9y ago
> and instead collectively bargained with the company? Because they are not a collective; only one of them gets Amazon HQ2. Let's project this to actual "collective bargaining" in labour. If you and 19 other people were negotiating in such a way that only one of you gets a raise and improved working conditions, and the remaining nineteen others get fired, would you still engage in "collective bargaining"?
intrasight 9y ago
I just hope they don't come here to Pittsburgh. For the vast majority of citizens, the arrival of Amazon HQ2 will be a net negative.
nielsole 9y ago
The reason is game theory. Every city has an incentive to leave the bargaining group and make its own proposal. Taxes in general are a similar topic. In a functioning democracy, the government/legislator should set the taxes as they see fit, yet with increasing globalization, countries become price takers (https://www.investopedia.com/terms/p/pricetaker.asp https://www.investopedia.com/terms/p/pricetaker.asp), because many taxable goods become more mobile. This is in line with this observation: > Rep. Keith Ellison, D-Minn., has also offered a dissent to the process. > “Something is deeply wrong with our economy & democracy when local government offer up their > tax base to a corporation worth over $500 billion,” he wrote on Twitter. Game theoretic constructs, where the social optimum solution is not reached can be seen in other topics as well. Take climate change for example, where a lot of governments know what the best outcome for the world(and thereby themselves) is, yet act in their own best interest and emit CO2. A collective "bargaining" solution would make sense, but has yet to happen. Finding solutions for this is challenging and not as easy as the article puts it.
- dragontamer 9y ago
  > The reason is game theory. Every city has an incentive to leave the bargaining group and make its own proposal. Except 3: Montgomery County, Washington DC, and Northern Virginia. If Virginia gets Amazon, the other two benefit with increased commercial activity. Even if the taxes aren't directly collected from Amazon HQ2, the increased shopping, increased services, and all that will lead to major benefits for the entire region. There's one group that can collectively bargain, and benefit even if its rivals win over. That gives that particular group a major edge. Its unusual that three of the top20 positions are within a 20-mile radius. Amazon must be really considering that area. https://i0.wp.com/www.thedailychronic.net/wp-content/uploads/2014/07/Map-of-Maryland-highlighting-Montgomery-County1.png?w=1024 https://i0.wp.com/www.thedailychronic.net/wp-content/uploads... "Northern Virginia" is basically Arlington. As you can see, Arlington / DC / Montgomery County are literally next to each other. ------ Newark NJ and New York City are the other city-grouping that could work together on the Amazon deal.
elbasti 9y ago
Because cooperation only happens in the repeated version of the prisoner's dilemma.
znpy 9y ago
If you don't want cities and states to beg companies with tax exemptions then you should not have such tax exemption ability in the first place.
arikrak 9y ago
Answer: Since there's no way all the cities in the US and Canada would actually agree to such a pact, so Amazon will just pick one of the remaining cities. I agree that cities should not be offering free land to a company. But it seems OK to offer tax breaks, considering how much taxes a company like Amazon will be paying in the long term. (Not to mention the even more significant taxes the employees will pay.)
throwaway5752 9y ago
Because they don't have any leverage in this situation. I read the article, I don't see how this fundamental reality can be worked around. City Y has no disincentive to undercut City X until the NPV of HQ2 is equal to the cost of their incentive package. This is just a reverse auction process.
Bud 9y ago
This is so charmingly naive. I'll tell you why they don't collectively bargain. Because what will happen is, one or more of the cities will take advantage, cut a backroom deal, and win. That's why.
mathattack 9y ago
Too much incentive for 1 of 20 to break ranks. The cities won’t have a good way to punish the scab
rdlecler1 9y ago
Because Amazon will make a point to go to the one or two defectors. Iterated Prisoners Dilema dynamics only work when you have iterated interactions. In large economies where you don’t have repeated interaction with other players there is incentive to cheat.
yumario 9y ago
I found this whole competition for Amazon absurd. Lets think about the prisoner dilemma: If A and B each betray the other, each of them serves 2 years in prison If A betrays B but B remains silent, A will be set free and B will serve 3 years in prison (and vice versa) If A and B both remain silent, both of them will only serve 1 year in prison (on the lesser charge) Now A, B are cities and the can compete(betray) or not compete(stay silent). If they both compete (1th case) is the worst outcome because Amazon does not need a tax break or incentives. It's one of the richest companies in world already! A competes, B does not (2th case). Good for city A because they can offer an small incentive an still get Amazon, bad for city B. A and B do not compete. Good for both as the overall economy of the country would improve.

179 points by rohanshah 9y ago

Seems like a pretty dumb idea. Amazon is limiting its self to those 20 cities. It can always back out and choose another if it wants.

optimuspaul 9y ago
I tend to agree that this is a dumb idea... but think about this. There are a few clusters on the east coast, the clusters could work together to push amazon to one of the other cities in exchange for deals that help the others out. If I'm being totally honest though I don't think there is much advantage to any of the cities to give Amazon incentives to picking them. I also think that Amazon has already decided.
- strebler 9y ago
  That's definitely possible they've already more or less decided. Either way, they're pulling off an impressive optimization to obtain maximum taxpayer funded subsidies.
ABCLAW 9y ago
Nothing better than torpedoing your own RFP to get people chomping at the bit to give you more free stuff.

OrBaruk 9y ago

Because city number 21 will race to the bottom and win the bid.

virmundi 9y ago
Is this a race to the bottom? 19 cities won’t get any tax revenue by definition. The one that gets the building will probably wave taxes so it’s getting the same amount of direct tax revenue as it was before namely 0. So the city does get sales tax revenue from the new jobs due to new spending. It might get income tax that it didn’t get before. Where is the bottom?
- sjm-lbm 9y ago
  If a city waves taxes for Amazon, they'll still have increased costs - say, increased road maintenance around HQ2 as those roads get used much more. Those costs still need to be paid for, and the burden will then move to smaller companies with less clout to negotiate a special deal. Trying to get an ever-increasing amount of money out of people and organizations with less ability to pay that amount of money seems bottomish for me.
  - JumpCrisscross 9y ago
    They also have the opportunity to collect payroll, income, property and sales taxes in respect of the employees; seed a technology district; and collect taxes down the road. It wouldn't make sense for San Francisco to do this. But it can make sense for a Tier 2 city to pay Amazon for densification over sinking a similar cost into the riskier proposition of renovating a downtown plaza or whatever.
- OrBaruk 9y ago
  Was paraphrasing the article that mentions the race to the bottom, but I believe that there is a net positive on the city that receives the HQ2 and that's why they are competing with each other.
  - virmundi 9y ago
    I wasn't trying to pick on you. I've seen this kind of argument elsewhere and thought this would be a good place to start a dialogue.
- thesumofall 9y ago
  It’s a race to the bottom because it goes beyond tax revenues to include free land (that could be sold to someone else), infrastructure investments (that are likely not needed otherwise), etc.

kodablah 9y ago

Because the non-collusive city will come out ahead in this prisoner dilemma.

bryanlarsen 9y ago
This isn't a prisoner's dilemma, the cities are allowed to talk to each other, and to gang up to punish those who break ranks.
- dnautics 9y ago
  Punish how?
- guyzero 9y ago
  What possible penalty could one city impose on another?
  - tzahola 9y ago
    Revival of medieval city-state wars!
  - matte_black 9y ago
    Imagine a future where cities go to war with each other to win the favor of massive corporations.
    - internetman55 9y ago
      Its lit!
    - rlanday 9y ago
      More relevant to the topic under discussion would be a future where cities go to war to keep each other from winning the favor of massive corporations.
  - bryanlarsen 9y ago
    Any sort of collusion agreement can have a penalty clause, so presumably punitive damages. And damages to reputation are also possible.

root_axis 9y ago

Because the cities are rivals in a competition for Amazon's HQ, not colleagues who all stand to benefit from a collective bargain. In this case, there will be one winner so the incentive to cooperate is greatly diminished.

thesumofall 9y ago
But the chosen city would win even more if they were to cooperate. Sure, the cooperation would quickly break down but that is why the federal government should decide on such benefits (basically to ensure companies stay within the country, if that is deemed beneficial) rather than local government. It’s for me mindbaffling how anyone believes HQ2 would bring back billions of USD - even if you include secondary and tertiary effects
- deleted 9y ago
  [deleted]
- cortesoft 9y ago
  Right, but there is always going to be the incentive to defect; if 19 of the cities agree to cooperate, the 20th can just offer slightly more and win the contract.
- Brockenstein 9y ago
  >But the chosen city would win even more if they were to cooperate. Right and the 19 losers are cooperating why again? >Sure, the cooperation would quickly break down Good job undercutting and highlighting the faults in your own argument. If you can figure it out in two sentences I think there's probably a few people directly involved who this is obvious to. So since cooperation isn't viable in your own estimation, might as well try to win. >but that is why the federal government should decide on such benefits Unfortunately that proposition doesn't appeal to everyone, so good luck there.
typomatic 9y ago
It's almost like you don't know anything about non-zero-sum games.

thebiglebrewski 9y ago

Just want to add the opinion to the comments section that I think it's completely ridiculous that Amazon gets incentives from cities to go there, as if they need the money. This is monopolistic behavior to the detriment of cities, citizens, and smaller firms.

LostInTheWoods2 9y ago
There is nothing wrong with Amazon getting an incentive. The question is are these cities doing their math and offering incentives that are both competitive and reasonable, that won't leave their citizens out to hang.
berbec 9y ago
Tell that to major sports teams. Want to see real hostage taking? See what happens when a team wants a new stadium.
- perkee 9y ago
  There is a fantastic pair of episodes of Citations Needed on exactly this topic. They cover the Olympics, HQ2, and sports stadiums. And you're right: city after city gives the whole farm away for these big ticket things that never really pay out, and cities can't deficit spend the way a country can to eat the loss. CN 19 https://www.stitcher.com/podcast/citations-needed/e/52555894 https://www.stitcher.com/podcast/citations-needed/e/52555894 CN 20 https://www.stitcher.com/podcast/citations-needed/e/52636015 https://www.stitcher.com/podcast/citations-needed/e/52636015
pythonaut_16 9y ago
Honestly I think Amazon is as or more interested in the cities' overall plans than just tax incentives being offered. There's a lot of logistics to build a campus as large as they're planning with as many employees as they're planning. I think they're also very interested in zoning and regulatory hurdles. They're probably looking for a city that won't bog the project down in zoning permits, etc. Kinda like how Google Fiber was killed by regulation rather than capital or technical concerns. The tax incentives play into the overall cost to Amazon for their location, but so does the rest of the plan.

LonelyStapler 9y ago

Each city could select a champion and hold a tournament for victory and glory!

kevin_b_er 9y ago

Because it is a race to the bottom. Who can sacrifice the most tax dollars NOW for a hope at more down the line? This reminds me of how NFL operates at extracting huge concessions and expenses from cities for the privilege of having their team stay in town.

grasshopperpurp 9y ago
That's what I thought of, as well. It's always a terrible deal for the city.

alkonaut 9y ago

Here's an idea: don't let states make targeted tax breaks to race to the bottom. That seems to work in the EU. Apple paid 1% in Ireland and simply had to pay up the difference to the normal tax rate.

doggydogs94 9y ago
Don’t let ... The only one that can do that is the US Supreme Court.
- alkonaut 9y ago
  Somehow it always ends up there, like that's a "legal no go". I.e. "that would have to go through the supreme court" or "that's the constitution". I realize it's hard to change some things (like how is Gerrymandering for political views allowed?) but is it that hard that it's meaningless to attempt? Doesn't that mean (in the case of the Gerrymandering example) that US democracy is fundamentally broken AND can't be repaired?
  - walshemj 9y ago
    Passing an amendment to the constitution is very hard.
- dragonwriter 9y ago
  Congress could do it just by imposing a 100% tax on income attributable to an agreement providing an abatement of generally-applicable state or local taxes.

zaroth 9y ago

I completely disagree with the “race to the bottom” framing of the idea that cities shouldn’t compete to provide the best services for the commercial enterprises which reside there. At the 50-75 year timeframe we are talking about at least hundreds of billions of dollars of economic value, if not trillions. The clustering effect of becoming Silicon Valley 2 cannot be overstated. My personal opinion is cities should be talking about the Billions they will be committing to supporting infrastructure improvements rather than the billions in tax cuts. HQ2 needs a fuck ton of support systems, akin to building an Olympic City which never shuts down. Of course city governments should be working hard to bring this kind of value creation and massive economic engine to their constituents. Of course Amazon should be asking tough questions of cities akin to “and what are you going to do to support me” before spending $5 billion building a new campus. Personally I think the cities that only have tax incentives to offer will not come out the winner. Amazon cares a lot more about the surrounding infrastructure and ecosystem than a short term $1 Billion. It’s completely irrational anti-capitalistic knee jerking to whine that cities shouldn’t be working hard to support HQ2 in their backyard. We are watching capitalism at its finest here folks - and market efficiency driving negotiation and competition is creating significantly better outcomes than the “fuck Amazon they don’t need handouts” crowd would arrive at. If someone came to your town and said, I want to build a $20m community arts center with a theater, coworking space, parks, gardens, and playground — would you want your town to say “good luck with that” or would you want them to say “that’s amazing what do you need from us to make that happen?!” Just because Amazon happens to be for-profit, their presence in your city is an extraordinary asset and it makes perfect sense to entice them to come. In fact, you can’t even consider building at anywhere near HQ2 scale without an intimate partnership with the host city which is, in one form or another, going to require somewhere on the order of dollar-for-dollar public investment to match the private investment. We’ve proven that this public/private partnership is basically the most effective growth engine we’ve got. I certainly hope my city would do everything possible to roll out the red carpet. It’s the most effective dollars they could possibly spend, because it’s effectively corporate matching of public funds.

joeax 9y ago
> At the 50-75 year timeframe we are talking about at least hundreds of billions of dollars of economic value, if not trillions. The clustering effect of becoming Silicon Valley 2 cannot be overstated. Back in 2004 when I was working at Microsoft, I remember sitting in a bar in downtown Redmond and tossing back some local brew IPAs. This guy sitting next to me was an older dude and longtime fisherman. He was going on and on about how in the 80's, the eastside (the collective suburbs i.e. Redmond, Bellevue, etc) was just farmland, and that Seattle's main industries were fishing and logging. He was both lamenting and boasting how Microsoft came in and transformed Seattle and surrounding area into the tech mecca it is today. So you are right. All it takes is one anchor company to totally transform an entire city. Too bad they chose cities with established infrastructures and talent pools, and not a city like Milwaukee or San Antonio that would have had the same dramatic transformation as 80's Seattle.

40acres 9y ago

I don't understand people who are conflating the search for HQ2 with Olympic bids and sports stadium bids. The Olympics are most likely a one time thing for a month, although in the future I could forsee it revolving around qualified sites, it takes a lot to convert facilities used for the Olympics into regular infrastucture (see Atlanta and LA). Stadiums I think overall have a better impact, as they can create or revitalize an economic area, provide longer terms jobs, and sports teams provide back to their communities. Amazon is on a completely different level. They will bring thousands of skilled workers, and generate trillions in economic activity. HQ2 will stand for a long time, it can completely change the trajectory of a city. There are many many issues with bringing Amazon to your city, home prices and infrastructure to name a few -- but isn't this a problem you'd rather have than not?

tbirrell 9y ago
As someone who will probably never work at Amazon, or in any way benefit from their presence, the issues of housing prices and infrastructure are important to me. I'm not willing to pay an effective Amazon-tax in both my rent and commute time for for the dubious honor of saying I live in the same city as HQ2.
- TheCowboy 9y ago
  I'm not a fan of cities dishing out perks, but what you said amounts to NIMBYism. I'm sympathetic to those concerns but housing prices aren't solved by keeping out newcomers or being against development. There can also be an indirect income boost that comes with an increased demand for labor, and it can help make the local economy more robust. I do think the concern about unforeseen infrastructure costs are warranted, especially if a city doesn't excel in urban planning or has problems with NIMBYism derailing good plans. But I think most of the cities on the shortlist are fair game and could handle a project of this scale.
  - dragonwriter 9y ago
    > housing prices aren't solved by keeping out newcomers or being against development. Housing prices aren't solved by forcing homeowners to subsidize commercial development, either. Ml

squozzer 9y ago

If the benefits would split 20 ways, collective bargaining might work. But it doesn't seem that they would, especially given the geographical dispersion of the finalists. Regions (such as US Northeast, or Nashville - Atlanta - Raleigh) might be able to assemble a useful coalition to share the bennies and any pains. Not sure if BOS and NYC wouldn't stab each other in the back.

Bartweiss 9y ago
> If the benefits would split 20 ways, collective bargaining might work. I'm shocked to not see this objection in the article or elsewhere in the comment section. If the shortlist were final and cooperation could be enforced, collective bargaining would still only work if the top 20 cities all had a similar chance without perks. As is, some of the cities would obviously be out of the running in a no-perks race, so collective bargaining (even over many iterations with many companies) is a clear loser for them. That undermines the entire proposal. It could be repaired if strong contenders like DC agreed to let weaker contenders offer perks up to parity with the strongest players, but that's vastly less plausible or easy to calculate than "no perks".

Animats 9y ago

(suggested) competing cities form a non-aggression pact That's been suggested before at the state level. But it runs into a Constitutional limitation. Interstate compacts have to be approved by Congress. Article I, Section 10: "No State shall, without the Consent of Congress ... enter into any Agreement or Compact with another State." US cities are legally parts of states, not standalone entities. Trying to get an anti-business deal like that through the current Congress would not work.

Cyberdog 9y ago
Does this apply to municipalities?
- Chaebixi 9y ago
  >> US cities are legally parts of states, not standalone entities. A city is a municipality.

mynegation 9y ago

I commend the position of Toronto's mayor John Tory who said (I am paraphrasing here): "no tax breaks, if you come - come based on our merits as a city alone". Toronto is not likely to get Amazon for various reason (political climate being probably more important than tax breaks)

apercu 9y ago
To clarify, you mean the current US political climate? In all honesty, unless Amazon was going to go to Mississauga or Markham or something like that, I'd rather not have them. We need more jobs in the burbs, not more pressures on the inadequate Toronto infrastructure.
- mynegation 9y ago
  Sauga and Markham are outside of Toronto municipality and - strictly speaking - are already not on the list. From the shortlist, they do not look like something Amazon is shooting for. They are in Seattle proper, not Kent or Everett. Yes, I mean US political climate. Ontario Provincial govt created the commission headed by Ed Clark and issued a bunch of statements[1], but I had the impression that above city level they are like whatever. [1] https://news.ontario.ca/opo/en/2018/01/statement-from-premier-wynne-and-minister-del-duca-on-amazons-hq2-shortlist.html https://news.ontario.ca/opo/en/2018/01/statement-from-premie...
  - apercu 9y ago
    Sorry I wasn't clear. Yes, I know they aren't considering the burbs. But if they were (Toronto burbs, at least Mississauga, are something like the 30th largest cities in NA)it would be better than jamming Amazon and 50k employees in to Toronto.
burfog 9y ago
Political climate is something that could go either way. A city like Seattle would be comfortable for existing employees. It would do nothing to attract talent that dislikes that political climate.

CodeSheikh 9y ago

Odds are in favor of Virginia (look up AWS and other data centers in that area). But it is still interesting to see how these cities are competing with each other and are throwing out tax payers money to lure in Amazon to moving in their backyard. I wonder if they would give similar incentives to small and upcoming businesses and startups.

bpicolo 9y ago
I'm not sure the data centers have an effect there. They don't have need for their non-datacenter employees traveling to visit the DCs (those are hyper locked down)

lucas_membrane 9y ago

Large corporations often make deals with other large corporations, and they prosper. Workers used to do better when a larger percentage of them collectively bargained. But somehow, the possibility that citizens, who are represented by various local governments, would use those governments to cooperate with each other across the lines on the map sounds like science-fiction and is disparaged as far-fetched and unworkable in many of the comments here. What is it that Americans don't understand? Do they understand that Seattle, home of HQ1, has home-grown homelessness that is rising? Do they understand that Amazon will automate away any job outside the executive suite that it can? Do they understand the power that Amazon will have over the lucky city that makes the investment? Do they understand that 50 years is now the standard term for the tax breaks that Amazon will be offered?

matchbok 9y ago
Homelessness is not Amazon's problem. Automation is good. Do you want us to ride horses to work? Agreed. Agreed.
- s73ver_ 9y ago
  "Homelessness is not Amazon's problem." But it is the problem of the city. They absolutely need to keep this in mind while negotiating with Amazon, who has a reputation for driving housing prices sky high, thus exacerbating the homelessness problem. "Automation is good. Do you want us to ride horses to work?" Automation is neutral, as it does cost people jobs, not all of whom can be retrained for something else. It also drives down wages. Hell, productivity has been skyrocketing for the past 30-40 years due to automation, yet workers have seen a pittance in rising wages.
  - 40acres 9y ago
    Amazon also provides high wage workers who are taxed on their income, and who generate economic activity which can also be taxed and used by municipalities to try to solve homelessness. On net I wonder what the benefit / determent of Amazon moving to a city would have on homelessness.

bcaulfield 9y ago

Or maybe think like a corporate raider: buy a substantial piece of a company and demand it move to your city?

chaostheory 9y ago

For reasons already pointed out by others, this isn't a pragmatic idea. i.e. Amazon could just restart their search, etc.. imo what's more realistic is that cities on the top 20 list that are geographically close enough, should band together and offer combined benefits e.g. New York & Newark; Montgomery County & N Virginia & DC

nostromo 9y ago

Might this violate antitrust law?

disease 9y ago

"I've sold monorails to Brockway, Ogdenville, and North Haverbrook, and, by gum, it put them on the map!" -Jeff Bezos

mikeash 9y ago

Because they’re all starry-eyed about the possibility and don’t care what it costs. I live in the DC area. We’re on the list three times: DC itself, plus VA and MD suburbs. The prospect of cooperating on a bid was brought up, but they’re not willing to do it. They want to win and they want it all for themselves.

tc 9y ago

Collective bargaining is probably the wrong metaphor. This is the principle-agent problem. The citizens would be better off if the elected officials worked to make their city the best possible place to do business for all companies on an even playing field. The city would then attract plenty of good companies simply on its merits. The elected officials instead benefit from granting favors, being able to brag about how they brought in a big name like Amazon, and getting Jeff Bezos on their personal speed dial. This is also why collective bargaining will not happen here. The interests of the elected officials are not at all aligned. They're competing for a scarce resource, and they themselves largely do not bear the costs of trying to acquire it.

walshemj 9y ago
You would need every state to have the same income and sales tax then.

doggydogs94 9y ago

I feel confident that Amazon will not pick a place with cold weather or hurricanes.

debt 9y ago

I can see it now: "Amazon HQ2 Candidate Cities Decide to Collectively Bargain." "Boise, Idaho - previously not even in the running - is officially the home of the new Amazon HQ2!"

mlinksva 9y ago

Nevermind collective bargaining; company-specific incentives should be illegal.

stretchwithme 9y ago

Because there are other cities not in these 20.

jroseattle 9y ago

This entire thought process assumes that tax incentives and such are the difference maker in this process. That it's an auction that goes to the highest bidder. This is highly inconsistent with Amazon's approach for long-term projects. Do they want their HQ2 home to have some skin in the game? For sure. But what form does that take? Suppose a city could offer Amazon $50MM in tax credits over some duration of time. Suppose another city offered to invest into local infrastructure investment -- roads, transit, broadband, etc. While $50MM is a lot of money (even to Amazon), the second alternative is much more appealing. The HQ2 winner is going to be someone who is forward-thinking, not just whoever rounded up the best gift basket.

notyourday 9y ago
I say biggest gift basket wins. Newark, NJ

samlevine 9y ago

Because Amazon could build their own city if they had to. The US has a lot of land, power and freeways leading to international airports.

walshemj 9y ago

The main reason is the devolved nature of government in the USA in the UK Amazon would have its arm twisted by the government in a you scratch my back ill scratch yours. For example BT had development centres in all 4 countries that make up the UK mainly for political reasons - and why the BBC forcibly moved people to Manchester as part of the negations over the BBC charter.

kazinator 9y ago

> and instead collectively bargained with the company? Because they are not a collective; only one of them gets Amazon HQ2. Let's project this to actual "collective bargaining" in labour. If you and 19 other people were negotiating in such a way that only one of you gets a raise and improved working conditions, and the remaining nineteen others get fired, would you still engage in "collective bargaining"?

intrasight 9y ago

I just hope they don't come here to Pittsburgh. For the vast majority of citizens, the arrival of Amazon HQ2 will be a net negative.

nielsole 9y ago

The reason is game theory. Every city has an incentive to leave the bargaining group and make its own proposal. Taxes in general are a similar topic. In a functioning democracy, the government/legislator should set the taxes as they see fit, yet with increasing globalization, countries become price takers (https://www.investopedia.com/terms/p/pricetaker.asp https://www.investopedia.com/terms/p/pricetaker.asp), because many taxable goods become more mobile. This is in line with this observation: > Rep. Keith Ellison, D-Minn., has also offered a dissent to the process. > “Something is deeply wrong with our economy & democracy when local government offer up their > tax base to a corporation worth over $500 billion,” he wrote on Twitter. Game theoretic constructs, where the social optimum solution is not reached can be seen in other topics as well. Take climate change for example, where a lot of governments know what the best outcome for the world(and thereby themselves) is, yet act in their own best interest and emit CO2. A collective "bargaining" solution would make sense, but has yet to happen. Finding solutions for this is challenging and not as easy as the article puts it.

dragontamer 9y ago
> The reason is game theory. Every city has an incentive to leave the bargaining group and make its own proposal. Except 3: Montgomery County, Washington DC, and Northern Virginia. If Virginia gets Amazon, the other two benefit with increased commercial activity. Even if the taxes aren't directly collected from Amazon HQ2, the increased shopping, increased services, and all that will lead to major benefits for the entire region. There's one group that can collectively bargain, and benefit even if its rivals win over. That gives that particular group a major edge. Its unusual that three of the top20 positions are within a 20-mile radius. Amazon must be really considering that area. https://i0.wp.com/www.thedailychronic.net/wp-content/uploads/2014/07/Map-of-Maryland-highlighting-Montgomery-County1.png?w=1024 https://i0.wp.com/www.thedailychronic.net/wp-content/uploads... "Northern Virginia" is basically Arlington. As you can see, Arlington / DC / Montgomery County are literally next to each other. ------ Newark NJ and New York City are the other city-grouping that could work together on the Amazon deal.

elbasti 9y ago

Because cooperation only happens in the repeated version of the prisoner's dilemma.

znpy 9y ago

If you don't want cities and states to beg companies with tax exemptions then you should not have such tax exemption ability in the first place.

arikrak 9y ago

Answer: Since there's no way all the cities in the US and Canada would actually agree to such a pact, so Amazon will just pick one of the remaining cities. I agree that cities should not be offering free land to a company. But it seems OK to offer tax breaks, considering how much taxes a company like Amazon will be paying in the long term. (Not to mention the even more significant taxes the employees will pay.)

throwaway5752 9y ago

Because they don't have any leverage in this situation. I read the article, I don't see how this fundamental reality can be worked around. City Y has no disincentive to undercut City X until the NPV of HQ2 is equal to the cost of their incentive package. This is just a reverse auction process.

Bud 9y ago

This is so charmingly naive. I'll tell you why they don't collectively bargain. Because what will happen is, one or more of the cities will take advantage, cut a backroom deal, and win. That's why.

mathattack 9y ago

Too much incentive for 1 of 20 to break ranks. The cities won’t have a good way to punish the scab

rdlecler1 9y ago

Because Amazon will make a point to go to the one or two defectors. Iterated Prisoners Dilema dynamics only work when you have iterated interactions. In large economies where you don’t have repeated interaction with other players there is incentive to cheat.

yumario 9y ago

I found this whole competition for Amazon absurd. Lets think about the prisoner dilemma: If A and B each betray the other, each of them serves 2 years in prison If A betrays B but B remains silent, A will be set free and B will serve 3 years in prison (and vice versa) If A and B both remain silent, both of them will only serve 1 year in prison (on the lesser charge) Now A, B are cities and the can compete(betray) or not compete(stay silent). If they both compete (1th case) is the worst outcome because Amazon does not need a tax break or incentives. It's one of the richest companies in world already! A competes, B does not (2th case). Good for city A because they can offer an small incentive an still get Amazon, bad for city B. A and B do not compete. Good for both as the overall economy of the country would improve.