Three jurisdictions — and three starkly different tactics — to lure HQ2 with incentives

From The Washington Business Journal (subscription required):

Maryland, Virginia and D.C. all made the short list for Amazon.com Inc.’s second headquarters, but the three jurisdictions couldn’t be more different in their tactics for winning the HQ2 incentive race.

There is the wide open approach. Maryland was very public with its proposed Promoting ext-Raordinary Innovation in Maryland’s Economy (PRIME) Act — the General Assembly approved the package of tax and infrastructure incentives for Amazon worth up to $8.5 billion. It was the largest deal in the state’s history and greater than New Jersey’s $7 billion offer.

There is the closed-door approach. D.C. Mayor Muriel Bowser has kept quiet on the details of the city’s Amazon (NASDAQ: AMZN) incentive proposal, with virtually no communication even with the D.C. Council. The council’s role would only kick in if and when Amazon selects the District, to assist with any legislation to accommodate the company’s specific needs if Amazon wants more than Bowser can give.

And there’s the middle-ground approach. Virginia’s incentive-vetting process requires extensive communication between the governor’s staff and certain General Assembly members via the state’s Major Employment and Investment Project Approval Commission, a group that meets eight times a year and includes both administration and legislative leaders, said Frank Ruff Jr., the state senator who chairs the commission.

“We act to make sure that no administration makes too many commitments that they cannot live up to,” said Ruff, R-Mecklenberg. “We have one four-year term for governor. Most of these projects take several years to develop.”

Seattle-based Amazon has said it plans to invest as much as $5 billion in its second headquarters, to create a new campus that could encompass as much as 8 million square feet and employ as many as 50,000 earning more than $100,000 a year on average.

The site selection process kicked off 11 months ago with a public request for proposals but has since morphed into a behind-the-scenes incentive game as the company closes in on a decision. As the Puget Sound Business Journal recently reported, Amazon is incentive obsessed — and the winning bidder will probably offer 10 figures.

“Now they are getting really serious about the details, and they probably have been able to cut the wheat from the chaff at this point and know which states and which localities can truly meet their needs,” said Ken McFadyen, president of the Virginia Economic Developers Association.

Maryland lays it out

Maryland was likely more public in its approach because it costs more to do business there, said Tom Stringer, a managing director with BDO in New York who leads the company’s national site selection and business incentives practice. Jurisdictions, he said, are more aggressive with incentives to help change a perception, adding that Maryland has historically “not been a strong state in terms of going after big projects and being aggressive about it.”

“Could it increase the frequency that Maryland shows up on the radar screen given what they are doing and someone like Apple in the market? Maybe,” Stringer said. “It certainly doesn’t hurt.”

Economist Stephen Fuller, who oversees the Stephen S. Fuller Institute at George Mason University, said that he believes the transportation improvements offered in Maryland’s package need to be done anyway.

“Part of this is about trying to get stuff done and trying to use HQ2 as an excuse,” he said. “You need somebody to say we’ll bring 50,000 jobs if you do these things.”

But transparency only goes so far. When The New York Times asked Montgomery County for its bid for a story on the different tacks governments have taken, the county provided 10 pages with every line redacted.

Virginia’s talking amongst themselves

Virginia’s approach to incentives allows leaders of the executive and legislative branches to be involved in the process, even if the incentive proposal isn’t released to the public.

Ruff, the Republican Senator, declined to disclose details of the state’s incentive proposal to Amazon, but said he and other MEI commission members have signed off on Virginia’s bid. The 10-member commission includes Secretary of Commerce and Trade Brian Ball, Secretary of Finance Aubrey Layne and House Appropriations Chairman Chris Jones.

If any changes are made to that deal, the commission would have to sign off on it first, Ruff said.

“We would have to deal with that counteroffer at that time,” he said.

And it’s entirely possible that could happen. “I suspect that there is going to be more to this game than has gone out so far,” he said. “Whether we are willing to change anything, that’s a different equation.”

The commission would also review any enabling legislation that would need to be passed by the Virginia General Assembly, he said.

The office of Gov. Ralph Northam declined to comment for this story.

All quiet on the D.C. front

Unlike Virginia, D.C. Council members say they have had little to no communication with Bowser’s administration about the Amazon incentives — not even Chairman Phil Mendelson.

“I’m assuming that the mayor didn’t make any commitments requiring council legislation,” Mendelson said. “D.C. has a lot to offer and we have existing incentives in the law, and we have some good locations as well. … If Amazon chooses any part of this region, the entire region benefits and so we don’t need to get into a bidding war with Maryland or Virginia.”

Andrew Trueblood, chief of staff for D.C.’s Office of the Deputy Mayor for Planning and Economic Development, said Amazon would “likely” qualify for incentives offered to certain high-tech companies that do not require council approval, including relocation reimbursements of up to $7,500 per worker and wage reimbursements of up to $30,000 per new job it fills locally with military veterans; a five-year corporate franchise tax exemption capped at $15 million; and a five-year freeze on property taxes.

Assuming all 50,000 of the employees that will ultimately work from HQ2 followed their jobs from other Amazon locations and made the District their permanent home, which almost certainly would not be the case, it could qualify for up to $375 million in relocation reimbursements.

But D.C. is being careful not to “over-incentivize” Amazon.

“We know that incentives are probably not the primary driver — it’s things like work force, quality of life, transportation, connectivity, transportation, and we have a very compelling case for all of those,” Trueblood said. “But we also know that incentives can help tip the balance.”

Trueblood said the administration has had general conversations with Council members Jack Evans, D-Ward 2, and Kenyan McDuffie, D-Ward 5, who chairs the economic development committee. They, along with the rest of the council, would have to approve any custom legislation to accommodate a specific Amazon proposal that goes above and beyond what existing law allows.

And Evans confirmed he’s spoken with DMPED, but those conversations only covered what the District would need to do — housing, for example — to accommodate HQ2. He said he has no idea what the details of the incentive package are.

Mendelson added that it would be “counterproductive” to hold a hearing on incentives while negotiations are ongoing.

“What value is it of the council, to let’s say, have a hearing on it before we know that Amazon wants the District?” Mendelson said. “Maybe the hearing would scare Amazon away. There’s folks who don’t like corporations.”

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