Your city will lose the contest for Amazon’s new HQ.

Why Your City Will Lose the Contest for Amazon’s New HQ

Why Your City Will Lose the Contest for Amazon’s New HQ

The cities of today and tomorrow.
Sept. 8 2017 4:54 PM

Your City Will Lose the Contest for Amazon’s New HQ

No town truly fulfills the company’s demanding wish list.

Photo illustration by Slate. Photos by iStock/Thinkstock.
Chicago, Philadelphia, and Denver may come closest to meeting Amazon’s demands.

Photo illustration by Slate. Photos by iStock/Thinkstock.

For decades, American cities and states have been competing to dismantle the high-tax postwar social model to win increasingly mobile jobs from their peers. This practice leaves the losers smarting from a diminished sense of self—hello, Hartford, Connecticut—while the winner loads the tax burden of its new prize pig onto existing citizens and businesses. It rewards corporations for being flighty, faithless partners to cities and punishes small and local businesses that cannot make credible threats to secure their own incentive packages.

Henry Grabar Henry Grabar

Henry Grabar is a staff writer for Slate’s Moneybox.

The news that Amazon needs a second headquarters, announced on Thursday, will set off a competition like we have never seen for mayors and governors to pimp out their cities to the Seattle-based supercompany.

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It is a one-of-a-kind, six-week sweepstakes, with a $5 billion HQ up for grabs. Nothing like this has ever happened before. At 8.1 million square feet, constituting nearly 20 percent of Seattle’s Class A office space, Amazon’s Seattle campus simply has no parallels in U.S. cities. The next biggest single urban corporate presence is Citi in New York, with 3.7 million square feet; the next biggest by percentage is Nationwide in Columbus, Ohio, which occupies 16 percent of the city’s office space.

In short, Amazon’s Seattle HQ is an outlier any way you slice it, and it’s about to build the same thing again. Corporate relocations tend to involve low-paying jobs moving south (back-office jobs or manufacturing work relocating to the Sun Belt); small numbers of white-collar jobs (General Electric’s 2015 move from Connecticut to Boston); or merger-driven relocation, which usually involves a slow exodus of executives from one city to another. Amazon’s proposal is numerically elite: 50,000 workers in a secondary headquarters is more than twice as many workers as Bank of America, the country’s second-largest bank, employs at its primary HQ in Charlotte, North Carolina.

The odds hinge in part on what Amazon is looking for. The notion of a company with two separate U.S. headquarters is basically unique; when Charlotte’s NationsBank merged with San Francisco’s BankAmerica (now Bank of America) in 1998, to take one example, the company quickly consolidated corporate control in Charlotte. But Amazon has indicated that this will not be a back office; with up to 50,000 employees and an average salary of more than $100,000, these people will not be handling your Squatty Potty return. (Disclosure: Slate is an Amazon affiliate; when you click on an Amazon link from Slate, the magazine gets a cut of the proceeds from whatever you buy.)

Let’s assume that virtually every city and state will roll out a carpet of tax breaks, plum real estate, and other local incentives. (All for a company dedicated to undermining the local businesses that will pay taxes to support the services Amazon uses.) Even if Amazon CEO Jeff Bezos already has a strong favorite in mind, a municipal race to the bottom will ensure he gets his company the best deal. And since the scale of the economic impact appears to surpass what is promised for the Summer Olympics, the packages may include anything up to and including expensive new transit infrastructure. (Mass transit, Amazon has said, is a requirement for its site.)

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But how many cities really­ have a chance? Amazon may be powerful enough to command sumptuous bids from every mayor’s office in thrall to the growth machine, but cities’ limitations are as firm as the company’s needs. It’s time for some corporate-relocation theory.

Size and Talent

The first limiting factor is size: Amazon says it needs a metro area with more than 1 million people, but in reality, that is the bare minimum. In a city like Pittsburgh, as Bloomberg’s Conor Sen points out, Amazon would need to hire 1 in every 20 people in the labor force to reach full staffing. This is also a problem with Nashville, Tennessee, and Austin, Texas. If Amazon makes Seattle (regional population: 3.7 million) feel like a company town, you can only imagine the role it would play in a metro half the size.

Size, in this case, is largely a proxy for a talented labor pool—another Amazon requirement—but there’s still a large variance in educational attainment in big cities. Of the 25 metros larger than Pittsburgh, for example, several rank near the bottom in the percentage of residents with bachelor’s degrees—shorthand for a well-developed labor force. By this metric, Sun Belt cities like San Antonio, Orlando, Tampa, Miami, Phoenix, and Riverside, California, are near the bottom. If Amazon were transferring thousands of workers, they might have a chance. But hiring locally? They’re probably off the list.

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Cost

The single biggest difference between the remaining cities is cost: We already know that New York, Los Angeles, San Francisco, Boston, and Washington have excelled at attracting companies thanks to top-notch cultural amenities, high quality of life, solid transit systems, and excellent universities. But they’re also among the most expensive places to live in the United States, with jampacked central cities where the only thing harder to place than 100 acres of offices would be 50,000 new housing units. (This is also a problem for Toronto—sorry, John Tory.)

That doesn’t mean these cities wouldn’t go out of their way to clear out space and bid for Amazon’s HQ2—or that Bezos won’t consider them strong contenders. (San Jose, California, is in, baby!) As Richard Florida points out, the best guide of corporate relocation is CEO preferences—and Bezos already owns the biggest house and the biggest newspaper in Washington. Proximity to the federal government would be an advantage for a company with a stake in virtually every sector of the economy.

You can understand why a company like Apple would be reluctant to leave Silicon Valley (even if it meant building a white elephant headquarters with 11,000 parking spaces). But relocations to high-cost areas tend to be small (as in Aetna’s move to New York), because they’re expensive. The $75,800 annual mean wage in San Jose gets the average worker just $62,100 in purchasing power, which can be had for a $58,800 wage in Durham­–Chapel Hill, North Carolina. A $17,000 per-worker premium is OK for a few hundred executives; it gets costly for 50,000 employees.

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On the low-cost end, that leaves Atlanta, Baltimore, Charlotte, Chicago, Dallas, Denver, Detroit, Houston, Minneapolis, Philadelphia, and St. Louis. Houston has its own issues to deal with right now. Detroit has no mass transit system to speak of; Charlotte isn’t far ahead and, further, lacks a strong university system. There are political risks, too: Detroit gives Amazon the potential to play savior but comes with sky-high property taxes, abysmal public schools, and a dysfunctional regional government. Charlotte is at the mercy of the reactionary North Carolina Legislature.

Location, Location, Location

What’s left are some self-similar cities in three regions: Atlanta, Dallas, and Denver are among the faster-growing, more recently developed U.S. metropolises—low-cost, low-tax cities with weaker universities and more auto-dependent transportation patterns. Of the three, Denver stands out for its massive investment in regional rail, super-high education levels, and high quality of life. Still, a second HQ in Denver wouldn’t bring the company much closer to the Eastern Seaboard.

Of the older Midwestern cities, it’s hard to imagine Chicago does not have an edge on Minneapolis and St. Louis for its sheer size, excellent universities, massive international airport, and high-quality transit system. The city’s and state’s financial problems are serious, though, and could ward off a cautious search committee.

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And then on the East Coast are a pair of dark-horse candidates: Baltimore and Philadelphia. Baltimore has stellar cultural institutions, proximity to Washington without the housing costs, acres of open land, and a city government ready to play ball with big developers. Philadelphia has the same assets with a better regional transit system and easy access to New York.

The problem for the shrinking cities—Philly, Chicago, and Baltimore—may be political. As I’ve written before, the problem for those cities is not that housing is too expensive but that people don’t make enough money. Those cities tried everything to get companies to stay in the ’50s and ‘60s. But that doesn't mean that low-income tenants today won’t see a corporate giveaway as an unethical use of resources. (Which, fundamentally, it is.)

In spite of it all, Baltimore, Chicago, Denver, and Philly are probably the most compelling choices for Amazon. But that doesn’t mean the company might not blow off its interest in higher education or mass transit to procure a low-cost campus in the suburbs of Dallas or Atlanta.

Greenfield vs. Infill

The differences between those cities is fodder for endless debate. But what may ultimately be more consequential is where Amazon decides to locate its headquarters within those cities. For all the talk about millennials abandoning car ownership, the biggest determinant of transportation choice is job location. In Seattle, Amazon has established an urban corporate paradigm that serves as a desperately needed counterpoint to the suburban campuses of Apple, Facebook, and Google in Silicon Valley. Amazon reports that 55 percent of Seattle employees walk, bike or use mass transit to get to work.

With its new headquarters, the company has the opportunity to tip the balance of an entire region toward or away from mass transit. The deck is stacked against infill development. But with cities scrambling to put together the pieces for Amazon, expect at least some of the proposals to double as downtown revitalization efforts. Entire cities have been built on less.

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