Amazon’s search for a city in which to locate its second North American headquarters has caused a frenzy among prospective locations. This is largely due to Amazon’s promise to create nearly 50,000 jobs and invest $5 billion in its new campus. These guarantees have unleashed fierce competition among cities, each scrambling to offer the greatest tax incentive to the corporate giant. While the headquarters’ implementation seems undeniably beneficial to urban areas, examining who the beneficiaries will be—and at the expense of whom—reveals the nefarious effects of this project on current city residents. For most ordinary residents, the rising cost of living, increased traffic, and lack of city investment in infrastructure and education will be the noticeable implications of HQ2.
The race to lure corporations using tax credits is far from uncommon but hasn’t historically caused the economic growth predicted. A study by The New York Times elucidates that municipalities, cities, and states forgo close to $80 billion annually in tax credits for businesses. This growing phenomenon has expanded three-fold since 1990. Amazon has been one of the largest recipients of these funds, receiving close to $1 billion in tax credits. Yet, in many industries, states are not seeing the expected returns on their investments. First, massive tax credits have appeared in film and television production as projects have shifted from Los Angeles to other, lower-cost cities. But many of these projects have actually hurt taxpayers while bringing minimal jobs. Louisiana, for instance, has become a hub of television production because of its large economic incentives. However, in 2012, these credits cost taxpayers almost $170 million, even while accounting for benefits. In North Carolina, these film tax benefits equaling $30 million only produced 55 to 70 jobs. These states are not outliers; rather, their stories follow common trends. Evidently, the massive tax credit trend has demonstrated abysmal returns in state profit and employment.
So, will Amazon’s HQ2 be an anomaly that precipitates growth for local city residents? The most likely outcome is that this project will not increase job prospects for current residents but will attract new technicians from elsewhere that obtain the high-paying jobs and, in turn, raise the cost of living. This is apparent in the home to Amazon’s global headquarters, Seattle, which has seen skyrocketing housing prices, increased income inequality, and congested roads. In the last decade, the increase in median property rental prices in Seattle was three times the national median. Median home prices also surged 17 percent from 2016 to 2017. The influx of new residents led to much congestion. Inrix’s list of top 10 worst cities in the US for traffic reflected this change when Seattle was recently added to the list. Evidently, although Amazon promises to bring new jobs to the city that holds HQ2, it will more likely bring an inundation of entrepreneurs and technicians from elsewhere. When these highly paid individuals enter the city, they will drive up housing prices and cause a disequilibrium between the demand for and supply of housing. Consequently, many residents and employees will commute from suburbs, contributing to massive increases in traffic.
Is this just a problem in Seattle? Unlikely. A recent study undertaken by a real estate firm, Apartment List, predicts rental price increases in many of the cities competing for HQ2 if they are selected as the HQ location. Based on US Census and Bureau of Labor Statistics data, the research finds that the cities likely to be most impacted would be Raleigh, San Jose, Pittsburgh, and Baltimore. Clearly, increasing real estate prices are not unique to Seattle.
Aside from rising home prices and congestion, the massive tax credit will deduct from city funding that could go to other resources such as schools, hospitals, and infrastructure. Also, the tax credits are not the only—or even the most important—criterion that companies like Amazon use to select a city for its headquarters. Companies likely already have selected the ideal city but continue to make cities compete in a race to the bottom. After San Antonio withdrew from the competition, the Hispanic Chamber of Commerce President Ramiro Cavazos said, “All it does [is] create an arms race for incentives that is really going to make it challenging for a city that has limited resources to compete.” He also added, “We may not have the same per capita income and corporate base than other cities that we want to compete against will. And if we put everything on the table, that may hurt us for a future proposal down the road.”
Similarly, researchers from the Urban Institute found that strong schools, affordable housing, and robust infrastructure are among the most desirable factors to corporations looking to build new offices. This means that when states spend millions to attract Amazon’s HQ2, they reduce investment in other projects and thus forego the opportunity to entice future businesses. In addition to the fact that these city beacons, such as educational institutions and infrastructure, could risk becoming underfunded, these tax credits are also problematic because strong infrastructure and schools are what attract and increase businesses in the first place. Also, the evidence from the Urban Institute suggests that although there are many factors in Amazon’s decision, the states will still focus on offering the largest tax credit for Amazon. In doing so, cities may cut funds from other projects even though those funds may not be of high importance to Amazon.
It is evident that even if Amazon promises to invest in the construction of the project and the creation of jobs, it is likely to create unintended consequences for the current residences of the selected city. Rather than compete against each other, the 20 remaining contenders on Amazon’s list should collectively bargain. They should agree to not offer tax credits unless the mogul promises to employ a certain number of currents inhabitants and invest some of their gains in a fund for city infrastructure and education. While this would only be successful if each of the 20 cities agrees to the plan, this could create a valuable new precedent. Cities must stop offering endless tax credits to massive corporations at the expense of citizens without the promise of direct employment for inhabitants and investment in infrastructure.