Why Losing Out on Amazon's HQ2 Isn't So Bad for Cities

Posted on December 14, 2018

GOVERNING reports that Amazon’s decision to locate its second headquarters in already economically strong areas drew the ire of those who had hoped the company would choose a city that needed a boost. However, landing a large corporation isn’t the best way to improve a local economy and spur job growth. The article cites a report by the Urban Institute and the Brookings Institution that advised cities to concentrate on growing existing business and not luring outside companies. “Most job expansion and contractions come from birth and deaths of homegrown businesses or expansion or contractions of existing home-based businesses,” said Megan Randall, a coauthor of the report.

The report also cautioned that tax incentives do not play a significant role in attracting businesses. Although New York City and Virginia offered tax subsidies to Amazon, the company claimed the incentives were not the deciding factor, but rather the highly skilled and educated labor force in each of the locations. Offering generous tax incentives can be especially onerous on localities which do not have the fiscal strength of New York or Washington, D.C., and force difficult trade-offs in levels of public services. Additionally, when a city offers tax giveaways to lure a company, the government goes into the negotiation at a disadvantage because it may not have all the information about the company’s relocation criteria. In some cases, a company may choose a city it would have moved to anyway, pocketing the tax incentives even though they weren't a requirement.

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