Cities Are Approaching This Amazon RFP All Wrong

Caught up in the chaos, we should be looking at the Amazon RFP completely different.

by Nick Bowden, Better Planning / September 12, 2017
Amazon's office in downtown Seattle flickr/Robert Scoble

The lunacy is in the logic, not the desired outcomes.

I’m deeply interested in cities, so I found Amazon’s announcement of HQ2 quite interesting. As did every city leader and elected official in the country. The prospect of luring Amazon and 50,000 jobs had them salivating. After wiping their mouths and picking up their jaws, they quickly took to social media to proclaim their interest and qualifications. As I’m sure Amazon intended, the RFP generated enormous positive press and mass speculation, predicting and analyzing where HQ2 might end up.

The potential outcomes are tantalizing:

  • Recognition from one of the most respected and innovative companies in the world that your city is where they want to locate a second headquarters.
  • 50,000 high quality, well-paid jobs.
  • Some multiple of supporting jobs in retail (ironic), restaurants and ancillary services.
  • Significant infrastructure upgrades, with a likely emphasis on transit and alternative transportation.
  • A beautiful corporate campus that serves as an anchor of business activity.

Talk about legacy-making stuff for an elected official. Every city should absolutely desire these outcomes, but at what cost? Second, and equally important, why did it take an RFP from Amazon to spur cities into these kinds of discussions?

What’s it all worth?

For those people who say the incentives are just the cost of doing business in this situation, I say, $10B is just the cost of doing business? Early estimates, based on recent incentive packages for GE, Apple, Facebook, and FoxConn, project this deal could command between $9 billion-$11.5 billion incentive packages. That’s everything from land to infrastructure to tax abatement. That’s simply the incentive package, the price of admission. That doesn’t include any ongoing costs associated with all of the new infrastructure required. Notably, and one detail often not mentioned, deals that include tax abatement can negatively impact public school districts who rely on local taxes for funding.

And what about the cost of time? Presumably, 100 or so cities will spin their wheels and crank out responses to the RFP. This effort will include all kinds of creative accounting and justification and involve the most important people inside of these agencies, for an extended period of time. Cities are in the business of RFPs, so they should know better than anyone, if you find out about an RFP that day it’s released, you’ve got no chance at winning. That’s not how these things work. It’s inconceivable that Amazon hasn’t already spoken with the small number of places it’s interested in locating HQ2. No one, particularly a private company that has a history of being relentless in the pursuit of efficiency, wants to go through an RFP process.

A natural conclusion one might draw is that Amazon want to ensure that their preferred location(s) are truly providing the very best offer. There’s not better way to find out than creating a heralded competition between cities. Wouldn’t it be fascinating, in the spirit of open data, if every submission was public? Imagine if every elected official and city leader knew that the enormous package they were offering was going to be seen by everyone; competing cities and their local residents. How might that change the response?

What’s the alternative?

Powerball jackpots are certainly one way to build wealth, however, I don’t know of many people whose primary strategy for obtaining wealth is buying Powerball tickets. Games of chance, particularly ones with very long odds, are generally met with proportionate effort. When that once-in-a-lifetime jackpot presents itself, we might buy a ticket, but we don’t abandon the plan we have in place. All of this Amazon hoopla got me thinking, do cities have explicit plans for adding 50,000 jobs over the next 20 years? Yeah yeah, I know every city wants to add jobs and every city has plans. What I am talking about is an explicit plan, that has all of the effort and energy and incentives cities are willing to give to Amazon, but dedicated to home-growing the same outcomes.

Thinking about adding 50,000 jobs is too hard to fathom. Let’s break it down to something easier to understand. What if one of these cities, instead of responding to the Amazon RFP, took that $10B and applied it to home-growing 1,000 new companies with 50 employees each? That would yield many of the same outcomes, but feels more like a day job and less like a Powerball ticket. In effect, we (city) are committed to enabling and retaining the next Amazon instead of racing to the bottom for the current Amazon.

I know a ton of startups that would accept any or all of the following benefits:

  • Free land or office space
  • Free or nearly free utilities
  • Free and improved infrastructure, like transit and bike lanes
  • No local or state employee taxes

I’d also being willing to bet that any city who said, we will do whatever it takes to enable and recruit any company who has aspirations of starting or growing to 50 employees over the next 20 years, would generate sufficient press and likely have a flood of interest. I get it, building things from the ground up, particularly things that take a generation or more is hard. Comparatively, responding to an RFP (even when you know you can’t win) is really easy.

Just like Powerball, there will only be one lucky HQ2 winner. For the rest of you cities, what’s that wealth-building day job going to look like?

This story was originally published on Better Planning.