Today, Explained - HQ2

Episode Date: August 6, 2018

Amazon will soon announce which city will land its second headquarters along with 50,000 new jobs. There’s a lot to win and maybe just as much to lose. Learn more about your ad choices. Visit podcastchoices.com/adchoices

The support for Today Explained today comes from Squarespace. Check out squarespace.com for a free trial. And when you're ready to launch your website, you can use the offer code EXPLAINED to save 10% off your first purchase of a website or a domain. Squarespace.com and the offer code EXPLAINED. Hello? Noam Hassenfeld, You produced Today Explained today. You're reporting for Today Explained. Where are you?

I am standing right outside the Pentagon. The Pentagon in Virginia? Yeah, northern Virginia, just south of D.C. It's just this huge gray stone wall as far as I can see. There's bulletproof glass everywhere. There's security guards left and right. I've passed on the highway. It's like a whole city, yeah?

It is the biggest office building in the world. Really? Yeah, it's over 6 million square feet, I believe, which I think is bigger than something like 100 football fields. So this is the biggest office building in the world. Why are you standing outside of it? Well, so I'm trying to get a sense of what it might look like to have another one of these in the D. Why are you standing outside of it? Well, so I'm trying to get a sense of what it might look like to have another one of these in the D.C. area, because Amazon is thinking about

making a second headquarters in D.C. OK, this I knew, this I knew. And how does that compare to the Pentagon? Well, the Pentagon's got something like twenty five thousand jobs. Amazon HQ2 would be fifty thousand. Two Pentagon's? Twice as big as the biggest office building in the world. A tentagon. A decagon. So is this a done deal? Is DC getting this thing? It's actually kind of more complicated than you would think. You've piqued my interest.

Good, because I'm Noam Hassenfeld, and this is Today Explained. That's not how we opened the show. What are you doing? More than 200 cities and metropolitan areas threw their hats in the ring. Now down to the final 20. Only one is on the West Coast. Los Angeles. Some Tennessee news. It is. Capital City made the list.

Columbus is one of 20 finalists. Denver 7 has confirmed a team from Amazon was here just a few weeks ago to get the lay of the land. Atlanta. Chicago. D.C. Boston. Indianapolis. Raleigh. Miami. Boston. Amazon. The final 20. Final 20. 20. A billion dollars in tax breaks. Amazon. The final 20. Final 20. 20. 20. 50,000 jobs. Dallas. Pittsburgh. Virginia. Newark. Toronto. New York. Philadelphia. Montgomery County. Maryland approves an incentive package that will total nearly $8 billion. What would a city do for 50,000 jobs?

Maybe billions of dollars in tax breaks, shiny new transportation systems. There's even been one that's offered to change its name to Amazon. But do these cities have any idea what they're getting themselves into? Amazon is not the first company to pit cities against each other to see who could offer up the best tax breaks. The whole process is so common that there's a name for it. There's actually a bunch of names for it. You can call it buffalo hunting or trophy deal chasing or race to the bottom. Greg Leroy, he's the executive director of Good Jobs First. That's a research group that focuses on job subsidies. You hear a lot of different lingo, but it's all the same thing. Greg says this goes back a long time. Some people trace this back to a company called Fantas Factory Locating Service in New York City in 1937.

Fantas was this consulting firm, and it basically worked with companies to help them find new homes. And one of the first states it worked with? The state of Mississippi created a program which was intentionally created to lure companies to move from the Midwest or the Northeast to the South. Mississippi raised a whole bunch of public money, gave it to this pajama company, and in that moment, an entire new model was born. But when Amazon HQ2 finally finds a new home,

it's still going to stand out. It would be head and shoulders the biggest one ever. I mean, General Electric, which used to be one of the most valuable companies in America, recently moved its headquarters from Connecticut to Boston. It had 800 jobs it was moving. Not even 1,000, much less 50,000 or 25,000. This is a very big transaction. 50,000 brand new jobs sounds pretty good.

On the other hand... We can certainly express educated guesses and fears. That's because we've got a huge case study. And it's a mixed bag. Amazon's HQ1. Welcome to Amazonia, 45,000 employees, most of them millennials, many of them moving here from out of town. Hey, hey, Amazon has got to pay.

According to Amazon, the company's large footprint in downtown Seattle, pumping at least $38 billion to the city's economy since 2010. If by chance you had a few thousand dollars put away, could you possibly buy a house here? The median home price in Seattle is now over $800,000. Commuters in Seattle lose an extra 55 hours a year on the road. That extra time stuck in traffic costs each driver $1,853. The Downtown Seattle Association saying the Amazon effect raised the number of jobs by 30 percent and brought in an extra 34 percent of tax revenue in the same time period. So what happened in Seattle? I'm Carolyn Adolph. Carolyn's a reporter at KUOW. And I am on the Region of Boom team. What we do day and night,

sometimes on weekends, is cover the growth of this area. She's done a ton of reporting on Amazon. She even made a podcast about the company called Primed. And in it, we talk about how some of the problems you can experience when you have a fast-growing company in your midst really make you wonder whether prosperity is all that great. So where is Amazon's headquarters? Do you remember the movie Sleepless in Seattle? Try to imagine Tom Hanks' character's houseboat. It was sitting in a lake called Lake Union,

which is just north of Seattle's downtown. Just south of there was a kind of an empty area at the foot of the lake, which had lots of, you know, parking lots, low-slung buildings, dilapidated warehouses, stuff like that, even a strip club. When I went down there 10 years ago, I looked around and just thought the place was windswept. Well, it is not any longer.

South Lake Union is the home of Amazon.com. Where it used to be empty and windswept, now people cross the streets in mini-armies. I would have told you a year ago that it was 8 million square feet of office space. Now I have to tell you that it's 13. There's a dog park, and that's right beside the Spheres, which is the employee lounge that happens to also be a kind of a jungle under glass. I mean, it's quite the landmark, and it has a funny local name. Should I tell you what it is?

Please. Uncle Jeff's Balls. There are three, so it's vaguely complimentary. Of course, you know, the founder of Amazon.com is Jeff Bezos. Amazon started growing in the South Lake Union area in 2010, and for a long time, nobody really noticed. And then sometime around 2013, 2014, people started to go for a walk in South Lake Union and go, holy cow, it's so big.

There are so many people. Now I can't drive. I can't get through this area. Real estate prices started to vault into sort of stratospheric levels. Rents did the same. And people realized that it changed. I mean, when I walk down the street in South Lake Union, it's great. There are a whole bunch of young people around.

They're doing marvelous young people things. There's a dynamism to that. It's great. It's just about the speed of the growth. The cost of living here has changed quickly at the same time as mobility has declined. As rents have gone up, people who were really on the edge in terms of their ability to house themselves, well, they fall out of the system and they become homeless. We have 400 homeless encampments through the city at any one time. The high cost of living has caused a cascade of people of color leaving the center of the city and moving ever southward in search of cheaper places to live. And it has exacerbated poverty. And this gets at the central contradiction. When you look at the pool of talent that's come because of the job

explosion here, economic impact on that scale would be welcome almost anywhere. I mean, so many cities are not winner cities. So of course Seattle's mind-bendingly lucky. Washington, D.C. is one of the frontrunners to land HQ2, and it's got some advantages. Jeff Bezos has a house here. Amazon Web Services has an office near here. Bezos owns the Washington Post. And Amazon's dropping some hints. They just put up a job posting in D.C. for someone with experience in economic incentives. And that's something Amazon hasn't done for other competing cities.

But here's the risky part. When Amazon started in Seattle, it didn't pit cities against cities to see who could offer up the best tax breaks. It was born there. With HQ2, the entire process is different. They're proposing to create this big new campus, this $5 billion campus, in a very short period of time and then rapidly ramp up with tax breaks in a way that wasn't true in Seattle. So no matter what, D.C. would start off in the red. Taxpayers are taking a big risk on something in the future rather than enjoying the long-term growth that the company experienced in Seattle.

We know from past studies that about 85 percent of the people that take these new jobs are going to be people who don't live in that area now. They're going to be coming from outside and they're going to bring families. And that means we're going to have to hire teachers and build classrooms and widen lanes and pick up trash. And all those public services cost money. That money would be coming from people who live in D.C., and people who live in D.C. probably wouldn't get most of these 50,000 Amazon jobs. If Amazon gets a property tax abatement and pays zero property taxes, if it gets a sales tax exemption on the materials that it uses to build the facility, well, who gets to pay for all those increased costs of public services? Everybody else. So the billion-dollar question,

what's D.C. offering? Well, we wish we knew more than we do. Of the 238 total bids for HQ2, only about a third have been disclosed. And even those disclosures in many cases are incomplete, like the one here in D.C. which is heavily redacted. All the gory financial details, for instance, are blacked out in the documents that have been disclosed. When you look at the PDF of D.C.'s bid, there are just black boxes all over the thing. But there is some information that isn't blacked out. It's very much what you'd expect for a deal this size, which is to say you will not pay property taxes for 10 years. You, Amazon, will not pay any sales taxes on equipping this new facility.

You're going to generate massive corporate income tax credits that you will not pay income tax for the foreseeable future. The trouble is the cost of these deals will play out over decades, right? At least 20, 30 years. So today's elected officials are absolutely passing the bill on to their successors. You're playing with other people's money. You're playing with other mayors' money and other governors' money and other transit agencies' money. And they're not at the table. There are four proposed sites for HQ2 in the District of Columbia. In a moment, Noam goes to one of them to find out how plopping down 50,000 jobs in a big new campus might change it.

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to save 10% off of your first purchase of a website or domain. I'm sitting at a church of minutes to do that. Don't be shy. It's a town hall. I'm sitting at a church in D.C. It's packed. And most people here are not into the idea of Amazon setting up shop in their backyard. So in this city,

African Americans make up 48% of the population. It's estimated that 65-70% of those African Americans live in poverty. I miss the Washington, D.C., where its leadership considered the most marginalized people of color here in the city. I loved that city. I miss that city. This would be the final nail in the coffin of losing that culture. After I heard him speak at that town hall, I called up Maurice Cook with the March for Racial Justice.

And I asked him to take me around his neighborhood, which is one of the four that D.C. is considering for HQ2. We are in what is called Hill East now, but it's really just Capitol Hill. It is southeast Washington, D.C., literally about a mile from the Capitol. Can you just tell me what this street used to look like and what does it look like now? There was a neighborhood grocery store here and now they're condos. There was a laundromat and now they're condos. There was a used car lot up and down the street and now they are condos and townhomes pricing out the folks who grew up on the street.

There's a ton of cranes over D.C. right now and the city's been changing really fast. 47% of Washington, D.C. is black, but it doesn't feel that way anymore. U Street used to be known as Black Broadway. Duke Ellington grew up here. Langston Hughes wrote poetry here. Let's go see old Abe, sitting lonely in the marble in the moonlight,

quiet for ten thousand centuries now, old Abe. D.C. was Chocolate City. And Parliament wrote the Chocolate City anthem. Right on, Chocolate City. And now, Whole Foods uses the slogan to sell handmade chocolates. A D.C. magazine recently had people pose for pictures wearing T-shirts that said, I am not a tourist, I live here. Not a single one was black.

In Washington, D.C., me growing up as a child in the 70s and 80s, it wasn't unusual to have a black boss. It was unusual to have a white boss. You weren't othered here as an African-American, as you are in most places in the United States. To feel in place is a privilege that most white Americans totally understand but have no appreciation of because they've normalized it. 2011 was the first time in over half a century that D.C.'s African-American population fell below 50%. Some of this was just people moving to the suburbs, but D.C. officials helped accelerate the change. They offered tax incentives to developers. For instance, across the street from here, we have a kind of development that used to be very low-scale retail, and now we have condos starting in the fours. And most residents,

the majority of people here, can't afford that price entry. From 2002 to 2013, D.C. lost almost half of its low-cost apartments. While more homes and businesses are being built on the new Southwest Wharf, From 2002 to 2013, D.C. lost almost half of its low-cost apartments. While more homes and businesses are being built on the new Southwest Wharf, those swanky condos with big price tags are simply out of reach for many. But the city isn't just promoting high-end condos. We have a new soccer stadium that's onboarding right now. We the city agreed to take care of the land.

The team made a huge investment in building this building. We have a new baseball stadium that the city has paid for. One of the most heavily subsidized stadiums ever built, where 97% of the expense is being paid for by the district. And what the citizens who contribute to this tax base, what they receive is more traffic, unable to afford to go to enjoy these amenities. We have streets and roads, infrastructure that needs to be serviced.

It's just unfortunate that our political establishment now does not put the needs of the generational D.C. residents first as the priority. Maurice isn't the only one who's upset. A civil rights attorney even sued the city this past April. The city is intentionally trying to lighten black neighborhoods. And the way that they've primarily been doing this is through construction of high density luxury buildings that primarily only offer studios and one bedrooms, the suit reads. D.C. has asked the court to throw out the case, saying it lacks standing. But whether or not the process is deliberate,

Amazon will seal the deal. 20, 30, 40, 50 years from now, there'll be pictures in a museum about the great black majority here in Washington, D.C. on exhibit. And there'll be workshops and panels of well-meaning liberals talking about how beautifully cultured and colorful that this city used to be while their children enjoy the benefits of what is being built for them only. It's not your grandmother's Washington, D.C. anymore. Brian Kenner is D.C.'s deputy mayor for planning and economic development. Change in neighborhoods is something that I think every neighborhood has, whether they

want it or not. When we think about any company's entry into Washington, D.C., we are thinking about D.C. residents first and foremost. Even though 85% of the new jobs might be going to non-D.C. residents. It's not just about the jobs. There are lots of other impacts, retail and cottage industry consulting and hotel room nights. And that's what we are incredibly focused on is making sure that we have a range of job opportunities for our residents. Kenner says that D.C. has been working to prevent a lot of the problems that Seattle's been having. We put more resources per capita than anybody else in the country does for affordable housing. Homelessness in D.C. has been decreasing recently. But it's hard to know if this is going to continue because D.C.'s not sharing the

details of its bid. And that's not going to change anytime soon. We're still in a competitive environment in terms of this opportunity. Because we just don't know enough about D.C.'s bid to Amazon, it's possible that homelessness could surge again. Amazon wouldn't talk to me for this story, but it did offer a statement about the positive economic impact the company says it's had on Seattle. Amazon says that more than 2,000 small businesses have opened in downtown Seattle since it moved there, that Seattle's economy has grown by $38

billion, and Amazon sees HQ2 as a partnership with whichever city wins the contract. It sounds nice, but it's also pretty light on specifics. Greg Leroy has some ideas. If Amazon were to agree to a great community benefits agreement and agreed to pay its taxes so that the district had the ability to capture the benefits and help people who live here now, we could have great schools. We could have much more affordable housing. It could obviously create terrific ripple effects in terms of both supplier firms and intellectual firms that would

invigorate our institutions for higher learning. I assume the concert scene here and the restaurant scene would do fabulously. So we have a choice. There really is a fork in the road here between more gentrification and displacement or a great place for everybody to keep living here and get better at it. Noam Hassenfeld is a producer and reporter for Today Explained. I'm Sean Ramos from Jeff Bezos, and Amazon promise a decision on HQ2 by the end of 2018. today. If you haven't yet heard, Squarespace is this company that wants to help you build your own website, and they've got lots of tools to make it easy and maybe even fun. You can get a free trial at squarespace.com and use the offer code EXPLAIN to save 10% when you purchase a website or domain.