Arlington has offered $23 million to buy Amazon HQ 2. So far, it hasn’t paid a penny.
When Amazon announced its plans to build a second headquarters somewhere in North America, cities and countries across the continent did anything to attract the tech giant. They made promises of billions of dollars in tax cuts and huge financial incentives – in a few cases, bigger than some countries’ economies – to be chosen as the company’s new home.
Nearly four years after winning the sweepstakes, Arlington County, Virginia has not paid Amazon a penny. This is by design.
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The coronavirus pandemic has slashed some tax revenue streams that executives and elected officials have said will grow as the electronic retailer builds offices in the affluent Northern Virginia suburb. That means no cash grants have been paid to Amazon – at least not yet – for its $2.5 billion capital investment in the county. (Amazon founder Jeff Bezos owns The Washington Post.)
Ahead of this week’s reporting deadline, Arlington officials confirmed Wednesday that they have not paid any direct financial incentives to the company for the third year in a row.
The county had initially expected that it would pay Amazon a total of $22.7 million in annual payments through 2035. The pay-as-you-go grants are based on Amazon’s commitment to occupy a certain amount of office space in Pentagon City and Crystal City and on an expected increase in local hotel accommodations as a result of the company’s activity .
“Larly because of the pandemic, that projected growth hasn’t happened, and that means the stimulus aren’t happening either,” said County Board Chair Katie Kristol.
If the news suggests fewer economic gains for the county than officials and executives described just a few years ago, the company and its backers say it’s too early to make any early judgments.
“Since we announced Arlington as a location for HQ2 nearly four years ago, we’ve made solid progress with our staffing and development plans, and are just beginning to see the economic and societal benefits of our investments,” Holly Sullivan, Amazon Vice President of Global Economic Development, said in a statement.
Pandemic or not, it’s impossible to ignore the company’s economic impact on Arlington: In addition to occupying 1 million square feet of office space, the company has hired more than 5,000 employees, putting it within a fifth of the way toward its stated goal of bringing in at least 25,000 new jobs. in Northern Virginia.
The arrival has created thousands of construction jobs, brought in new retailers and development projects in the neighborhood, and solidified the county’s position as a hub for big tech companies. Since the Amazon announcement, heavy defense and aerospace companies Raytheon and Boeing have announced that they will move their headquarters to Arlington.
Sullivan also noted that Amazon has invested more than $800 million in affordable housing through the company’s Housing Equity Fund and more than $37 million to local nonprofits, businesses, schools and community groups.
However, all of that has yet to translate into a financial benefit on the same scale — including any revenue growth from the transitory occupancy tax, which Amazon and Arlington officials decided to adopt as the basis for the company’s domestic incentives. The county will hand over up to 15 percent of the increase to Amazon only if the county’s hotel stay tax revenue is above the pre-pandemic average.
Arlington has been collecting nearly $25 million annually in tax, which applies to hotel stays and short-term rentals like Airbnb. That number dropped to about $16.5 million in fiscal year 2020, including the first few months of the pandemic, and then $5 million the year after that.
From July 2021 through June 2022, Arlington collected approximately $15.1 million in revenue from tax. That’s still millions of dollars less than the increase needed to drive incentives for Amazon.
Amid heavy criticism of Amazon’s massive stimulus, some economic development analysts say the news shows Arlington’s stimulus is well-designed enough to explain the most unprecedented economic curve.
It’s not a benefit, nor a cost, as it should be,” said Greg Leroy, CEO of Good Jobs First, a watchdog group that tracks government subsidies for businesses.
He added that if Amazon’s headquarters were to attract more visitors to Arlington, “the county is not getting all the benefits of people spending the night, buying meals and going shopping.” “So why are they getting any money from the county?”
County officials have estimated that when Amazon is fully operational in Arlington in 2034, the company will provide between 100,000 and 150,000 locally occupied hotel nights. But the number of hotel room nights occupied over the past year has remained below levels in fiscal 2018 and fiscal 2019, according to STR, a global hospitality data and analytics company.
By contrast: In New York, where Amazon initially planned to identify another 25,000 jobs before pulling back, state officials promised the tech company a grant of up to $325 million — based on the number of square feet of office space it takes up.
Leroy noted that some other jurisdictions have been struggling with unconditional incentives that have been handed over to economic development projects whose financial benefits have yet to materialize.
“In Arlington, they insulated themselves against any kind of economic downturn, and that turned out to be very smart,” he said.
Hotel tax revenue is ultimately a small slice of the payment Arlington expected to get from the deal, including taxes on Amazon’s land, buildings and equipment. The company’s annual tax generation is expected to be relatively modest early in the process: County officials expected Amazon to generate about $9.4 million in annual tax revenue after five years of construction, compared to about $32.7 million in 12 years.
Kristol, the county’s chairman, noted that another Amazon incentive — an indirect one — relies on property tax revenues in Pentagon City and Crystal City, a stream that has also not grown since the company began moving into the neighborhood.
If that tax revenue exceeds a certain baseline, Arlington officials must devote up to half of the increase toward neighborhood infrastructure projects, such as street and sidewalk improvements. She said the county received $4.1 million from July 2021 through June of this year, still below the baseline of $4.8 million.
“Amazon has met expectations,” she added. “It’s just that the pandemic has challenged the economy in Arlington and in Crystal City specifically to the point that the stimulus sum goes to zero.”
Arlington’s incentives for Amazon pale in comparison to those Virginia promised the company. The company is expected to receive up to $770 million in cash grants from state coffers, provided that companies “mainly located” in Arlington earn an average of $150,000 annually.
The first installment of those incentives, which is a maximum of $200 million, is supposed to be paid next year.
As part of the deal signed with Amazon, Virginia is also investing in the state’s tech talent investment program, which has set a goal of 25,000 additional fresh graduates in computer science and related fields over two decades. Much of the money goes to Virginia Tech’s new engineering campus in Alexandria as well as a technology center that George Mason University is building in Arlington’s Virginia Square neighborhood.
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Video: Amazon plans to bring more than 25,000 workers to the region as it opens its new headquarters in Arlington, Virginia. Experts think about how this might affect improvement and jobs (Reference: Greene / The Washington Post)
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