Tuesday, October 10, 2017

Does Northern California Have a Chance To Get Amazon HQ2?

Everyone is speculating about where Amazon is going with its HQ2.  Does Sacramento or the Bay Area have a chance?  Given the national competition, it's obviously a long shot, but not impossible.  If forced to pick one city (and I have not seen any betting platforms for this, let me know if there is), I would bet on Denver, but I think NorCal's chances are better than the conventional wisdom.  Here are my current thoughts (originally published in our October economic forecast).

Last month, Amazon took the unusual step of issuing a public request for proposals for a second headquarters location. It is a massive project that the company states will bring 50,000 high-paying jobs and 8 million square feet of new investment to the winning city.  Hundreds of cities have announced that they will be submitting proposals for a rare project that has the scale to alter the economic trajectory of a region.  Speculating about where Amazon will land has been widespread in the business press, and the most frequently predicted cities are Denver, Austin, Boston, Atlanta, and Washington D.C.  Most commentators have written off California, primarily due to its high cost, regulatory climate, and its historical reluctance to offer big incentive packages to corporations.

Why did Amazon go to the unusual step of creating such an open and public competition?  Surely, they must have a short list of cities that meet their requirements.  Some think it is just a publicity stunt to enhance Amazon’s brand as an economic development prize, possibly to stimulate even greater local incentive offers for its growing network of less exciting facilities such as fulfillment centers.  Perhaps their preferred locations are in states and cities that are historically unlikely to offer large public incentives, and the open competition is a way of generating public pressure for these areas to get more aggressively in the incentive game.  This latter theory would suggest that California does have a chance.  Indeed, Amazon has some very good reasons to look at the Golden State.  The Bay Area has the largest concentration of tech industry talent that Amazon needs.  California is a global destination that has proven it can attract top tech talent from around the world.  Finally, a location in the same time zone as the Seattle headquarters would facilitate collaboration and travel between the two headquarters.  We conservatively estimate that Amazon HQ2 as described in the RFP would support 120,000 on-going jobs statewide, and over $6 billion in state general fund tax revenue during the first 20 years of developing the new locations.  While California is unlikely and shouldn’t match the massive tax abatement incentives that will undoubtedly be offered by some locations, state and city leaders should definitely put their best case forward, most likely with a package of tailored infrastructure and workforce development programs.

Are there locations in the Northern California megaregion that can compete?  Most people believe that the Bay Area is simply too costly and congested, and lacks well-located sites that could accommodate the growth Amazon seeks (although Concord does have a large intriguing site, and Oakland and some other cities also are arguing they can handle it, perhaps in clusters located around the BART network).  Sacramento is more affordable, meets the size and infrastructure requirements (assuming the expanded airport continues to add more flights) and has several interesting locations that could accommodate the growth.  But can a government dominated city with a small corporate presence convince Amazon that it is business-friendly and has the workforce and culture Amazon seeks?  Sacramento can offer Amazon an opportunity to grow into a region’s dominant corporate presence where it shapes the region’s future, and a location that is attractive for some Bay Area workers seeking a more affordable family-friendly environment.  Some have speculated that Amazon could end up splitting the new headquarters between two sites, a scenario which could create interesting possibilities for the Megaregion.  While the competition is fierce and it remains a long-shot, we believe a good case can be made for a Northern California location for Amazon HQ2 and encourage the state and regions to come together and put forward a competitive proposal.

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