Arlington offered $23M for Amazon HQ2. So far, it hasn’t paid a dime

By Teo Armus / The Washington Post

15:30 JST, September 3, 2022

When Amazon announced its plans to build a second headquarters somewhere in North America, cities and states around the continent stopped at nothing to woo the tech giant. They made promises of billion-dollar tax breaks and massive financial incentives — in a few cases, bigger than some countries’ economies — to get picked as the company’s new home.

Nearly four years after winning that sweepstakes, Arlington County, Va., has yet to pay Amazon a single penny. And that’s by design.

The coronavirus pandemic shrank some of the tax revenue streams that executives and elected officials said would grow as the e-retailer built its offices in this affluent Northern Virginia suburb. That has meant no cash grants paid out 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 a reporting deadline this week, Arlington officials confirmed Wednesday that they did not pay any direct financial incentives to the company for the third year in a row.

The county had initially projected it would pay $22.7 million in total to Amazon in annual payments through 2035. These 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 stays stemming from the company’s activity.

“Largely because of the pandemic, that expected growth hasn’t happened, and so that means the incentives aren’t happening either,” County Board Chair Katie Cristol, a Democrat, said.

If the news may suggest less of an economic windfall for the county than officials and executives had touted just a few years ago, the company and its boosters say it’s too soon to make any snap judgments.

“Since we announced Arlington as the site for HQ2 nearly four years ago, we’ve made strong progress on our hiring and development plans, and are only just beginning to see the economic and community benefits of our investments,” Holly Sullivan, Amazon’s vice president of worldwide economic development, said in a statement.

Pandemic or not, the company’s economic impact on Arlington is impossible to ignore: Besides occupying 1 million square feet of office space, the company has hired more than 5,00o employees, putting it one-fifth of the way toward its stated goal of bringing at least 25,000 new jobs to Northern Virginia.

The arrival has created thousands of construction jobs, brought in new retailers and development projects in the neighborhood, and boosted the county’s status as a hub for large tech companies. Since Amazon’s announcement, the defense and aerospace heavyweights Raytheon and Boeing have announced they would be relocating 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 over $37 million to local nonprofits, businesses, schools and community groups.

All of that, however, has yet to translate to a fiscal benefit at the same scale — including any growth in revenue from the transient occupancy tax, which Amazon and Arlington officials decided on as the basis for local incentives to the company. The county will hand up to 15 percent of the increase back to Amazon only if tax revenue on hotel stays in the county increases over an average before the pandemic.

Arlington had been collecting nearly $25 million annually from the tax, which is applied to hotel stays and short-term rentals such as Airbnb. That figure dropped to about $16.5 million in fiscal 2020, including the first few months of the pandemic, and then $5 million in the year after that.

From July 2021 through June 2022, Arlington collected about $15.1 million in revenue from the tax. That is still millions short of the increase necessary to result in incentives for Amazon.

Amid heavy criticism of massive incentives for Amazon, some economic development analysts say the news shows that Arlington’s incentives were designed well enough to account for the most unprecedented of economic curveballs.

“It’s no benefit, no cost, as it should be,” said Greg LeRoy, executive director of Good Jobs First, a watchdog group that tracks government subsidies to businesses.

If Amazon’s headquarters was supposed to draw more visitors to Arlington, “the county is not getting all the benefits of people staying overnight and buying meals and going shopping,” he added. “So why should they get any money from the county?”

County officials estimated that when Amazon is fully operational in Arlington in 2034, the company will generate between 100,000 and 150,000 occupied hotel room nights locally. But the number of occupied hotel room nights over the past year was still 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 had initially planned to locate another 25,000 jobs before backing out, state officials had promised the tech company a grant of up to $325 million — based only on how many square feet of office space it occupied.

Some other jurisdictions, LeRoy noted, have been struggling with no-strings-attached incentives that they handed up for economic development projects whose fiscal benefits have yet to materialize.

“In Arlington, they insulated themselves against any kind of downturn,” he said, “and that turned out to be very smart.”

Hotel tax revenue is ultimately a small slice of the fiscal boost that Arlington had expected to get from the deal, including taxes on Amazon’s land, building and equipment. And the company’s annual tax generation is projected to be relatively modest this early in the process: County officials expected Amazon would generate about $9.4 million in annual tax revenue five years into construction, compared with about $32.7 million in 12 years.

Cristol, the county board chair, pointed out that another incentive for Amazon — an indirect one — depends on property tax revenue in Pentagon City and Crystal City, a stream that has not grown either since the company began moving into the neighborhood.

If that the tax revenue grows beyond a certain baseline, Arlington officials must dedicate up to half the increase toward infrastructure projects in the neighborhood, such as streetscape and sidewalk improvements. The county received $4.1 million from July 2021 through June of this year, still short of a $4.8 million baseline, she said.

“Amazon has delivered on expectations,” she added. “It’s just that the pandemic has so challenged the economy in Arlington and in Crystal City specifically that the incentives are totaling to zero.”

Arlington’s incentives for Amazon are dwarfed by those promised to the company by Virginia. The company stands to receive as much as $770 million in cash grants from the state’s coffers, on the condition that corporate hires who are “principally located” in Arlington earn an average of $150,000 a year.

The first installment of those incentives, capped at $200 million, is supposed to be paid out next year.

As part of the deal inked with Amazon, Virginia is also investing in the state’s Tech Talent Investment Program, which has set a goal of producing an additional 25,000 new graduates in computer science and related fields over two decades. Much of the money is going toward Virginia Tech’s new graduate engineering campus in Alexandria as well as a tech hub that George Mason University is building in Arlington’s Virginia Square neighborhood.