Did Tennessee taxpayers get a good deal with $102M Amazon payment?

Sandy Mazza
The Tennessean
Nashville Mayor David Briley hugs Amazon's Holly Sullivan at a press conference to announce Amazon opening an operations hub in Nashville in the Old Supreme Court Chamber in the Tennessee State Capitol on Nov. 13.

Amazon's bureaucratic suitors were ardent and creative. 

Atlanta offered a private airport lounge. Dallas promised a new exclusive college to prepare local workers for Amazon jobs. Both of those cities, and others coast-to-coast, extended billions of dollars in incentives. 

The two winners, New York and Virginia, will together pay the the world's third most valuable company between $2.6 billion and $4.6 billion, according to varying analyses of the incentives packages.

Pennsylvania, Maryland and New Jersey were rejected despite ponying up more than $6 billion each.

Nashville won a smaller prize in the year-long countrywide sweepstakes to be home to Amazon's next headquarters. A management hub for the company's East Coast operations will be built at the new Nashville Yards development under construction north of the Gulch for 5,000 workers.

Tennessee's offer of $102 million in cash and tax breaks for the honor of being an Amazon host city paled in comparison to the East Coast winners

But the state's package includes $15 million cash from Nashville's general operating budget, which contended with a $34 million shortfall in June that left Metro schools officials struggling to make ends meet. 

Meanwhile, Amazon executives repeatedly said they were more interested in tech talent than monetary perks.

So is the expense worth it? 

'Incentives don't actually work'

Some financial analysts aren't convinced the sweeteners are a good deal for taxpayers.

"Why are we doing this? There's no rhyme or reason to the subsidies," said Michael Farren, an economist and researcher at George Mason University. "These incentives don't actually work. They don't change the decision in most cases of where a company will move."

Government-funded business incentives only succeed in swaying companies 2 percent to 25 percent of the time, according to an analysis by the W.E. Upjohn Institute for Employment Research

Yet the losers weren't consoled by the fact that they can keep their money.

"This does not make us happy," Dallas Mayor Mike Rawlings said. "It calls upon us to look hard upon ourselves to say: 'Why can we not be New York City and Washington D.C.?'"

Rawlings acknowledged that Dallas could have provided more than its $600 million offer. But, he said, "We didn't want to give away the farm."

The unusually public bidding process pitted 238 U.S. cities against one another, and spurred skepticism about the value of incentives, in general.

"Public officials are just supposed to put a bunch of money on the table and hope it all works out," said Greg LeRoy, executive director of Good Jobs First. "I think Amazon always knew what its short list looked like. Allowing places like Virginia Beach and Frisco, Texas, to bid looks very much like a ploy to put pressure on the two finalists."

Politicians seize win

The clear winners in the business incentives process are the politicians who rely on them as evidence of their success in the short term, Farren said.

"For politicians, it's actually beneficial to them in voter's eyes to be seen as doing something," he said. "The appearance of motivating economic growth is more important than the actual actions that lead to real economic growth."

Tennessee leaders cheered their deal-making prowess, reassuring taxpayers the expenses are negligible. 

Bob Rolfe, the state Department of Economic and Community Development commissioner, was so overjoyed by the HQ2 sweepstakes consolation prize of a 5,000-job operations hub in Nashville that he planted a kiss on Amazon executive Holly Sullivan's cheek during a Tuesday press conference. 

Gov. Bill Haslam declared that the incentives would be repaid in just over a year from Amazon's investment, and that the returns would come in spades for many years.

"In my opinion, this may be the governor's most outstanding economic development accomplishment in his eight years in office," Rolfe said. "This is the largest jobs announcement in the state's history."

Nashville Mayor David Briley described the incentives as a no-brainer.

"It’s a relatively minor investment for the city," Briley said. "We will collect those revenues back in sales tax and property taxes associated with these developments very quickly."

Nashville hub more management, less tech

Gov. Bill Haslam, Amazon's Holly Sullivan, Nashville Mayor David Briley and Tennessee Economic Development Commissioner Bob Rolfe gather together for a photograph after a press conference as at the Old Supreme Court Chamber in the Tennessee State Capitol Nov. 13.

Tennessee is usually relatively conservative when it comes to offering financial incentives to businesses. But, in this case, it offered up more cash than it ordinarily would, said Katie Culp, partner in accounting firm Katz, Sapper & Miller's state and local tax group. 

"Amazon bypassed some really aggressive offers," Culp said. "Tennessee and Virginia are more conservative, from an incentives climate standpoint. But, unless you can eradicate incentives everywhere, it's difficult to be able to say: 'OK we don't have to offer anything.'"

Virginia and New York will each get major tech hubs with roughly 25,000 new highly paid, skilled employees.

But Nashville's Amazon Operations Center of Excellence will likely have a lower percentage of high-tech jobs than the other locations, analysts said.

"It seems like it will be more similar to a mid-sized or smaller company moving their headquarters, rather than one of the top high tech companies in the world hiring 10,000 programmers and software developers," said Gad Levanon, chief economist at The Conference Board. "It's more management and business operations."

Local job creation is key

Nashville's $15 million incentive is enough to pay for 14 police officers for seven years, according to an analysis by Farren.

City leaders said the payments of $500 per Amazon job for seven years won't come due until 2023, when the majority of employees will be working in new offices at 10th Avenue and Church Street.

The state promised a $65 million cash grant for capital expenses and $22 million worth of breaks on franchise and excise taxes.

That cost is equal to paying full tuition for more than 800 University of Tennessee students, Farren said.

The key to whether incentivized new business has a positive impact on communities lies in how many local employees it hires and the number of jobs it creates, according to research by W.E. Upjohn Institute. 

Amazon is already a major employer of Vanderbilt University graduates and the new operations hub could help keep more of them in Nashville, said M. Eric Johnson, dean of the Owen Graduate School of Management.

"These are not service sector jobs," Johnson said. "They're not jobs that will fly away. They're jobs that will be rooted here and contribute in many ways to our overall economy."

'No one's paying us to hire people'

Tennessee has yet to finalize its incentives contract with Amazon.

But officials have promised to only pay the company if it meets the deal's threshold of hiring at least 5,000 employees. 

Still, many questions remain about the deal's benefit to the community, including strains on downtown traffic and services. 

Telisha Cobb, a Nashville community organizer and co-owner of Marathon Music Works events venue, said she's not looking forward to Amazon's arrival.

Already, housing costs and rent downtown are too high for many of her employees.

Small businesses are increasingly unable to compete with larger companies as building rents and marketing costs soar, she said.

"We don't ask the hard questions: Are these jobs for people who live in Nashville?" Cobb said. "All the money Amazon saves is money they can put into marketing. We don't have the ability to do that. We're having to compete on a really unequal playing field, not to mention no one's paying us to hire people."

Sandy Mazza can be reached via email at smazza@tennessean.com, by calling 615-726-5962, or on Twitter @SandyMazza.