Austin Enters The Race, Submitting Its Proposal For Amazon HQ Project

AUSTIN, TX — It's official: Austin has submitted its bid to land the coveted Amazon HQ2 — a second headquarters the giant online retailer wants to build that has cities across the country scrambling trying to secure.

Austin Chamber officials sent notification of its proposal being sent to media outlets on Wednesday afternoon, including Patch. The bid was submitted one day ahead of the deadline. The city joins more than 50 cities throughout North America vying for the prized project.

Chamber officials have told Patch in previous interviews of an ambitious proposal in the mix, details of which weren't disclosed given the intense competition. The Amazon HQ2 project is one of the biggest economic development projects in recent memory, promising the creation of some 50,000 good-paying jobs paying an average of $100,000-plus at a facility comparable to the Seattle flagship.

In past missives, Amazon officials have noted the Seattle headquarters generates about $40 billion into the local economy, with the second plant for the e-commerce giant is expected to be built at a cost of $5 billion. So right there, that's at least those 45 billion reasons so many cities are aggressively going after the massive project.

But some cities have bowed out of the running, averse to having to offer tax abatements or other financial inducements to a company that made $136 billion in revenue last year, spending money along the way to prepare a bid on something that's not a sure bet.

Neighboring San Antonio is one such city, announcing last week they won't be bidding for the ginormous project. “Blindly giving away the farm isn’t our style,” Bexar County Judge Nelson Wolff and San Antonio Mayor Ron Nirenberg wrote in a joint letter sent Wednesday to Amazon CEO Jeff Bezos, the San AntonioExpress-News reported.

Local business officials there echoed the sentiment, the newspaper reported. Amazon’s approach to soliciting bids from municipalities for their new headquarters represents "...a completely new way of doing expansions and I believe it’s probably the way companies are going to seek incentives in the future,” said Ramiro Cavazos, CEO and president of the San Antonio Hispanic Chamber of Commerce.

But that's not entirely accurate. Companies have long pitted cities against each other in making bids, yet invariably require incentives to build a facility — even the richest firms that can easily afford to build without incentives. Back in the late 80s, San Antonio began to realize the folly of offering generous incentives to land companies — at least without guarantees of consistent worker levels and economic impact for the long term — in a practice ushered in earnest during that decade.

Such was the case with Sea World for which city and county officials offered a mix of tax abatements, only to see the company's work levels steadily decrease in intervening years. Meanwhile, the ironclad agreement made it impossible to recover from property taxes given the promised abatements.

But San Antonio's been a tad slow in learning its lesson about "...giving away the farm" (hardly a modern practice, as Wolff suggested), and continues to get burned. In May, Bexar County officials terminated a 10-year tax abatement for Houston-based oilfield service giant Baker Hughes Inc. at its 60-acre property and 150,000-square-foot office in the southern part of the city, as the San Antonio Business Journal reported.

The reason? The company was to get its 50 percent tax break through 2024 if it made a $30 million capital investment and maintain 405 jobs. But the downturn in the energy sector created a dwindling workforce of just 180 workers just before the agreement's termination. The once-thriving company had to undergo the indignity of sending the city a check for more than $94,400 given the lowered worker levels that effectively terminated the abatement agreement, as the business journal reported.

In the 90s, NASCAR officials pitted cities against each other in trying to secured the sweetest tax deferment bill to build their Texas Motor Speedway in Fort Worth. At the time, cities officials throughout Texas were virtually falling over each other to land the economic development plum with packages of cost-saving tax incentives for speedway builders.

Austin seems less averse to "giving away the farm," to borrow again from Wolff's terms. Last month, when Austin City Council member Leslie Pool merely floated the idea of ending a financial incentives package with developers of The Domain (the mixed-use housing/retail development in North Austin), she came short of being burned at the stake (figuratively speaking, naturally). Officials from myriad camps — Mayor Steve Adler, Austin Chamber officials and others — were vocal in swatting the mere idea down in what amounted to a collective gasp of disbelief and horror.

"We are deeply troubled by Council Member Pool raising questions that some would say cast doubt on Austin's integrity," Ellen Wood, board chair at the Greater Austin Chamber of Commerce, said in a prepared statement at the time. "The Austin City Council, acting on behalf of the citizens of Austin, executed an agreement in 2003 to develop The Domain."

Wood wasn't done: "The suggestion by a public official that we might seek now to break this agreement sends a dangerous message in and out of the region that Austin is not trustworthy. It’s not the right way to treat people. We gave our word. We call on the City Council to defend the integrity of Austin citizens.”

The city approved a 20-year, $37 million tax break in 2003 with developers under conditions related to employment levels, job creation and development of affordable housing. Those abatements are in no danger of being rescinded given the outcry against Pool's musings.

But tax abatements can be tricky things, and the devil is sometimes in the details. Let's go back to San Antonio for an example, shall we? In 2011, the city competed aggressively to land some of work for Boeing's Dreamliner airplane project, pursued in part to showcase worker capabilities at Port San Antonio — once the stories Kelly AFB that proved a mighty economic engine crediting with creating a Hispanic middle class in San Antonio.

The city landed a piece of the project, but to do so agreed to tax the four aircraft (considered real property) at a fraction of the cost, as the San Antonio Current reported in 2011. As originally structured, the deal called for each of four Dreamliner aircraft valued at $165 million ($660 million combined) to be appraised at a mere $66 million apiece – creating a value loss of $594 million. The loss in taxable value equated to about $16.5 million for county jurisdictions — including South San Antonio Independent School District and Edgewood Independent School District, among the county’s poorest.

The agreement to tax the aircraft at just 10 percent of appraised value in exchange for bringing the work home to San Antonio cost taxing entities dearly — most painfully at school districts that could've used the extra tax revenue for the kids. The upshot: South San ISD lost out on roughly $750,000 in property taxes each year under the agreement, while Edgewood (again, one of the poorest school districts around) lost a staggering $7.8 million. The revenue that would've benefited those students instead helped Boeing — which posted net income the previous year of $3.3 billion on $64.3 billion in revenue — to trim its tax bill.

But the Amazon HQ2 project is a different — and very, very big — kettle of fish entirely. And some people already are saying that Austin is the likeliest to gain the plum. Analysts at Moody's have taken the role of oddsmakers amid this economic development contest, positing Austin as the most likely to land the whole enchilada, as Business Insider reported.

To achieve the prediction, Moody's looked at five of several metrics: business environment (economic growth, the city's history of corporate tax incentives, and the region's credit ratings), a skilled workforce, costs (pertaining to real estate, taxes, energy prices, and labor), quality of life, and transportation. The analysts excluded Seattle, the home of Amazon's first headquarters.

"Austin has a much lower cost of living than places such as Silicon Valley," analysts noted. "Even though house prices have been rising and are high for Texas or the South, they are well below those in California or the Northeast. Anecdotally, the quality of life is high, and many want to live in the 'Silicon Hills.' Further, being in Texas, Austin resides in a business-friendly state that seeks to attract and keep companies."

The analysts put Atlanta-Sandy Springs-Roswell, Georgia and Philadelphia, Pa. in the second and third ranking, respectively, in terms of likelihood of landing the project.

But for now, it's anyone's guess who'll haul in this mammoth project. So now, we wait. And may the best incentives package win.

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