Why Amazon’s HQ2 Failed in New York but Succeeded in Virginia
Amazon founder Jeffrey Bezos, pictured in February 2021. Photo courtesy of Daniel Oberhaus.
Cities are changing. They are becoming increasingly defined by their embrace of the knowledge economy and level of technological activity. Looking at the social, political, and economic factors that influence businesses’ decision-making provides crucial insight into where multinational corporations decide to expand. These location choices can impact which cities continue on the path of economic development, and which cities decline. Meanwhile, tech-led gentrification has come under criticism for creating exclusionary public spaces and exacerbating existing housing shortages. For this reason, it is vital that one explores the factors that cause deals to succeed and fail under public scrutiny. This paper will examine the extent to which neighborhood groups and unions had power to influence the search and retention process for Amazon’s second headquarters’ (HQ2).
Since its founding, Amazon has been headquartered in Seattle, Washington. In September of 2017, Amazon announced its search for a second headquarters. 238 cities submitted bids, offering large tax incentives and local infrastructure perks to entice the tech giant. One year later, Amazon selected two cities as finalists, splitting HQ2 and its projected 50,000 employees between Long Island City, New York, and Crystal City, Virginia. On February 14, 2019, however, Amazon canceled its plan for the Long Island City headquarters, leaving Crystal City as the next home of Amazon. In Crystal City, coalitions among unions and neighborhood groups, in addition to coordination across all levels of government, paved the way for a smooth deal-making process. In contrast, political gridlock in New York and discontent among politicians culminated in the cancellation of the deal at the Public Authorities Control Board.
THE HQ2 SEARCH PROCESS
On September 7, 2017, Amazon released a call for proposals for HQ2. Cities gave an average economic incentive of $2.15 billion, and states gave an average of $6.75 billion. The use of economic incentives to attract business was not new; however, cities’ usage of them had increased from 68% to 95% between 1999 and 2009. In comparison to subsidies offered to other companies, such as the $8.7 billion given to Boeing in 2013, the Amazon incentives were not outlandish. Economists have long debated the efficacy of these incentives, often concluding that they are an inefficient use of resources and do not significantly change a corporation’s behavior. In the case of Amazon, however, the dominant strategy of politicians was to offer incentives despite the cost. Not playing the game meant automatically losing, as politicians would lose out on the political benefits of associating with Amazon, even if the chance of swaying the firm with a creative idea was unlikely. Amazon knew this: the firm took advantage of a fragmentary, competitive development process to extract the best combination of dollar incentives and local resources it could find.
AMAZON IN NEW YORK CITY: THE DEAL
A memorandum of understanding, dated November 12, 2018, formalized the relationship among several entities exclusive to New York: Empire State Development (ESD), the New York City Economic Development Corporation (NYCEDC), and Amazon. In exchange for creating 25,000 jobs and filling four million square feet of office space, Amazon would receive $505 million as a direct cash grant and $1.2 billion from the New York State Excelsior Program. In total, Amazon would receive a combined $3 billion from the state and the city. As part of the PILOT program, ESD would lease the proposed property site to Amazon directly, and Amazon would not have to pay property taxes on part of its land. Nevertheless, Amazon would still have to wade through NYC’s complicated building and regulatory processes, specifically those related to zoning. While the memorandum made the deal appear seamless, tensions increased after Governor Andrew Cuomo signed the General Project Plan (GPP).
THE BACKLASH: LOCAL POLITICIANS, ACTIVISTS, AND UNIONS
By signing a GPP, Cuomo bypassed other legislative avenues that would have required a state or city vote, most importantly the city’s eighteen-month Uniform Land Use Review Procedure (ULURP). The city created ULURP in 1975 to prevent “megaprojects” from being built without public approval. Bypassing city government procedures angered local politicians, who saw the $3 billion deal as a slight to their authority. New York City Council Member Jimmy van Bramer commented that it was “obscene” to give $3 billion to Amazon. State Assemblyman Ron Kim, who represented the Queens District containing Amazon’s future site, argued that Amazon should be paying New York an “extraction fee” to compensate for the money it would take out of the local economy. More politicians jumped in over time, increasingly incensed that Cuomo spearheaded the deal instead of city representatives. Others were frustrated at the lack of transparency from the Governor and the Mayor. As Jimmy van Bramer stated, “When Jeff Bezos needed $3 billion, the governor and the mayor found it sure damn quick.”
As state and local politicians continued to debate the value of the Amazon deal, grassroots community organizers and unions joined the fight. Activists were concerned about housing availability, especially as it related to the historical context of development in Long Island City. Since 2010, more housing units had been built in Long Island City than in any other neighborhood, with most selling for above $1 million. Meanwhile, Long Island City also contained the Queensbridge Houses, the largest public housing complex in Queens, where the median income of $15,843 fell well below the federal poverty line. Noting the changing demographics, activists questioned whether Amazon would hire from the community, especially given Amazon’s reputation for hiring in-house for advanced technical positions while contracting out lower-level and service positions.
The views within the community itself were mixed. The Queensbridge Tenants Association was initially pro-Amazon as long as the company hired from the neighborhood. Later, after the deal had faced scrutiny from local politicians, 400 residents signed a petition against the deal, but their reasons for signing had been controversial. Local politicians latched onto progressive ideas of activism and used those voices to amplify their positions. Queens State Senator Jessica Ramos spoke up about the irony in giving “the richest company in the world” public subsidies “in the middle of the housing crisis, in the middle of the public transportation crisis.”
Support for HQ2 also fractured along union lines, specifically between 32BJ Service Employees International and the Retail, Wholesale, and Development Store Union (RWDSU). Amazon partnered with the Building and Construction Trades Council of Greater New York for the building of HQ2 and also received support from 32BJ. In tandem with the progressive groups, the RWDSU and the Teamsters opposed the deal, as they were excluded from the negotiations between Amazon and the Building and Construction Trades Council. All of these unions were active in city council hearings. At a January 30, 2019 rally, retail union workers held up signs that said “Amazon lies” and “Amazon fuels ICE deportations,” while 32BJ members showed up to support the deal. According to Katie Shane, Former Deputy Political Director at the New York City Carpenters Union, union divides often mirrored community divides, pitting those community members who wanted jobs against those who wanted more affordable housing. Politicians latched onto these concerns when expressing their discontent with the project.
POLITICAL GRIDLOCK: GOVERNOR CUOMO AND THE PUBLIC AUTHORITIES CONTROL BOARD
While dissent was fractured along union lines and visible at public hearings, as well as utilized by local politicians in their rhetoric against Amazon, union disagreements were not the main cause of the failure. Larger political grievances overpowered both unions and community groups.
The most decisive moment in the HQ2 deal occurred within the confines of the Public Authorities Control Board (PACB). In New York, state benefit corporations such as NYCEDC and ESD can only receive approval for a project with unanimous PACB support. At the time of the HQ2 conversations, the PACB consisted of three voting members, who were selected based on recommendations from legislators and approved by the Governor. On February 11, 2019, the New York State Senate selected State Senator Michael Gianaris, an outspoken critic of the HQ2 deal, for the open PACB position. If Cuomo rejected the appointment of Gianaris, it could have led to a clash between Cuomo and State Senate Democrats, who had control of the Assembly and the Senate for the first time in ten years. While not all parts of the HQ2 grant were subject to PACB approval, a refusal to approve the project would mean the de facto cancellation of the project. The decision to appoint Gianaris aside, the damage had already been done. On February 14, 2019, Amazon canceled New York’s HQ2. Amazon noted: "A number of state and local politicians have made it clear that they oppose our presence and will not work with us to build the types of relationships that are required to go forward.” Amazon’s decision was a victory for Alexandria Ocasio-Cortez, who heralded Amazon’s withdrawal as a win for grassroots politics, citing the power of everyday New Yorkers. The collapse of the deal, however, once again incited tension among the representatives, with Cuomo, de Blasio, and local politicians blaming each other for the deal’s failure.
New York’s complicated political institutional structure fueled the Amazon withdrawal as it facilitated fractured intra-governmental relationships. From local politicians outraged at the bypassing of ULURP to the PACB ordeal, local and state institutional structures were critical to the bidding process, selection, and ultimate failure of the deal. Even though unions and political organizations were vocal, politicians only latched onto these concerns when they furthered their original opposition to the backhanded political bargaining between Cuomo and De Blasio.
AMAZON IN VIRGINIA: THE DEAL
The players and the politics of Virginia significantly changed the course of the deal in Virginia. The Memorandum of Understanding among the Commonwealth of Virginia, Virginia Economic Development Partnership (VEDP), and Amazon, dated November 13, 2018, formalized the incentive structure between the Commonwealth and Amazon. Virginia gave Amazon $574 million in direct incentives. The Commonwealth promised to invest $195 million in local infrastructure and projected it would receive $3.2 billion in taxes from Amazon over twenty years. The Memorandum mentioned the political structures that Virginia could help Amazon navigate, such as giving Amazon additional regulatory flexibility with help from the Secretary of Commerce and Trade and the VEDP. At this point, the deal itself was sharply different from the one in New York: the Virginia deal was five times smaller in terms of the dollar amount of incentives. The deal also lacked as-of-right incentives and received significant community support.
GOVERNMENTAL COORDINATION: THE BUILDING BLOCKS OF SUCCESS
Collaboration was key to the deal succeeding in Northern Virginia, and this teamwork started even before Crystal City submitted its deal. Stephen Moret, Virginia’s top development official at the VEDP, overhauled the institution from one a state watchdog group called “vulnerable to fraud” to an organization that established close relationships with Virginia’s counties. In the weeks before submitting the initial proposal to Amazon, Moret connected state officials and business leaders by hosting site visits and leading discussions with Amazon executives. There was cooperation within the three Virginia state proposals themselves as well, suggesting a top-down, unified strategy for acquiring Amazon. This initial cooperation would prove useful, as spending for Amazon still had to be approved by the State Legislature and the Arlington County Board.
BACKLASH IN ARLINGTON: HOUSING AND UNION CONCERNS
In Arlington County, politicians and advocacy groups raised similar concerns as those that ultimately stymied the New York deal. Lee Carter, a delegate in the VA House of Delegates, notably said, “We’re paying for the privilege of making our own lives worse.” Other politicians were caught off guard, as funding for Amazon was not included in the Commonwealth’s two-year budget plan. Every State Senator and Delegate was up for reelection in 2019, and some wanted to put funding into issues they considered more important, such as the opioid epidemic and school funding. However, in contrast to New York, there was not a deeply ingrained conflict between local and state politicians. While some local politicians in Virginia did oppose the deal, it was often not on ideological grounds, as many Virginia politicians supported the idea of a large company moving in — including those in the Democratic stronghold of Northern Virginia. Similar to New York, housing was a salient issue. Northern Arlington is one of the most expensive communities in the D.C. area, with home values averaging over $1 million. Meanwhile, the southern half of the county holds a high concentration of low- and moderate-income households. Housing activists were concerned that an influx of tens of thousands of well-paid tech workers would increase inequality by raising housing prices and pushing workers farther into the suburbs.
The biggest tensions occurred among unions, progressive advocacy groups, and Arlington County Board members. On March 16, 2019, one month after the deal fell through in New York, the county held a board meeting to approve the Amazon subsidies. In the middle of the hearing, protestors interrupted, yelling “shame” and twice causing board members and Amazon executives to leave the room. This opposition was made up of a coalition of left-wing groups and immigrant groups, as well as NAACP and AFL-CIO leaders who objected to Amazon’s unwillingness to sign a project-labor agreement (PLA). After six hours, the County Board unanimously voted to give local and state subsidies to Amazon. While the outcome was already fairly certain, given that board members had previously supported the plan, the disruptions provided insight into community tension.
Nine months later, a December 14, 2019 County Board meeting resulted in similar, albeit less vocal tension. During this meeting, Amazon stated it would provide community benefits, such as $20 million for affordable housing and new bike lanes in exchange for permission to build two 22-story buildings. At this meeting, 100 union carpenters protested against payroll fraud for renovations they were performing on Amazon’s temporary Northern Virginia headquarters. They were especially concerned about wage theft, which occurred when subcontractors pocketed workers’ wages. At the meeting, the County Board unanimously approved Amazon’s plan for the 22 story buildings, but the Board did briefly mention that Amazon executives should resolve the payroll problem.
RESPONSE TO THE BACKLASH: WHAT MADE THIS DEAL SUCCEED?
In Virginia, unions paved the way, and in some cases spearheaded cooperation among workers, government, Amazon, and the broader community. Stephen Courtien, the President of the Baltimore-DC Metro Building and Construction Trades Council, represented 21 construction unions involved in the deal. Throughout the period of backlash, Courtien met with Amazon representatives and developer JBG Smith to push for fair wages for union members. Regarding the unions’ concerns over the lack of a PLA, which would ensure that Amazon paid fair wages and protected workers against wage theft from subcontractors, Courtien still faced opposition from Amazon. Nevertheless, with a critical mass of coalitions pushing, Amazon finally agreed to pay the prevailing wage rate for the project, thus ameliorating the issue of wage theft and giving union workers a higher wage than the Virginia default.
It should be noted that Virginia unions had less bargaining power than in New York. In New York, the Amazon job would be a union job, due to the power and influence of New York City unions. That union presence was not guaranteed in Arlington. As a result, unions had more of an incentive to cooperate with Amazon, even if they did not get their PLA. Meanwhile, leaders at the Carpenter’s Union were also advocating for their members. Greg Akerman, a researcher at the Carpenter’s Union, supported union members alongside community advocates and county board members, often educating them on the importance of PLAs. He noted that union success in Arlington was due to a focused, cooperative means of negotiating through potential agreements and labor standards, while remaining aware of the goals and leverage from different state actors.
While there was not a true coalition among unions and progressive groups, cooperation did occur. Virginia Diamond, President of the Northern Virginia AFL-CIO, worked with community groups connected to the Democratic establishment, such as the Arlington Democrats, who added to the coalition of support for workers and the opposition to wage theft. Absent any hard fractures along political, organizational, or union lines, union coordination only helped pave the way for the success of the deal. When faced with public backlash, such as the two incidents at the Arlington County Board hearings, unions advocated for their members and local politicians responded. Unlike New York, dramatic moments were rare.
The failure of Amazon’s deal in New York and its success in Virginia signaled the importance of local politics to business expansion. As corporations continue to grow and migrate, politics will determine which cities win and which lose. These wins and losses will affect the microlevel of cities and neighborhoods as well. Moreover, politics will also determine which community members ultimately benefit from corporate expansion. As seen from this paper, wins and losses have differing effects along class, race, and occupation lines. Ultimately, politicians will need to continue negotiating with businesses in order to secure the best outcome for their constituents.
Mary is a Senior at Barnard studying Political Science and Economics. In her free time, she can be found rock climbing or hauling her bass guitar around campus.