Yes, cities should indeed fight for tech jobs- A payroll tax recapture strategy

Few events have jolted the urban planning crowd quite like Amazon’s process for selecting the company’s new second headquarters (dubbed HQ2). The company put up a massive carrot of 50,000 jobs and $5 billion in investment, and then proceeded to demand proposals from cities across North America (lovingly written up by Clickhole). Perhaps unsurprisingly, Amazon received 238 proposals, and this week chose twenty finalists.

Apple is also getting in the game now, announcing this week that it too is going to build a new “campus” that would focus on technical support, at least initially. While it hasn’t announced a request for proposals yet, it did say the decision on location “will be announced later in the year.”

While city officials are rushing to put together proposals, urban thinkers are aghast at these so-called reverse RFPs. Amy Liu, who runs Brookings Institution’s prominent Metropolitan Policy Program and spoke to NPR about Amazon’s process, said that “It’s created a major distraction from what the real day-to-day economic development activity should be.” Which, apparently, is not job creation.

More ominously, Seattle Times staff columnist Danny Westneat warned the winning city of Amazon’s HQ2 process that “Amazon is about to detonate a prosperity bomb in your town.”

A prosperity bomb! Maybe Hawaii can send out an alert.

What all these critics are missing though is that the economy has changed dramatically over the past thirty years. Everyone is competing forbetter jobs and better income, be they workers and citizens or cities, states, and even national governments. China is competing ferociously to bring back AI talent to its mainland from the United States in just the same way that Illinois is trying to get Amazon to set up shop through a payroll tax recapture strategy.

Here’s what I see with the Amazon process: 238 cities across North America, in just a few weeks, managed to each put together their own proposals on what they would offer to bring the company to their area. Boston has taken decades to extend the green line to Somerville, but managed to put together a second-phase winning proposal for Somerville in just a matter of weeks.

Now that’s government speed I can start to like.

This approach to government is starting to become the only way to get things done. A single apartment building in San Francisco can take hundreds of hours of debate to get approved, as the YIMBY movement has learned over the past two years. But when cities compete for jobs or investment, they seem to be able to make decisions almost instantly.

Critics too often focus on the tax incentives while ignoring the fact that these economic development proposals are often lifelines for infrastructure projects that will otherwise never see the light of day.

Take Boston’s bid for GE’s new headquarters. Yes, the city offered property tax rebates of about $25 million, but GE’s move also pushed the state to fund a variety of infrastructure improvements, including the Northern Avenue bridge and new bike lanes. That bridge adds a critical path for vehicles and pedestrians in Boston’s central business district, yet has gone unfunded for years.

Ideally, governments could debate, vote, and then fund these sorts of infrastructure projects and community improvements. The reality is that without a time-sensitive forcing function like a reverse RFP process, there is little hope that cities and states will make progress on these sorts of projects. The debates can literally go on forever in American democracy.

So if you are a mayor or economic planning official, use these processes as tools to get stuff done. Use the allure of new jobs and tax revenues to spur infrastructure spending and get a rezoning through a recalcitrant city council. Use that “prosperity bomb” to upgrade old parts of the urban landscape and prepare the city for the future. A healthier, more humane city can be just around the corner.

Now, there are a lot of critics of these reverse RFPs, and they have valid points. They could be non-democratic, in the sense that the infrastructure built or the incentives offered might ultimately be valuable to the company and not the citizens of a community.

This is relatively unlikely in the case of Amazon and other techcompanies, given that their technical workforces are highly-mobile and choose cities with quality urban amenities. If Amazon showed up and said “cut the taxes and eliminate mass transit,” they would be undercutting the very talent they were hoping to reach. In other words, there are market limits here, and Amazon’s urban goals are in many ways aligned with urban dwellers.

The second criticism is around the tax incentives themselves. There are valid questions on whether governments should subsidize companies to switch borders, particularly when companies are leveraging cities off each other. Even so, corporate subsidies are nothing new, nor is the controversy they stoke.

Good Jobs First, a watchdog non-profit that has monitored corporate subsidies for years, has data showing that almost 400 companies have received subsidies of $50 million or more. The reality is that these programs have been going on for years, and while there are some egregious case studies, there are also success stories of cities effectively using economy development subsidies as well.

Finally, there is the “prosperity bomb” crowd, otherwise known as the anti-growth crowd. The challenges that cities have faced in attracting businesses goes back to these people, who oppose new construction, who oppose new housing, and who desperately cling to a past of a “residentialist” city rather than seizing the moment to grow the next global city.

To whom I say: go right ahead and vote.

No one has to be left behind in these projects. It doesn’t have to be zero-sum. But cities can no longer act as if workers and companies have no choice on location and are forced to accept suboptimal cities as a result. The reality is that the market will work, and those cities with slim ambitions are going to be dwarfed by cities with the vision and thought to boldly build for the 21st century. Ultimately, that choice lies with the cities and not with Amazon.