Amazon's New HQ?

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RailBaronYarr
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Re: Amazon's New HQ?

Postby RailBaronYarr » October 18th, 2017, 9:46 am

That was, and is, a nice little bit of napkin math. A few issues I had with it then/now:
- This assumes an immediate ramp up to 50k employees, which will definitely not be the case. It may take 10-20 years before they hire that many people (if ever, as you note by assuming we take them at their word)
- It ignores any cannibalization of economic growth in the region/state - not just of competing industry companies like Target or Best Buy, but any talent they pull from medical device manufacturers, banks, etc who struggle to hire talent as Amazon is pulling from within the market and accounting for a larger share of people willing to move to MN for a job.
- It also ignores the cost of serving 50,000 additional people employees (and their families) with public services. Schools, roads, transit, police/fire, health/human services, anything that comes out of the general fund (at the state or local level) above and beyond what those new people pay in direct user fees for services (at either the state or local level)

Without counting cannibalization or spin-off benefits, it's not hard to make a few estimates taking into account some of the other factors mentioned. For a person (or household) making about $100k/year, the state+local tax incidence (including property taxes, income, sales, excise, other, and business' share per person) is around 12%. Let's assume they start out with 5,000 employees and hire an additional 3,000 per year, and that the average annual salary increases by 2% per year. And that of all the tax revenue generated at state/local levels, 35% of it pays for that marginal growth (again, paving new roads, hiring more cops, building more schools/paying for more teachers - I think this is a conservative estimate). It would take 8 years to hit a cumulative payback of $1B, and 21 years to hit $7B (no interest on that initial handout). You could obviously play with any of those levers, or get more complicated by including other net positive growth thanks to Amazon, but yeah it's not hard to see that given the incomes of the people Amazon would hire, an investment would pay for itself in a reasonable time, even including opportunity cost of the handout.

That.... does not mean it's a good move in the scheme of things. The optics/morality of handing out a billion bucks to Amazon while thousands of main street retailers struggle across our state, without any subsidy, is... I dunno.

MNdible
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Re: Amazon's New HQ?

Postby MNdible » October 18th, 2017, 10:14 am

- It ignores any cannibalization of economic growth in the region/state - not just of competing industry companies like Target or Best Buy, but any talent they pull from medical device manufacturers, banks, etc who struggle to hire talent as Amazon is pulling from within the market and accounting for a larger share of people willing to move to MN for a job.
It's been noted before that the cannibalization of Target and Best Buy will happen regardless of whether Amazon is here or not.

And while there would be competition for existing employees, the presence of Amazon would be a massive pull to bring new workers into the market, something state demographers will tell you that we desperately will need.

LakeCharles
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Re: Amazon's New HQ?

Postby LakeCharles » October 18th, 2017, 10:46 am

On your math, RBY, by year 21 you are assuming they would have 65,000 employees (with an average salary of $150,000). If you capped the number of employees at 50,000, allowed 2% salary growth as you suggest, but allowed the same growth to the initial investment (not spending $7B, and just investing it at a 2% annual return), it would take 30 years to pay off the initial investment.

Here is maybe where we note that Amazon has only existed for 23 years, and only had an HQ in Seattle with more than 50 employees for 17 years. To this day it "only" has 40,000 employees in Seattle. So even Seattle never made it to 50,000 employees before Amazon decided to build a new HQ elsewhere.

Besides all that, wouldn't handing out $7B to almost anyone be a net increase on the economy? What if we just found the 100,000 poorest families in this state, and gave them all $70,000? That'd be a huge positive for economy of the state, in many ways. You'd have to think it would also eventually pay for itself, in terms of education, health care, all sorts of things.

But even though it would probably eventually pay for itself it's probably not a good idea.

QuietBlue
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Re: Amazon's New HQ?

Postby QuietBlue » October 18th, 2017, 11:13 am

And of course, in twenty years, Amazon could well be in the same position Target and Best Buy find themselves in now, or worse. In 1997, Sears and Kmart were the 2nd and 3rd largest retailers in the country (and Kmart hadn't even peaked yet). Those are extreme examples, of course, but it shows what can happen over that much time.

MNdible
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Re: Amazon's New HQ?

Postby MNdible » October 18th, 2017, 12:02 pm

All of that's true, of course. And I'm not saying that $7b is a good number. And I'd love it if Congress made this sort of game illegal.

But none of the above accounts for the multiplier effect of adding that kind of economic bump to the economy. Again, if what Amazon is proposing actually comes to pass, the true economic growth to the state would quickly eclipse $7b.

Also worth noting is that nobody is going to just cut Amazon a check for $7b. A lot of the subsidy would probably come in the form of things like waived sales tax on construction costs, capped property taxes, ongoing subsidies for employed workers over time, etc. etc.

kirby96
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Re: Amazon's New HQ?

Postby kirby96 » October 18th, 2017, 1:07 pm

^Right. That's the other part that jumped out at me. Just like the benefits are realized over time, the theoretical $7B isn't an outlay today, but over many years as well. That would dramatically shorten the payback time. All that said, though, I'm in agreement with the opinion that investing this amount of money presents a VERY sketchy risk-reward profile. Things are generally good here, we aren't in a position where we need to throw Hail Mary's like this at the present time.

mplsjaromir
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Re: Amazon's New HQ?

Postby mplsjaromir » October 18th, 2017, 1:40 pm

It's cool how new residents won't need any services from the state.

jebr
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Re: Amazon's New HQ?

Postby jebr » October 19th, 2017, 11:55 am

It's cool how new residents won't need any services from the state.
The math above assumes that 35% of the additional tax revenue would be used to pay for increased spending needed due to the additional people. That's probably not too far off; assuming there aren't too many workers making significantly below $100k there wouldn't be a lot of new enrollees to our social safety net programs, and a lot of the other programs that the state/local governments operate have a large base cost and low-ish incremental costs (assuming current road infrastructure could generally handle the increased vehicle count, adding additional drivers on the road doesn't increase maintenance costs much but adds more people into the pool to pay for it.)

There's certainly some cost, but if the jobs are as solid as Amazon is claiming there almost certainly would be a net positive income to state and local coffers even after accounting for those incremental costs.

nate
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Re: Amazon's New HQ?

Postby nate » October 19th, 2017, 12:26 pm

Can we all agree that maybe $7B is too much money to spend, but $0 is too little?

tmart
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Re: Amazon's New HQ?

Postby tmart » October 29th, 2017, 7:59 pm

My gut instinct is that the subsidies matter, but not as much as people think. It's probably a tiebreaker, not a decision driver. Amazon made almost $48B of profit last year. This is a decades-long investment. A couple billion in one-time incentives is meaningful, but not going to make or break their bottom line. Their ability to attract and retain top developer talent matters way more to their continued viability.

Speaking as someone who worked for one of the big names in Silicon Valley, I can say that employees are seriously anxious about housing and transportation. The housing and transportation situations, and the social consequences of them, were bad enough to wear me down and drive me away after about a year and a half. Silicon Valley is now seeing net out-migration to the rest of the US for the first time in recent history. And there's a strong suspicion that the same factors will affect Seattle in the near-term (particularly since it's popular as a landing spot for people fleeing Silicon Valley). I think MSP's comparatively low housing prices and educated workforce really do address two key factors. I think the lack of demonstrated commitment/ability to expand rapid transit will be a bigger mark against us than the size of subsidies our region offers.

Anondson
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Re: Amazon's New HQ?

Postby Anondson » October 30th, 2017, 9:30 am

Speaking as someone who worked for one of the big names in Silicon Valley, I can say that employees are seriously anxious about housing and transportation. The housing and transportation situations, and the social consequences of them, were bad enough to wear me down and drive me away after about a year and a half. Silicon Valley is now seeing net out-migration to the rest of the US for the first time in recent history.
This is accurate. My last day working there was Friday. My coworkers talked about this with immense anger there is nothing that will fix it and make housing and transportation get better for years at the rate costs are climbing.

The California laws that just changed won’t affect things for years, proposals are all luxury and take years to get approvals, Caltrain electrification will take years. Extending BART to San Jose will finish in years. BRT on El Camino will take years. Cupertino voted to keep an abandoned dead mall empty rather than allow it to become housing and a hotel (and bring traffic and ruin housing values). There were some flickers of hope but relief is so far in the distance it is demoralizing. It’s why I’m back.

Long timers who own homes don’t feel the costs and upper management of tech companies don’t feel the housing costs like average engineers. Not a single coworker who lived in the Bay for less than ten years didn’t dream of moving out of the Bay. Even lower managers.

The moment any city gets the Amazon pick, if they don’t buckle down and start building housing at an emergency rate they will be complicit in causing their housing crisis.

tmart
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Re: Amazon's New HQ?

Postby tmart » October 30th, 2017, 11:55 am

The moment any city gets the Amazon pick, if they don’t buckle down and start building housing at an emergency rate they will be complicit in causing their housing crisis.
Agreed, but also, I think Amazon is kind of a red herring because most of our major cities are already in this boat.

QuietBlue
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Re: Amazon's New HQ?

Postby QuietBlue » November 3rd, 2017, 9:28 am

This is accurate. My last day working there was Friday. My coworkers talked about this with immense anger there is nothing that will fix it and make housing and transportation get better for years at the rate costs are climbing.
While I realize there are certain advantages for tech companies to locate in the Bay Area and being a part of that ecosystem, it really seems like the disadvantages will offset them very soon, if they don't already. Non-tech companies are already bailing -- mine used to have a presence in the East Bay, but ended up relocating, partially out of state and partially further east to a smaller location in the San Joaquin Valley. My SO moved here from the Bay Area years ago due to the cost of living -- she had a decent job that would have paid more than enough in many cities, but, being a renter that wasn't making tech sector levels of money, it wasn't enough to keep up. She took a pay cut to move here, but the COL was so much lower that it was effectively a raise.

I agree that wherever Amazon ends up, it's going to be highly disruptive to the local economy without drastic measures being taken.

Silophant
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Re: Amazon's New HQ?

Postby Silophant » December 27th, 2017, 7:04 pm

Joey Senkyr
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mamundsen
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Re: Amazon's New HQ?

Postby mamundsen » December 27th, 2017, 7:55 pm

So... we would be HQ2? I don't have access. Any details besides Gene wildly speculating?

Anondson
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Re: Amazon's New HQ?

Postby Anondson » December 27th, 2017, 7:57 pm

Gene speculates badly. He’s been saying Apple will make a smart TV for the past many years.

But who knows!

Bakken2016
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Re: Amazon's New HQ?

Postby Bakken2016 » December 28th, 2017, 9:58 am

I'm not sure if I'm a big fan of Amazon buying its biggest competitor.

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VacantLuxuries
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Re: Amazon's New HQ?

Postby VacantLuxuries » December 28th, 2017, 10:08 am

A better move would be Amazon buying out CVS to give themselves not only a physical presence across the country (if they want that, which doesn't strike me as smart move anyway) but automatic placement into every Target since CVS bought the Target Pharmacy.

SurlyLHT
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Re: Amazon's New HQ?

Postby SurlyLHT » December 28th, 2017, 10:57 am

There would be benefits to Amazon buying Target. They'll get the Target brands and be able to operate at a scale that should bring fear to Walmart. Target would also bring profitability and help Amazon not be so depended on AWS. I mean if AWS were to falter at some point what are Amazon's options? As far as HQ2 goes they could both expand their Downtown presence and build a campus in Brooklyn Park. (Maybe create enough moment to get the LRT project completed.) With that said, who knows...just more speculation.

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VacantLuxuries
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Re: Amazon's New HQ?

Postby VacantLuxuries » December 28th, 2017, 2:30 pm

My bigger concern would be if this would come after HQ2 is announced for another city - leaving us with one fewer major HQ and at the mercy of future Amazon downsizing/optimization.

But like you said, speculation.


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