Donald W. Reynolds National Center For Business Journalism

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Amazon HQ2 was a tipoff on a big business topic

January 10, 2019

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Amazon HQ2 was a tipoff on a big business topic: development deals and subsidies. Here’s what you should know to cover this topic locally. (Image Credit: Pixabay user Free-Photos)

Whatever your beat, you had to hear about Amazon HQ2. A beauty contest arranged by the retail giant to pick a location for a second headquarters. Except it turned out to be a second and third. And then a fourth—a distribution center.

All of it involved subsidies, money that cities and states were willing to pay as enticements for the secondary location.

The theory on the part of politicians and others is that if they pay enough, in comes a company. The accompanying jobs mean something to offer voters and hopefully the chance for reelection.

Yes, there are people who believe that this type of development deal ultimately is sensible and attracts other deals that help make up for the big one. The huge payment spreads over time and is an amortized loss leader.

But the issues are far more complicated and can involve virtually any geographic area and industry. In other words, eventually this becomes part of your coverage. Here are some tips.

Double-check the size of the deal

When Amazon announced its decision to go with New York, northern Virginia, and Nashville, it came out and said the subsidies came down to $2.1 billion. A lot of money.

But according to Good Jobs First, a group that tracks subsidies in economic development, the figure Amazon release understated the eventual amounts by more than half. According to their figures, the likely total will exceed $4.6 billion.

Dig as much as you can and then check with knowledgeable sources. Good Jobs First has a subsidy tracker that shows which companies are getting favored with the public’s largesse. This is an excellent source.

Also check with academics who study the topic or the economy and business atmosphere of the geographic area you’re examining.

The jobs numbers

Most people are interested in the issue of jobs brought into a region. There are two major aspects to consider. One is how many new positions actually do get created.

In some cases, the promised jobs don’t appear over time. General Electric received significant incentives to move to Boston. And then cam cost cuts and fewer jobs, although perhaps not a reduction in the incentives. An important type of story for a business reporter.

There is another question about jobs, though. As one economist said to me regarding Amazon, how many of the employees will come from other companies in the area? If those other employers don’t replace the workers immediately, the expected job impact may be far less than promoted. What if the new employees come from elsewhere and the existing population doesn’t directly benefit?

An important question is what else an area could do with the money. I spoke with one small business owner in Connecticut, which has offered its share of enticements to bring in large companies. But as the person said to me, why work hard to bring in a large company when there might be a better payoff to help local smaller businesses grow.

All of these issues are important. And they all offer potential material for business reporters.

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