If you had it to invest, would you give up to $102 million over seven years knowing you would reap more than $1 billion over the next 10 years.
We would.
Most other people would, most states would, and that’s what Tennessee and Nashville are doing to lure an Amazon operations center to the state’s capital city.
Some people call it corporate welfare, and the Beacon Center of Tennessee, a free market think tank, said the amount the online retailer is getting amounts to “taxpayer giveaways.”
We don’t see it that way.
For example, the operations center will create 5,000 full-time jobs, said by Gov. Bill Haslam to be “the single largest jobs commitment by a company in Tennessee history.”
The corporate jobs, incredible to imagine, are said to have an average wage of more than $150,000. The average salary for U.S. workers in 2017, according to the Bureau of Labor Statistics, was $44,564. The average of the Amazon workers will be more than three times that amount.
That’s a lot of coin the employees can spend with Nashville home builders, Lexus dealers and in honky tonks on Lower Broadway.
The operations hub itself is said to be a $230 million investment, meaning jobs for those who work on the project and money in the pockets of contractors, suppliers and outfitters as the project goes from start to finish.
When done, the space – Amazon’s Operations Center of Excellence – is expected to be more than 1 billion square feet of energy-efficient office space, meaning it won’t be adding to the city’s energy imprint as much as nearby buildings.
Nashville had been on the short list of some 20 cities considered for the online retailer’s second headquarters (from an original list of 238 sites), though recent speculation never had it high on that list. Indeed, Atlanta had been thought to have more of a chance than Tennessee’s largest city.
Haslam said the state and Nashville had realized the addition of a potential 50,000 jobs to the city’s 70,000 jobs downtown was not feasible without significant infrastructure changes. And Nashville voters earlier this year had defeated a tax-increase proposal that would have funded a light rail system, expanded bus routes and a downtown tunnel.
On Tuesday, when the notification about Nashville was made, it also was announced the New York City and Washington, D.C., areas would be the split home of Amazon’s second headquarters, employing around 25,000 people apiece.
The $102 million investment in the company will include a $65 million cash grant by the state over the next seven years, based on it creating 5,000 jobs, and a $15 million cash grant by Nashville over the same time and based on the jobs created. In addition, the company will receive a job tax credit of approximately $21.7 million to offset 50 percent of what it would owe in franchise and excise taxes over the next seven years.
In 10 years, though, the city and state are expected to receive incremental tax revenue of more than $1 billion. Further, each one of Amazon’s 5,000 jobs is expected to create an additional 1.6 jobs, resulting in a total increase of some 13,000 jobs.
That investment in an employer, the eventual tax revenue and the multiplier factor in job growth are all results Chattanooga has seen from the state’s, county’s and city’s investment in Volkswagen’s U.S. manufacturing plant locating here in 2008.
VW’s initial investment of $1 billion and its commitment to hire 2,000 employees has morphed – 10 years later – into the company’s $2.3 billion stake in the city and some 3,500 jobs at the plant.
More broadly, it has resulted in what was expected in 2017 to eventually be some 22,000 direct and indirect jobs.
In 2008, the state offered VW its richest incentives package – $554 million – in the state’s history. It added another $260 million in 2015 when the plant expanded to produce another automobile line. The city and county kicked in another $52.5 million for the expansion.
“In each of the three major auto plants we’ve studied in Tennessee (including VW),” Bill Fox, director of the Center for Business and Economic Research at the University of Tennessee, told the Times Free Press in 2017, “the economic benefits have actually exceeded our initial projections, and overall these plants have been a key source of growth for the state.”
The benefits from the plant, Chattanooga Mayor Andy Berke said last year, “have far exceeded the costs” of the tax breaks, incentives and infrastructure and training investments.
We expect 10 years out that’s the way Nashville and the state will look back on its investment in Amazon. If in doing so they’re picking between winners and losers, in this case they’ve picked the largest internet retailer in the world, the most valuable public company in the United States and the second largest employer in the country. If they’re offering corporate welfare, they’re offering welfare that brings a nearly 10-1 return in investment.
Most people – certainly most states – would make this deal. We think the Volunteer State was right to do so.