Is Washington, D.C. prepared for the Amazon HQ2 ‘prosperity bomb’?

Pedestrian pass shuttered buildings in Ward 8 in Washington DC.

The biggest news in economic development in the past year has been the bidding war among cities and counties in response to Amazon’s announcement that it is seeking a location for a second headquarters (dubbed HQ2) which would employ up to 50,000 workers with an average annual compensation over $100,000. The company received more than 200 bids, and in January announced a short list of 20 finalists, including Washington D.C. and two areas in suburban Maryland and Northern Virginia.

As the countdown to a final decision continues, it’s worth thinking about the impact—both positive and negative—if Amazon were to select the District proper, which is enjoying a renaissance that nonetheless leaves some residents and neighborhoods behind.  A newspaper columnist in Seattle, the home of HQ1, coined the term “prosperity bomb” when reflecting on the upsides and downsides of the company’s presence.

Washington, D.C. is a city with significant assets, enough to make us a serious contender for Amazon: an educated workforce, good schools (if you can afford to buy a house in the right neighborhood or know how navigate the system), renowned colleges and universities, and extensive public transportation and walkable communities. The addition of up to 50,000 new jobs, most of them high-paying, would further strengthen and diversify the city’s economy, which has long relied on federal employment and associated industries.

But Washington is also a city with deep racial and income divides. Adding tens of thousands of high-paying new jobs could exacerbate those divides unless public and private leaders take strong countermeasures. The city has put big money on the line to attract Amazon, and it should make similarly bold investments in current residents and assets.

Washington, D.C. has put big money on the line to attract Amazon, and it should make similarly bold investments in current residents and assets.

At both ends of the income spectrum, Washington stands out. The District’s poverty rate is 19 percent, higher than the national average of 15 percent, while its median household income is $73,000, well above the national figure of $55,000. And poverty is deeply entwined with race and education. Ninety-one percent of whites in the District have at least a bachelor’s degree, as do 78 percent of Asians, 43 percent of Hispanics, and 25 percent of blacks. Meanwhile, only 8 percent of whites live in poverty, compared with 15 percent of Asians, 16 percent of Hispanics, and 26 percent of blacks.

How might Amazon’s arrival in Washington affect low-income residents? The city’s HQ2 proposal is heavily redacted, so details are scarce, but it does offer some clues on potential areas of impact:

  • Employment. Low-income residents would likely not find many jobs at HQ2, most of which will require at least a bachelor’s degree. The company’s RFP describes the jobs as falling in the following categories: executive/management, engineering with a preference for software development, legal, accounting, and administrative. Residents with less than a bachelor’s degree might benefit from indirect economic impacts as the influx of high-paying jobs increases demand in retail, food service, and entertainment. On the other hand, the District has had a strong white-collar employment base for decades, but this has not prevented double-digit poverty and unemployment rates among less-educated residents.

The proposal notes that the city will work with Amazon to “implement alternative arrangements” for the city’s First Source policy, which requires that city residents be given priority for new hires by private companies receiving public support through contracts, grants, abatements, or other municipal financing. The city is within its rights to do this; the law allows the mayor to waive the requirements and enter into special arrangements regarding training and job placement. And given the city auditor’s recent findings on the city’s difficulty in implementing and monitoring First Source, the waiver is not necessarily bad. Nevertheless, there are no specifics regarding the “alternative arrangements,” and it is unclear what the city’s baseline expectations are whether and how many local residents should be hired.

  • Education and training. The city says it would create an “Amazon University,” described as a “customized education and training center for Amazon that leverages the talent of D.C.’s residents and universities at D.C. government’s expense,” with “customized educational curriculum for bachelor’s, master’s and executive education as well as training and workforce development programs.” The proposal further notes that “Amazon University will also facilitate partnerships with universities that bolster Amazon’s pipeline and workforce.”

Again, because of redactions there is very limited information, but it appears that the District would develop and financially support training primarily for people at the bachelor’s level and above. The city already spends about $75 million per year supporting the University of the District of Columbia and its community college, and it is not clear if they would be involved in Amazon University. In addition to largely benefitting more highly-educated, higher-income workers, the burden for training appears to fall squarely on the District, with little skin in the game for Amazon.

  • Housing. The most immediate impact of HQ2 for non-college-educated residents would most likely be higher housing costs due to increased demand from the influx of new workers. Housing is already pricey: more than forty percent of District residents face housing cost burdens, meaning they pay more than thirty percent of their monthly income towards housing. Indeed, when Amazon came to the region recently to meet with local officials, many of their questions focused on housing and affordability, suggesting they are well aware that the effects of their location choice will ripple through local housing markets. The city’s proposal acknowledges housing as an issue, noting it will “double-down” on its affordable housing investments, and separately, the newly launched Washington Housing Initiative, led by the private sector, should also help.

In addition to the costs it would bear for Amazon University, the District is promising direct incentives to lure HQ2, including relocation reimbursements for Amazon employees, wage reimbursements to the company for each new hire, and other pot-sweeteners redacted from the proposal. One educated guess put the price tag for all of this at $60 to $80 million per year for 10 to 15 years, for a total of $600 million to $1.2 billion.

As an externally-oriented sales document, it is not surprising that the District’s proposal to Amazon has little to say about the city’s divides. The Bowser administration is not blind to the city’s inequality: its 2018 proposed budget is subtitled, “A Fair Shot.” Bowser has also focused specifically on the tech sector, releasing a set of recommendations to make the tech sector more inclusive, and partnering with Howard University to launch the Inclusive Innovation Incubator (In3)  with a mission of making technology accessible to all.

But it is likely that the resources dedicated to these initiatives would be swamped by HQ2, with its huge price tag and major city efforts necessary to expedite construction and development and to stand up Amazon University.

There is no quick fix to inequality, but the city should be much more explicit about the steps it will take to cushion the negative impacts of Amazon. It should commit to allocating a significant portion of the net new tax revenues to these efforts, and support a public process to propose and debate potential activities.

There is no quick fix to inequality, but the city should be much more explicit about the steps it will take to cushion the negative impacts of Amazon.

What about a complementary goal of training and placing 50,000 local workers in a range of careers requiring digital skills? This implicates a much broader swath of the economy than software engineering, as more and more occupations require facility with computers and technology. These investments should focus on both incumbent workers and job seekers, and encompass a wide range of skills: basic computer literacy for those with the least experience, preparation for entry-level technical support and IT operations roles, and preparation for more advanced IT positions such as those in cybersecurity. But technology training should not be limited to the IT sector. Almost everyone who works in an office environment needs to know productivity software, for example, and people in medical jobs (from entry-level up) should know how to use electronic medical records.

Technology training is only one idea; there are also strong cases for investments in adult literacy, an increased local earned income tax credit, entrepreneurship, housing, and so on. The point is, the city made a big bet that it is worth huge sums of public money to attract Amazon and its 50,000 jobs. They need to maintain that sense of urgency and purpose to ensure that the bet pays off for ALL residents.

Photo credit: Ted Eytan via Flickr (CC BY-SA 2.0)