Virginia has landed a half-sized chunk of Amazon’s coveted second headquarters in Arlington County, with the promise of $550 million in direct state incentives as long as the company creates 25,000 high-paying jobs and makes a capital investment of up to $2.5 billion over the next 20 years.
The incentive package, announced by Gov. Ralph Northam and Amazon on Tuesday morning, also promises up to $1.1 billion in state investments in higher education — including undergraduate degree programs at public universities across Virginia — and $195 million in transportation improvements in Northern Virginia, for a total of $1.85 billion over 20 years.
State officials estimate the direct incentives alone will generate a net return to Virginia of $3.2 billion over 20 years by creating at least 25,000 jobs that pay $150,000 a year plus benefits — at least 90 percent of them not tied to the federal government contracts upon which the region’s economy has long depended.
“We have positive revenue from day one,” said Stephen Moret, president and CEO of the Virginia Economic Development Partnership, in a presentation to the House Appropriations and Finance committees at their budget retreat in Harrisonburg on Tuesday.
The state incentives amount to $22,000 per job, paid after the company hits its employment goals. The cost per job “wouldn’t make the top 10” of the state’s economic development deals, Moret told members of the House committees.
The incentive package already has drawn fire from critics, such as Del. Lee Carter, D-Manassas, who called it “corrupt” and accused the state of excluding the public and elected officials from the negotiations. He had made the same criticism of a $70 million incentive package for the expansion of the Micron manufacturing facility in his own district.
But while the Micron agreement would cost the state about $63,000 per job and require a $50 million appropriation in the current two-year state budget, the Amazon deal would have a budget impact of less than $11 million, Secretary of Finance Aubrey Layne said in an interview.
“I don’t see anything significant in this budget cycle,” Layne said.
VEDP’s Moret said the state is protected financially because the incentives will be paid four years after the company creates the jobs and generates additional tax revenue to pay for them.
“Effectively, there’s zero financial risk to the commonwealth,” he told legislators.
The state also has offered an additional $200 million if Amazon creates 12,850 more jobs in a future phase of the headquarters at the National Landing site in Crystal City and adjacent Pentagon City in Arlington; the other half of the HQ2 project will be built in New York City. The company has not yet committed to a future expansion or creation of additional jobs.
“This is a big win for Virginia,” said Northam, who landed the economic prize in his first year as governor after his predecessor, Gov. Terry McAuliffe, laid the foundation. “I’m proud Amazon recognizes the tremendous assets the commonwealth has to offer and plans to deepen its roots here.”
“Virginia put together a proposal for Amazon that we believe represents a new model for economic development for the 21st century, and I’m excited to say that our innovative approach was successful,” Northam added.
The package was assembled by the Virginia Economic Development Partnership, the governor’s office and a high-level legislative commission that approved it unanimously on Oct. 25. The Major Employer and Investment Project Approval Commission had approved an incentive package that was more than twice as large last year, when Virginia was competing for a $5 billion investment and 50,000 new jobs at Amazon’s second headquarters.
But members said they never relied on direct cash incentives to lure the company here.
“Incentives for the company were always secondary,” said House Appropriations Chairman Chris Jones, R-Suffolk. “It was always going to be a long-term investment in infrastructure for the commonwealth.”
Sen. Frank Ruff, R-Mecklenburg, chairman of the MEI Commission, said the deal is “good for the entire commonwealth.”
“The new revenue that will be coming into the commonwealth will help us as we deal with the issues of public education, public safety and mental health,” Ruff said. “Those new tax dollars will reverberate throughout the state.”
Northam said most of the state’s proposed package “consists of investments in our education and transportation infrastructure that will bolster the features that make Virginia so attractive: a strong and talented workforce, a stable and competitive business climate, and a world-class higher education system.”
The biggest investment, up to $710 million over 20 years, will be agreements negotiated with colleges and universities across the state to produce an additional 25,000 to 35,000 degrees in computer science and related fields.
The state package also promises investments of up to $375 million over 20 years to develop master’s degree programs in those fields at a new Innovation Campus that Virginia Tech plans to locate in the Potomac Yard area of Alexandria and an expansion of the campus that George Mason University operates in Arlington.
The money includes $250 million for Virginia Tech and $125 million for George Mason to help pay for capital and operating costs. The universities must match state investments 1:1 with philanthropic funds.
The money reserved for George Mason startled Jones, who said: “I’m very surprised at the George Mason piece.”
Virginia Tech — which had contributed money to the fund raised by McAuliffe to hire a consultant more than a year ago to put together the state’s proposals for the Amazon HQ2 project — was a key player in sealing the deal, Moret said in an interview on Monday night.
“They really made a huge impact on the project,” he said.
Virginia Tech also is the leader of the Commonwealth Cybersecurity Initiative, or CyberX, to which the state has committed $25 million in the current two-year budget to develop research and education programs based in Northern Virginia that involve research universities across the state.
It is not clear how the CyberX initiative will fit into the commitments made by Virginia in the Amazon package. A working group of research universities, including Virginia Commonwealth University and the University of Virginia, is due to submit a proposed strategic plan for the initiative on Dec. 1.
The Amazon package also includes $25 million for technical education in K-12 schools and $25 million for a higher education internship program over 20 years.
In transportation, the package includes $195 million in improvements in the first phase of the project and an additional $100 million if Amazon expands in the future.
The projects that would be funded are:
- additional entrances to Metro transit stations at Crystal City and Potomac Yard;
- improvements to U.S. Route 1, the major north-south artery through Crystal City;
- a pedestrian bridge connecting the Crystal City campus to neighboring Reagan Washington National Airport; and
- an expanded transit network for Pentagon City, Crystal City and Potomac Yard.
Moret said the projects will be financed by reallocating pots of transportation money reserved for use in Northern Virginia, as well as significant funding for transportation improvements from Arlington and Alexandria.
“These are not dollars that will compete with other transportation projects across the commonwealth,” he told legislators.
The state previously created a website for the project — www.hqnova.com — that it made available to the public on Tuesday, with details of the incentive package.
Jones, chairman of House Appropriations and a member of MEI, said the state “could never have competed” for the Amazon project if the General Assembly and the McAuliffe administration had not restructured the economic development partnership in 2017 after a scathing report by the Joint Legislative Audit and Review Commission, the assembly’s watchdog.
The partnership’s board of directors, which would be dramatically restructured under the legislative reforms, hired Moret, who had spent eight years as secretary of economic development in Louisiana and then ran a foundation for Louisiana State University.
Moret said the Amazon incentive package amounted to “a fraction” of what New York offered the company for its share of the headquarters, as well as multibillion-dollar proposals by Maryland and New Jersey.
“We knew Virginia was not going to win this on incentives,” he told legislators, “and we didn’t try to win it on incentives.”