The Case of Amazon and City Infrastructure
The question of whether large businesses should be encouraged to expand within a city or solicited to relocate there is often a hot-button issue. It raises questions about the positive or negative impacts it will have on local infrastructure and economy. Let’s explore the issue from the context of Amazon’s growth in Seattle, as well as regarding the recent announcement that it will divide its new HQ2 and an estimated 50,000 new jobs among Long Island City, located in Queens, NY and Crystal City, Virginia (National Landing), located near Washington DC.
A city’s infrastructure includes the fundamental facilities and services necessary for its economy to function. Typical infrastructure items include water supply, sewers, electrical grid, and telecommunications. They also encompass transportation improvements such as roads, bridges, and tunnels. The availability of a good infrastructure can be an important bargaining chip for cities looking to entice a major enterprise to locate there.
At the same time, the establishment of a new business can stress the existing infrastructure and lead to concerns, especially if it is already inadequate even before the new business arrives. Opponents to corporate relocation often argue that the introduction of the new business will lead to more congestion and a greater strain on infrastructure systems––making things worse. On the other hand, supporters of big business moving to their city argue that the creation of new jobs and an increased tax base will be a win-win for the city.
New jobs will be created, and increased tax revenues will pay for necessary infrastructure upgrades which will benefit the public as well as other businesses.
The Impact of Amazon on Seattle
By 2018, Amazon employed over 45,000 people in Seattle, up from 5,000 employees in 2010. According to research, that growth has resulted in the creation of another 50,000 jobs outside of the company. While that job creation, and especially high paying jobs associated with the high tech sector, have been a boon to the city, it has put considerable strain on infrastructure. Outcomes associated with Amazon’s growth include:
- Longer commutes and traffic congestion. Mega commutes––a commute of 90 minutes or more each direction to work has become an increasing reality. The volume of mega commutes has expanded by almost 80 percent over the last seven years, according to one source. Another report states that the number of super commutes in Seattle has increased by 65.9 percent between 2005 and 2016.
- Increased housing prices. Housing prices in Seattle have doubled in the last six years. One thing that Seattle got right was to rezone parts of the city to allow for higher population density, which helped reduce some of the pressure on housing stock.
- Spinoff retail: The Downtown Seattle Association has estimated that around 2,000 new businesses have been created in the South Lake Union area around the Amazon campus, including many restaurants. The company’s investments in Seattle from 2010 to 2016 added $38 billion to the city's economy.
- Increased human capital: Exciting tech companies such as Amazon draw highly skilled employees to live in the city. Such an influx results in a high tech talent pool that has benefited other businesses as well as resulted in new tech startups.
National Landing HQ2 Infrastructure Considerations
Initial reaction to the northern Virginia campus locations (collectively known as National Landing) has been mainly positive, with some predictable concerns expressed about potential pressure on infrastructure. According to CNBC, “Local residents anticipate an influx of jobs that will benefit the community but fear heavy traffic and an undue burden on infrastructure.”
In fact, the existing infrastructure was critical to Amazon’s decision to locate part of its HQ2 in National Landing. It is located only two miles from Ronald Reagan National Airport and less than an hour from Dulles International Airport, with easy access to public transit. A $30 million pedestrian bridge had already been announced between Crystal City and Reagan National Airport prior to the Amazon bid.
In support of the Amazon bid, Virginia agreed to make improvements at nearby Metro stations. In addition, Route 1, at present a high-speed road, will be converted into an “urban boulevard” at a cost of $250 million, making the area much more pedestrian friendly. The transit bus system will also receive a boost.
Long Island City HQ2 Infrastructure Highlights
At first blush, the deal seems like a good one for the state. Amazon’s operation in LIC will generate $27.5 billion in state and city revenue over 25 years, a 9:1 ratio of revenue to subsidies received by the retail giant. The state also projected the creation of 107,000 direct and indirect jobs, as well as 1,300 construction jobs. Amazon will make use of the New York City’s PILOT (payment in lieu of taxes) program to fund local infrastructure, estimated to be between $600 and $650 million over 40 years.
The opposition to Long Island City (LIC) HQ2 has seemed more vocal than in Crystal City, with fears of real estate speculation as well as concerns about neighborhood gentrification and displacement. Meanwhile, the city’s overcrowded transportation system and aging water supply and sewage system are already taxed, increasing anxiety about added infrastructure pressure.
“...we cannot support a giveaway of this magnitude, a process that circumvents community review through the use of a GPP [General Project Plan] or the inevitable stress on the infrastructure of a community already stretched to its limits,” Council Member Jimmy Van Bramer and State Senator Michael Gianaris said in a release shortly after the Amazon announcement.
The city, however, recently committed $180 million to boost infrastructure in LIC, including $95 million for sewer and water improvements.
Things to Consider When Soliciting Big Business to Your City
Here are some of the takeaways from the Amazon HQ2 case study:
- Understand the impact of the influx of new workers on the existing infrastructure, accurately project the improvements needed, and plan high. Remember that job growth in Seattle greatly exceeded early projections. A truly successful deal will boast an overall infrastructure improvement over the longer term.
- Where infrastructure is already strained to the maximum, as it is in LIC, expect stronger public opposition unless it is clear how infrastructure will improve for everyone. Concerns may also be mitigated by effective community outreach, although the time taken to undertake it might prove to be a deal breaker for a fast-moving company.
- Collaboration between various government levels is crucial. In New York, Bill de Blasio and Governor Andrew Cuomo put their ongoing animosity on hold in order to win a share of the HQ2 deal.
- The choice of an urban or suburban location will have a significant impact on the infrastructure conversation. Amazon, unlike other companies, has sought to relocate in an urban setting. In Seattle, 20 percent of Amazon employees live and work in the same zip code, allowing for walking or biking to work. Ultimately, moves such as those made by Amazon result in higher population density, getting people out of cars, and––if planned well––creating more sustainable cities for the future.