Beyond the addition of 50,000 new jobs, residents of the cities that are still in the running to land Amazon’s second headquarters may be wondering how the presence of America’s third largest company by market cap could affect their city. They may be wondering if their city will soon be home to the sky-high rent increases that have plagued Seattle lately, or how their government might work with Amazon. A new tax approved unanimously Monday night by the Seattle City Council may give residents an idea of what they’re in for.
The measure dictates that companies that gross more than $20 million per year pay about $275 per employee for the next five years. The city council said the measure, which originally called for large companies to be taxed $500 per employee, was necessary to help generate more money for homelessness solutions.
Though the new tax will apply to about 500 companies, Amazon — the city’s largest private employer, with more than 45,000 workers — will pay the most, at about $10 million per year. Amazon, which opposed the measure, temporarily halted construction on a new office building as a show of its sway while the city council debated the ordinance.
In a statement to VentureBeat, Amazon vice president Drew Herdener said that the company was “disappointed” that the city council approved the measure, stating that “while we have resumed construction planning for Block 18, we remain very apprehensive about the future created by the council’s hostile approach and rhetoric toward larger businesses, which forces us to question our growth here. … the city does not have a revenue problem — it has a spending efficiency problem.”
I’m skeptical that a $10 million per year tax is going to have a meaningful impact on where Amazon, a company that generated nearly $178 billion in sales last year, chooses to hire. But the tax — and the subsequent reaction from Amazon and other companies — is meaningful because it gives an indication as to what kind of clashes will continue to take place between local government and big business.
“This chapter is symptomatic of the pressure building in the big coastal tech metros,” Mark Muro, a senior fellow at the Brookings Institution, told VentureBeat in a phone interview. “It epitomizes the growing agitation around traffic issues, homeless issues, development issues, housing issues.”
First, a bit of a reality check on Amazon’s threats: The company already sent a message when it announced it was opening an HQ2 that it didn’t think Seattle was the best fit for its next phase of growth. So it’s not the first time Amazon has “questioned” its growth in Seattle, and likely not the last.
Additionally, Amazon is already projecting that it will bring 50,000 jobs to whatever city it is going to select for HQ2. In most of the cities it still has to choose from, that will make it the largest employer. Even if Amazon wanted to stick it to Seattle and transfer some of the jobs it had planned to add to whichever city it chooses for HQ2, the new city likely wouldn’t be able to support that many more jobs. Remember — Amazon currently has more than 45,000 employees in Seattle.
Amazon’s not the only one looking elsewhere for talent. Distributed hiring is on the rise — or at least, companies are becoming more vocal about it, even among larger companies that have typically been hesitant to do so. While Google didn’t say so, it’s likely partially driven by employee demand — the Bay Area continues to experience the highest level of outmigration in the country. Meanwhile, one survey of 500 Bay Area residents from earlier this year found that half of them were considering leaving California because of the high cost of living.
At the same time, traditional tech hubs continue to take the lion’s share of the most highly skilled, highly paid tech jobs. Even if you look at the high cost of living in places like San Francisco and Seattle, it’s hard for mayors and other local politicians to see these high-paying jobs and not feel like they have to do everything in their power to attract or keep these jobs — even if they might come with increased housing prices.
Seattle and whichever city Amazon selects for its HQ2 shouldn’t let the company play each city off one another, threatening to devote more resources and jobs to one city if the other city passes a measure Amazon doesn’t like. Big businesses have plenty of reasons outside of a new tax, like an existing high cost of living, to look elsewhere for talent. Conversely, companies have other reasons besides low taxes, like a highly trained talent pool, to consider staying put.
Just take Google, which announced last year that it grew more outside of the Bay Area than inside of it, and will increase its investments in places like Michigan and Colorado this year. Despite this, the mayor of Mountain View, California has proposed a head tax similar to the one passed in Seattle, and San Jose, Sunnyvale, and Redwood City have all added them in recent years. Yet these cities still remain the epicenter of tech.
Choosing to open a new office isn’t a snap decision, and one decision made by a city likely won’t attract or repel companies. Especially as more companies look elsewhere for talent, cities need to remember that building an attractive place for businesses is a marathon, not a sprint.