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Amazon Sought $1 Billion in Incentives on Top of Lures for HQ2

16/01/2020 1:29pm

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By Shayndi Raice and Dana Mattioli 

As Amazon.com Inc. began a search for a second headquarters in 2017, and billions in economic incentives that would go with it, Chief Executive Jeff Bezos and senior executives set another goal: to secure an additional $1 billion for other real-estate projects.

The target was created by Mr. Bezos and his top lieutenants, called the S-Team, which sets high-priority goals every year for various groups in the company. The unusually large goal was due to high capital investment costs that year, said one of the people.

The Seattle-based company had set economic incentive goals since at least 2015, which often amounted to hundreds of millions of dollars. Its capital expenditure costs soared nearly 50% in 2017 from the previous year to about $10 billion and it paid out about $50 billion in wages that year, according to the company.

Amazon sparked a heated public debate that is still ongoing about whether incentives are a smart way for cities and states to attract jobs and development. Incentives are benefits, often tax credits, handed out by state and local governments to companies seeking to build or expand.

The $1 billion goal was separate from any economic incentives the company might win for its second-headquarters project. A spokesman said the company had no incentive goal for its second headquarters. It is going ahead with plans for a second headquarters in Virginia, which offered $1 billion in incentives, including infrastructure improvements.

Amazon abandoned plans to split its second headquarters between Virginia and New York after a public uproar from New Yorkers over $3 billion of incentives offered to the company.

Amazon said that since 2010, it has invested more than $270 billion in 40 states and created more than 400,000 jobs.

"Like many other companies, we are eligible to access incentive programs created and regulated by cities and states to attract new investors -- as they know that these investments pay a long-term dividend in the form of jobs, new economic opportunity, and incremental tax revenue," the company said. "The vast majority of these incentives are statutory and post-performance -- Amazon is eligible only after having created and maintained a certain number of jobs within the community."

Amazon decided to remove the S-Team goal in 2018, in part because it didn't meet it in 2017 and decided it wasn't the right measure of success, said one of the people familiar with the matter. The company is trying to focus less on tax breaks and more on transportation and workforce-related incentives. Financial goals for securing incentives still exist for some managers, but it is no longer considered a goal by the S-Team, the person said.

Amazon's real-estate footprint has grown sharply to accommodate campuses for its 750,000 global employees, a network of fulfillment centers, data centers for its cloud-computing arm and physical stores. Amazon leased or owned 288 million square feet of property globally, according to its 2018 annual report.

The $1 billion was calculated by adding the total value of incentive deals signed in a year, even though the benefits would be paid out over many years.

The Wall Street Journal reported recently that New York state officials had offered Amazon $800 million more in incentives than was previously known.

State and local governments spend at least $30 billion a year to attract and keep companies, but big deals often generate few economic benefits, according to a study released last week.

Didi Caldwell, president of the site-selection firm Global Location Strategies, said it is not common for a company to have an annual incentive target.

But, "the Amazon phenomenon is not very common either," she said. "You don't see companies building that much bricks and mortar on an annual basis."

Write to Shayndi Raice at shayndi.raice@wsj.com and Dana Mattioli at dana.mattioli@wsj.com

 

(END) Dow Jones Newswires

January 16, 2020 08:14 ET (13:14 GMT)

Copyright (c) 2020 Dow Jones & Company, Inc.

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