Pittsburgh’s $9.7 billion bid didn’t land Amazon’s second headquarters. But it may have topped all other incentive packages, or at least those that have been disclosed, in the chase for the coveted economic development prize.
At nearly $10 billion, including state incentives, the region’s package surpassed the $8.5 billion offered by Maryland, the $7.3 billion dangled by St. Louis, and the $7 billion advanced by New Jersey.
It also exceeded the combined $4.6 billion extended by New York and Arlington, Va. — the two winning cities in the HQ2 sweepstakes, with each slated to get up to 25,000 jobs and $2.5 billion in investment from the Seattle e-retailer.
Pittsburgh’s offer was even higher than the $5.7 billion, including state incentives, offered by cross-state rival Philadelphia.
“We have not seen a bigger one yet. I hope it’s not surpassed, but it could be,” said Greg LeRoy, executive director of Good Jobs First, a Washington, D.C.-based nonprofit promoting accountability in economic development that has been tracking HQ2 incentives offered by cities.
Although the competition is over, the question that may gnaw at Pittsburghers is whether the bid was over the top or just right.
Pittsburgh’s bid included up to $4.6 billion in state incentives, including $100 million for transportation improvements; $4.2 billion in local subsidies generated mainly through taxes on Amazon employees; as much as $716 million in tax increment and similar transit-oriented financing; and up to $222 million in parking tax diversions.
All of those numbers are based on nominal values — or what the incentives would be worth to Amazon over time at full investment without adjusting for inflation. That is how the state calculated the value of the incentives.
Investments would have been made over a period of up to 25 years.
But in disclosing the details last week, Mayor Bill Peduto and Allegheny County Executive Rich Fitzgerald valued the incentive package at $4 billion.
If that seems confusing, it’s because they used a different valuation system.
That calculation is based on present value — meaning that the incentives are discounted over time to take into account inflation and other factors.
Under that scenario, the value of the state incentives — which the commonwealth itself listed at $4.6 billion — dropped to $1.38 billion.
The local incentives fell from $4.2 billion to $2.1 billion, which is the number used by Mr. Peduto and Mr. Fitzgerald at the press conference last week to unveil the package after keeping it secret for more than a year.
In addition, the value of tax increment and transit-oriented financing dropped to $426 million and the parking tax diversion to $130 million.
How to value the bid
Kenneth Thomas, a political science professor at the University of Missouri-St. Louis who has written about competition involving incentives, said that the nominal value system typically is used in calculating such packages in the United States.
Based on that, “It looks like the Pittsburgh offer is the highest that we’ve seen” in terms of the bids for HQ2, he said.
But Patrick Litzinger, an economics professor at Robert Morris University, cautioned that comparisons could be inexact, depending on the years involved and other calculations used by competitor cities and states.
Mr. Thomas said present value is commonly used in the European Union. He believes it is the more accurate of the two methods because it allows for adjustments for inflation and other factors.
“Getting a billion dollars over 10 years is worth more than a billion dollars over 20 years,” he said.
Mr. LeRoy said he’s not aware of present value calculations being used in any of the other bids that have been disclosed so far involving the second headquarters.
“I hadn’t seen it done in any other bid. I thought it was just a way for your public officials to downplay the amount of money they were offering,” he said.
Tapping into tax revenues
Mr. Peduto has said that none of the local incentives — whether calculated at $4.2 billion or $2.1 billion — would have gone directly to Amazon.
Instead, they would have been used to address needs to support the influx of employees such as affordable housing, transportation, including a possible light rail extension, workforce development, and infrastructure.
The money would have been generated by taxes on Amazon employees, Pittsburgh officials said. Those would have included sales, local income, payroll preparation, and local services taxes.
“Mayor Peduto is proud that the city’s bid would have directed billions in local taxes generated by Amazon back into improvements to affordable housing, education, transit and infrastructure, to the benefit of all Pittsburgh residents,” spokesman Tim McNulty said Tuesday.
Mr. Fitzgerald also has estimated that Amazon’s presence would have produced $5.8 billion in tax revenue, with $3.7 billion of that going to the city, county and schools.
The biggest chunk of the state incentives — $4.5 billion — would have involved a new performance-based grant program. It would have been made available annually for up to 25 years and would have been based on the amount of personal income tax collected each year from Amazon employees.
Mr. LeRoy has criticized such programs, dubbing them “paying taxes to the boss.” He claimed those levies would have gone back to Amazon instead of going into the state treasury.
Like the city and the county, the state had been fighting in court to keep the incentives secret before Amazon announced where HQ2 would be going.
“This helps me explain why county Executive Fitzgerald and Mayor Peduto and their peers in Philadelphia and Gov. [Tom] Wolf have been so hesitant to disclose the bids, because anybody would not be pleased that the personal income taxes of those workers were not going to support state public services,” Mr. LeRoy said.
Among the other perks the region offered Amazon was free land at some of top local development sites, including the former Civic Arena property in the lower Hill District and Hazelwood Green in Hazelwood.
Local leaders also offered to build a business-class, high-speed transit connection between HQ2, Downtown and Pittsburgh International Airport using the West Busway and “shoulder-running transit options.”
As part of the airport’s planned $1.1 billion modernization, they gave Amazon the chance to “design a space suited to its needs, such as a terminal dedicated to shipping logistics or other uses.” An airport spokesman has said that could have included a hangar or cargo facility with direct access to a runway.
More than the cracker
The state’s offer to Amazon far exceeded the $1.6 billion in tax credits that it provided to Shell Oil Co. to locate a petrochemical cracker plant in Beaver County, a venture that is expected to provide 600 jobs.
Both the state and local offers to Amazon were predicated on the full 50,000 jobs and $5 billion in investment that the e-commerce juggernaut had promised for HQ2 when it first asked cities to bid in September 2017.
Pittsburgh, Mr. LeRoy said, may have been better off releasing its bid at the start of the HQ2 competition rather than keeping it secret.
He noted that Toronto’s proposal, which was released early on and posted online, has been downloaded more than 17,000 times.
“The other 16,999 that read that book beyond Amazon are people that today are making decisions about coming to Toronto ... This city is a beacon for investment, for people, for companies,” Toronto Mayor John Tory told reporters recently.
Although Pittsburgh has argued that releasing its proposal would have put it at a competitive disadvantage in the HQ2 battle, Mr. LeRoy argued that the race was never about incentives, as confirmed by the eventual winners.
“It was always about executive talent. Those were factors one, two, and three. If you’re going to hire 50,000 brainiacs, there is not a very long list of places you can consider and that has to be the controlling criteria,” he said.
Mark Belko: mbelko@post-gazette.com or 412-263-1262.
First Published: November 21, 2018, 11:40 a.m.
Updated: November 21, 2018, 11:40 a.m.
