Bailout for Amazon and developers and tax rise for everyone else

Arlington County has now pledged upwards of $400 million for Amazon HQ2 in Arlington, but the hard part is yet to come as to how they will come up with such a sum. Likely they will have to significantly raise taxes in Arlington on current residents so that this boondoggle can be financed.

The announcement in early November 2018 that Amazon would locate 25,000 employees to the Crystal City area of Arlington (with another 25,000 in Queens New York City) brought loud acclaim from elected Arlington and Virginia officials who proudly outlined how they are going to give Amazon about $1.5 billion of taxpayer funds to one of the largest corporations in the world. The State of Virginia will provide $550 million in direct cash ($22,000 per job added), $200 million for transport; $375 million for a new VA Tech campus and expanded GMU campus, and $50 million for k-12 tech education.

Arlington will provide about $450 million dollars: $137 million for transport (combined with $220 million previously committed) in Crystal City; $20 million for direct subsidies for Amazon; and $70 million ($7 million more per year for the next ten years) for affordable housing assistance.

The politicians apparently expect that over the long run that the promised 25,000 more employees in Crystal City who earn $150,000 will provide significant more income tax and sales tax revenue, and in addition, fill empty office space in Crystal City to boost real Arlington estate tax revenue. All of these conclusions depend on a series of shaky assumptions, and, in any event, it will take years to attain, whereas the county and state will need to finance their promises immediately.

Virginia’s income tax rate is about 5 percent, and, assuming that 25,000 employees earning $150,000 were to live in Virginia, this generates $200 million more annually in Virginia income tax revenue. However, many of these employees will not live actually in Virginia or already live here, and many will likely live in Maryland and the District of Columbia (2 Metro stops away). Even if half of the new employees live in Virginia, the annual increase in income tax revenue shrinks to be less than $100 million. Arlington can expect to receive maybe one fourth of the state income tax or $25 million a year.

County board members have long deplored the high rate of commercial office vacancy in Crystal City and other parts of Arlington (the rate is 18 percent) is higher than it was 10 years ago. However, the national office vacancy rate is nearly this same average level as Arlington—about 16.5 percent according to Reuters, so Arlington is not that unusual compared to other U.S. metro areas. The county board wants to fill up offices in Crystal City, but Amazon will not fill up the vast empty buildings in Ballston or Rosslyn or the dozens of new buildings under construction today.

Filling more office space in Crystal City will not fill empty space in Ballston or Rosslyn each of which have a 24-percent vacancy rate. Filling empty office space in Crystal City with Amazon will eventually raise commercial rents there, and then drive out current businesses that then locate to much cheaper Reston or Tysons Corner. The county board is not responsible for irrational realty companies with trillions of dollars to spend nor can we ignore the maniac building boom in Tysons and Reston since the Silver Line opened.

How will Arlington finance its subsidies to Amazon? Arlington County has issued or authorized to issue about $1.4 billion in long term bonds for its schools, Metro, community and recreation needs, and cannot exceed that amount or its credit rating (now AAA) will drop raising financial costs for taxpayers. So it cannot issue another $300 million in general bonds unless it wants to impair its credit rating.

Arlington county operating budget has been very tight recently as rising school and Metro-rail costs have absorbed nearly all the increase in tax revenue, and cuts were made to other programs. In 2018, the county board cut spending for affordable housing assistance (housing grants), environmental programs, and adult education. There is no significant cash or rainy day fund to use, and 2019 will be another year when another $10 million will be needed for the public schools and the troubled Metrorail will need another infusion of capital.

Where then will the county get the short term funds to finance Amazon? It will have to raise the tax rate for the 230,000 current Arlington residents–higher property taxes for homeowners, renters, and l commercial businesses. In essence, the county board will force we the resident and voters in the county who will reap NO significant benefit from Amazon moving to Crystal to pay higher taxes to finance this corporate piggy deal.

The county board and the State of Virginia are playing a dangerous game of picking winners and losers in a capitalist world using tax payers’ funds that are urgently needed for other things, like schools, Metrorail, affordable housing assistance, recreation and parks, public safety, and community infrastructure like storm sewers and sanitation.
It would be far better for the county government to simply welcome Amazon and refuse to give them one cent of public dollars.