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December 11, 2018

Amazon Deal—Trickle-down Economics and Gentrification

Amazon HQ2,Development,Jobs — @ 4:18 pm

Arlington County and the State of Virginia’s subsidy package for Amazon to locate its HQ2 facility in Arlington is another version of trickle-down economics or voodoo economics theory that giving more public funds to the rich and corporations will trickle down to lower income and middle class people. This is yet another episode in the Democratic county board’s determination to gentrify Arlington and eliminate the few remaining moderate income residents, both renters and homeowners and replace them with households earning well in excess of $150,000 a year.

The first impact on Arlington housing will be to raise rents and to raise prices of condos and houses. In Arlington a majority of resident are renters and not homeowners, and renters will clearly pay a price in the form of higher rents. The Arlington County Board has promised to spend $7 million a year to add 100 subsidized apartment to help renters, an amount so small in relation in relation to Arlington’s over 50,000 rental units as to be a joke.

The county and the State are giving Amazon roughly $1.5-2.0 billion in incentives; the chief beneficiary is the CEO and principal owner of Amazon Jeff Bezos, the wealthiest man on the Planet. So the premise is that if taxpayers in Virginia and Arlington give the richest man on Earth $2 billion, then there will be a wonderful world created that will trickle down prosperity on the rest of us.

The Arlington County Board’s mindless enthusiasm over giving Amazon as much as $400 million as incentives for 25,000 more Amazon employees to Crystal City within a decade or so must be dampened with the likelihood that higher local government expenses will absorb a high share of the expected higher tax revenues and that the cost of the subsidy itself will have to paid by current taxpayers.
The essential problem for Arlington is that we spend today about $22,000 per public student, and it is expected that these new Amazon employees will add at least 1,000 students to APS. Our schools are already overcrowded, and these new students will require the equivalent of two new elementary schools or a new middle school or a new high school. The new residents will also need our other services—recreation, libraries, social services, police and fire, sanitation, and the myriad services we Arlington residents cherish.

A George Mason University (GMU) report in November 2018 by Stephen Fuller found that a new Amazon HQ2 in Crystal City would add about 8,000 Amazon related households to Arlington, (The Economic and Fiscal Impacts of Locating Amazon HQ2 in Arlington, VA,). It also highlights that currently Arlington County spends $850 more per capita today than it gets from tax revenues so adding 8,000 new households with around 2 persons/household means that Arlington’s fiscal deficit rises by about $15 million, which is somewhat offset by $8.7 million in added tax revenue. Non-resident Amazon employees are expected to generate tax revenues that will add up to $19 million in tax revenue,

However, if one uses current school spending costs of almost $22,000 per student to obtain more accurate fiscal costs in Arlington, then the net fiscal impact of HQ2 shrinks to about $5 million a year. This is a trivial or negligible sum, compared to Arlington County’s annual fiscal revenues of about $1.3 billion in FY 2017. It also underscores how fragile are reports that there will be a large positive impact on Arlington of HQ2.

Beyond the higher school and services spending to meet the needs of these new Amazon employee residents, the county government will still have to pay off the $359 million in infrastructure bonds for Crystal City, come up with $7 million more per year for 10 years for affordable housing assistance, and then pay Amazon roughly $51 million from TOT and IFF funds over 10 to 15 years. This merely adds to net fiscal deficit that Amazon HQ2 will bring to Arlington.

This trickle down deal for Mr. Bezos the richest man in the Planet certainly provides a financial boost to Amazon, but it will cost Arlington taxpayers big time.

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