By: Dr. M. Ray Perryman
Published in syndication September 27, 2017
Cities across the eastern half of the United States and Canada (including all of the largest in Texas) are jockeying for position and running flat out in the race to attract Amazon's second headquarters (HQ2). The winning area's prize will be enormous: about $5 billion in capital investment and 50,000 jobs with a six-figure average salary. Add to that the positive ripple effects through the economy and the potential to energize related desirable technology businesses, and it's easy to see the reason for the frenzy.
Economic development has not been in the spotlight to this extent since the massive competition for Microelectronics and Computer Technology Corporation (MCC) in the early 1980s. While there are thousands of dedicated professionals across the country who work to secure corporate locations and expansions and retentions for their hometowns day in and day out, this is one of the rare times the process has gone mainstream in such a grandiose manner. I've spent more than 35 years helping communities with their strategic planning and companies with their location decisions. While the decision is complicated, I think Texas has a very good shot at HQ2.
Corporate location decisions are multi-layered. Many pundits are touting the Texas connections of founder Jeff Bezos. That certainly can't hurt, but these days locations usually come down to dollars and sense. The first criteria that must be met are basic requirements such as workforce size, location, and essential infrastructure. Many of these are difficult or impossible to influence over a short period of time, and competing cities either have them or they don't. In Texas, the Houston area, Dallas and Fort Worth, San Antonio, and Austin should compare well. The large workforce would be a challenge for any place, but larger cities and regions can make it work.
The next layer consists of things that can be affected by government entities, community and business leaders, and individuals. These include the regulatory environment, tax climate, economic development incentives, and workforce training and education. Texas is known as a business-friendly place to be, and the very competitive incentives available at the state and local level should keep us in the race, as can be evidenced by our consistent position at the top of various rankings.
For Amazon, a large pool of technology workers and universities turning out more every year is essential. All of the large Texas cities should line up well here.
Quality of life is also important, particularly for a firm which needs to attract and retain highly skilled and in-demand workers, many of whom will be Millennials. Amenities such as nearby lakes, parks, recreational activities, museums, sports and entertainment venues, attractive and affordable housing, and the quality of the public schools will be considered. Each of the large Texas population centers has much to offer along these lines. One of the possible negatives for the state is the recent tendency to enact or consider social legislation which is undesirable to many technology companies and workers.
The Amazon location decision will start with the most basic requirements and go from there. Texas cities will compare well for workforce, cost of living, tax climate, and infrastructure. We have renewable energy readily available, excellent universities nearby, and a warm and sunny climate to offer an attractive option to any Amazon employee who gets tired of cool and wet Seattle. I feel certain that the proposals coming together across the Lone Star State will list all of these benefits and more.
However, there are other cities in the United States which can boast of similar amenities. Sealing the deal will come down to the overall package, with incentives as well as other factors playing a major part in the decision. While in an ideal world we might wish that incentives did not exist and communities were not working against others in order to attract a desirable location, in the real world, incentives are a necessity. Companies have a fiduciary responsibility to shareholders to consider them, and small differences in operations costs can make a big difference to long-term profits. Amazon might well have to answer to activist shareholders if a location is chosen that doesn't offer the best opportunity for profits (which isn't necessarily the same as lowest cost or the highest incentive package), and you can bet that the proposals will be analyzed in that light. It is critical that incentives be offered, but equally important that they be carefully structured to ensure a "win-win" not only for Amazon, but also for the community it chooses.
The winning proposal will likely involve a joint effort. The State, local governments at all levels, economic development organizations, and others will need to work together to be successful. Community and business leaders may also be involved. Amazon is interested in the full range of what a community has to offer, and proposals will be judged accordingly.
Economic development is a high stakes process in which winners receive significant rewards of jobs, investments, and tax revenues. Unfortunately, second place (even a very close second place) gets a fruit basket at best. I see the large Texas population centers as very competitive in the quest to land Amazon, particularly if key stakeholders work together and cooperatively.