On Thursday, Amazon announced that it was opening a search for second headquarters city (HQ2) in North America and was requesting proposals from interested state/province, county, and city governments by October 19.

Amazon said that this new headquarters is expected to grow to over 50,000 employees (with an average compensation north of $100,000 a year) and that the company plans to invest over $5 billion in this new operation.  This will “create tens of thousands of jobs in construction and related industries, and generate tens of billions of dollars in additional investment in the city where Amazon HQ2 is located.” 

This will result in a feeding frenzy in metropolitan areas across the country, Canada, and Mexico, including in the City of Los Angeles where Mayor Eric Garcetti said that “LA is a perfect place for a company like Amazon to find talented workers.” Here’s the Amazon Request for Proposals.

The City of Los Angeles meets many of Amazon’s stated preferences.  As the second largest city in the country, we have “concentration of talent,” especially software engineers, that is supported by a strong university system (USC, UCLA, and Cal Tech, second only to Cambridge, Massachusetts).  We also have an “international airport that has daily direct flights to Seattle, New York, San Francisco/Bay Area, and Washington, DC” as well as to Asia and Europe.

Unfortunately, the business unfriendly environment of our City and State and the adversarial attitudes of our elected officials toward business executives make it unlikely that LA will become Amazon’s HQ2 location.

California has the highest income tax rate in the country.  This compares to no income tax in the State of Washington, the home of Amazon.  And it also has one of the highest corporate tax rates, not a good incentive to come to California.

California is one of the highest taxed states in the country, right up there with the basket cases of Connecticut, New Jersey, and New York.  And the State is threatening to raise even more revenue to finance many new initiatives such as affordable housing, universal healthcare, and free college tuition.  This is in addition to the new $5.2 billion gas tax and the revenue grab associated with the recent cap & trade legislation.

The City, in addition to a 9½% sales tax, also has a very high gross receipts business tax that is unlikely to be reformed because of the City’s need for cash to fund its Structural Deficit, the repair of its streets, its underfunded pension plans, and new labor contracts.

The City is also considering new revenue initiatives, including the Rain Tax to finance its storm water plans and a street tax to fund the repair and maintenance of our lunar cratered streets. Besides, who wants a partner that is essentially bankrupt?

Amazon has indicated incentives to “offset initial capital outlays and ongoing operational costs will be significant factors in the decision making process.”  But this is highly unlikely as we can already hear the objections to granting billions in contributions and tax breaks to a disruptive company with $150 billion in revenue, a market value of almost $500 billion, and run by one of the richest men in the world.

LA is also a high cost city.  Land is very expensive.  Construction costs are high, especially if the City requires Amazon to enter into project labor agreements with prevailing wage requirements that will drive up our already high construction costs by 25%.  Housing is also expensive, especially in areas where highly paid Amazon employees would want to live. And then there is the cost of our traffic, considered to be the worst in the country.

One other factor that is not working in our favor is that we are in the same time zone as Seattle and that the organization will not gain two or three extra hours of productive time when dealing with Europe and the rest of the world.

The analysis of Amazon HQ2 will hopefully be an instructive lesson for our elected officials who occupy the State Capital and City Hall.

Crossposted at CityWatch LA.