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Editorials

Amazon might not be worth the price tag for Pittsburgh

| Saturday, June 2, 2018, 12:42 p.m.
Keith Naughton
Keith Naughton

Is it worth it for Pittsburgh to pursue Amazon's HQ2? Seems like a no-brainer for a region that has been losing population for decades and has labored mightily to reorient its economy.

But for most households in the Pittsburgh region Amazon's HQ2 would likely mean a big hit to the wallet with little economic gain, and could return the region back to the days when it was dangerously dependent on one industry — only this time would be worse, with the region dependent on one company.

In determining whether Amazon is worth the cost, the first question is, what are the costs? And the fact is we don't know because Amazon is demanding a level of secrecy that would make Vladimir Putin blush. New Jersey has promised over $7 billion, Maryland, $5 billion. Illinois is offering $2.25 billion and said it could go higher (which means it will). The tab for the city, county and state surely is in the billions.

But Pennsylvania and Pittsburgh won't come clean on their offer. The decision to commit billions to a private corporation should be a public process. Mayor Bill Peduto has clearly signaled that he will kowtow to whatever the $780 billion (market value) company demands. If you are concerned about Amazon's demands today, just wait until they come to town. Will the company just steamroll anyone who gets in its way?

The public subsidy is bad enough, but higher housing costs is an even bigger problem. Zillow estimates Amazon HQ2 would result in a net increase in average rental costs of $201 per month, and that's just from direct Amazon employment. Zillow admits that its estimates are low and don't account for the inevitable multiplier effect. So, that's a minimum $2,400 out of pocket for renters. If you are a nurse or store manager — in other words, not a tech worker — are you going to get an after-tax raise of $2,400 the day Amazon shows up? Not likely.

Even if you are a homeowner, Amazon could be a problem. Yes, you could sell your house for a nice profit, but then where are you going to live? Unless you plan on downsizing or moving out of town, there is no net benefit. And people who are saving for a new home will be in a real fix.

Rising real estate costs are just the most clear and quantifiable problem with Amazon HQ2. As demand for all services spikes from contractors to restaurants, if supply can't keep up then prices will rise across the board. If you are a tech worker in demand or in an occupation experiencing a labor crunch, you may be able to take advantage, but most workers won't. Worst off will be retirees, people on disability and low-skill workers.

The last problem: Amazon could, ironically, cripple the city's tech scene. Amazon HQ2 is going to demand a lot of high-skill tech workers — likely far more than the city has and is producing out of its universities. That means Pittsburgh will need to import high-skill tech workers, a lot of them. For a city that has not been a destination for new people since the 1920s, that's a big change. It may well turn out that Amazon will have to poach from the existing tech companies.

The city has a robust tech scene and is an internationally recognized center for innovation. It took 35 years to finally move on from steel — a feat that hardly any other city in America has done. Is it smart public policy to put that at risk for Amazon HQ2? When steel collapsed in the late 1970s, Pittsburgh was more of a one-industry town than any other major metro area in the country. Putting all the city's chips on one sector, let alone one company, is a risky endeavor.

In 1979, Pennsylvania gave Volkswagen the largest subsidy package in state history to much acclaim and celebration. Within 10 years, the plant was mothballed. Since then, the New Stanton site has consumed more and more public subsidy for Sony (also closed) and Aquion (bankrupt).

Amazon is flying high now, but no company's future is assured. Amazon remains vulnerable to technology changes and government regulation, and who knows whatever other black swans are lurking.

It's time for Peduto and the political class to come clean with the public on the real costs for Amazon HQ2 and how they plan to address the problems of housing, rising prices, labor supply and economic dependence.

Keith Naughton holds a Ph.D. in Public Policy from the University of Southern California and is a graduate of Carnegie Mellon University.He is a former political director for former Gov. Tom Ridge.

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