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Amazon halts Seattle growth, flexing muscles on tax threat

Bloomberg logoBloomberg 5/2/2018 Karen Weise

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Amazon.com Inc. is playing hardball with its hometown of Seattle as the city council nears a vote on a new tax targeting large employers to address homelessness and housing affordability.

Amazon, the dominant employer in the city, said it’s pausing construction planning on a new office tower in Seattle and is considering subleasing office space it has already leased in another downtown corporate high rise under construction. The two projects would house about 7,000 employees.

Amazon is facing a public reckoning over how much responsibility the company bears for the city’s congestion and soaring housing costs. "This is a hometown employer that Seattle is ambivalent about," said Margaret O’Mara, a history professor at the University of Washington. "Amazon has catalyzed so much of the growth, but it has exacerbated the problems that were pre-existing conditions."

The company has been hedging its bets spreading its workforce around, most visibly in its search for a second headquarters which has 20 cities vying to land the new complex. This week, it also announced expansion plans in Boston and Vancouver.

"It’s called throwing your weight around," said Scott Galloway, a marketing professor at New York University’s Stern School of Business. "Nobody, with the circus that is the HQ2 competition, has done more to inspire a downward spiral of transfer of wealth from municipalities to big tech than Amazon."

Amazon has been building out a network of owned and leased office towers as its workforce in Seattle has grown to more than 40,000 employees. As recently as last month, Amazon seemed to be expanding in its hometown. The company confirmed a March tally by the Downtown Seattle Association that the company was aiming to have almost 14 million square feet in the city. That was up from a prior plan of 12 million square feet.

The new structure, known as Block 18, is adjacent to its new office complex, including its signature spheres, and currently contains a motel that Amazon has let a non-profit use to temporarily house homeless families. “Pending the outcome of the head tax vote by City Council, Amazon has paused all construction planning on our Block 18 project in downtown Seattle and is evaluating options to sub-lease all space in our recently leased Rainer Square building,” Amazon spokesman Drew Herdener said in a statement.

The Seattle city council has been debating a new per-worker “head tax” on large employers to fund homeless services and affordable housing. The tax would raise an estimated $75 million a year. The business community has generally opposed new taxation, saying it will impede job creation.

"Seattle has rapidly growing city revenues, record low unemployment, and double the national average in wage growth," said Matt McIlwain, managing director at Seattle-based venture capital firm Madrona Venture Group. "I hope the city government looks for better alignment with the whole community, including the largest employers, to best address the city’s priorities going forward."

A task force that the city council convened to come up with the head-tax proposal clearly had Amazon in its sights. The group’s report last month didn’t mention the company by name but noted that using net income or profit as a way to gauge whether a company had an ability to pay the tax would probably fall short, since “a rapidly growing business may choose to reinvest large amounts of revenue and report a loss, even though the business may be doing very well indeed.”

"This is big powerful rich company, run by the richest man in the world, ratcheting up the pressure on a city," said Richard Florida, a professor at the University of Toronto, who has cautioned cities against giving Amazon too much in the HQ2 search. "They say publicly we want a sustainable community, a community with transit and affordable housing. How do you get that community if you don’t pay taxes?"

The Seattle Times earlier reported Amazon’s construction pause.

The Amazon Spheres are seen from 6th Avenue at Amazon's Seattle headquarters on Jan. 29, 2018.© REUTERS/Lindsey Wasson The Amazon Spheres are seen from 6th Avenue at Amazon's Seattle headquarters on Jan. 29, 2018.
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