Sonnenfeld: Amazon’s Sweetheart HQ Incentive Deals Are ‘Outrageous’

Amazon this week announced that its two new headquarters facilities will be located in Northern Virginia and Long Island City, N.Y.—bringing with them a $2.5 billion investment from Amazon and 25,000 new lucrative tech jobs to each locale. Will the deals make sense for the locations in the long-term, considering the big incentives Amazon will receive?

Jeffrey Sonnenfeld, senior associate dean of leadership studies at the Yale School of Management, told Chief Executive that the huge incentives that cities and states have been clamoring to give Amazon, and other big corporate entities, aren’t guaranteed to pay big dividends in the long run. They also can leave a bitter taste in the mouths of businesses that are already located in those towns.

“This kind of corporate welfare is outrageous, and it’s been a race to the bottom across the nation to see who can hand out billions in giveaways,” Jeffrey Sonnenfeld, senior associate dean of leadership studies at the Yale School of Management told Chief Executive. “It’s often not good for the states, and definitely a major problem on a national basis.”

In a blog post detailing the new HQ deals, Amazon indicated that it will receive performance-based direct incentives of $1.525 billion from New York, based on the company creating 25,000 jobs in Long Island City. This includes a refundable tax credit through New York State’s Excelsior Program of up to $1.2 billion.

In Virginia, Amazon will receive performance-based direct incentives of $573 million based on the company creating 25,000 jobs with an average wage of over $150,000 in Arlington, including a workforce cash grant from the Commonwealth of Virginia of up to $550 million.

For a company that just hit $1 trillion in market value two months ago, that’s a lot of incentives, according to Sonnenfeld. “When these companies take the money and run its reckless, it’s irresponsible and public officials are looking at short term gains and long-term losses,” Sonnenfeld says.

The deals may also leave established businesses in these locales feeling slighted, as they have served as the bedrock of the business community without the benefit of special tax breaks. Those businesses will remember the deal Amazon received when considering new locations and could be more likely to go out and seek one of their own.

“It’s not fair—why should existing companies suffer? What are the retention benefits that they get? You can see that it just spirals,” Sonnenfeld says.

Related: Sonnenfeld: Equifax CEO’s ‘Retirement’ Well Past Due