How Arlington Lured Amazon With Low Costs
How Arlington Lured Amazon With Low Costs
Arlington, Va.
’Twas two weeks before Christmas but the staff of the county already had won an improbable bounty; with their budget in mind they were gaily aware that Santa’s aide, Amazon, soon would be there.
Skeptics of the online retailer’s “HQ2” search process say Northern Virginia was a shoo-in from the start. Access to the federal government was always a priority, and the Washington-area talent pool makes the Potomac River a perfect perch for big business. But that view overlooks the role policy has played in Arlington’s transformation over the past decade—from a tract of low-rent offices for federal agencies and contractors into a boomtown for private industry. Specifically, controlling the cost of doing business has helped Arlington compete for firms against the suburbs of cities like New York and San Francisco. Now, as the county board considers tax increases, supporters of this successful policy blend will have to fight to preserve it.
Arlington’s turn toward the private sector began at the least likely moment—during the national streak of sluggish growth that followed the Great Recession. Just after the 2008 crash, the county’s core of government agencies, law firms and lobbyists seemed secure; in October 2008, Bloomberg Businessweek named Arlington the safest place in America for homeowners to ride out the downturn. The trouble came three years later, as the Defense Department neared a deadline to close or relocate dozens of offices for civilian staff. By September 2011 Arlington—home of the Pentagon—had lost more than 17,000 government jobs and thousands more contract workers, totaling more than 10% of the county’s workforce.
As the office vacancy rate rose above 20%, landlords shifted their strategy. “I like when it’s really bad,” says Victor Hoskins, director of Arlington’s economic-development office, because “people are more open to change.” He remembers fondly how rentiers finally began seeking growing businesses instead of stagnant government tenants.
That meant retooling commercial buildings for the needs of new potential clients. No more would megacontractors like
Science Applications International
Corp.
“come in and lease 300,000 square feet of space for 15 years,” recalls Christina Winn, the county’s director of business investment. Instead developers renovated buildings to suit the needs of tech firms and other small clients, offering smaller suites and open floor plans, and accepting bookings as brief as a year.
Results came quickly. The county retains tens of thousands of federal jobs, but by 2013 government was no longer its top employment sector—a striking transformation. This year more Arlingtonians worked in professional and technical services than in any other field. “There’s going to be a constant flow of really good, strong talent in the years to come,” Amazon spokeswoman Jill Kerr says regarding the tech titan’s choice to move into town.
Lobbying is an unabashed priority for some of the companies setting up across the river from Washington—like
Nestlé
,
which moved its U.S. headquarters into Arlington’s tallest tower earlier this year. But for the smaller firms that started the trend, the county’s low cost has been key. Take software-based consulting firm Applied Predictive Technologies, which was acquired by
Mastercard
in 2015 but chose to remain in Arlington, citing the relative affordability of top talent in the region.
That’s where policy comes in. Virginia’s corporate tax rate is 6%, well below regions with comparable proximity to big-city business; New Jersey and Connecticut have top rates of 9%, while California’s sits at 8.8% and New York’s at 6.5%. Similarly Arlington’s effective property-tax rate, at less than 1%, is lower than most metropolitan suburbs as well as its own neighboring counties. These low rates help Arlington compete for workers and employers.
That competitive edge could erode if the county board keeps its recent commitment to raise an unspecified amount of taxes in the coming year. The board showed admirable fiscal restraint in 2018. It tabled a property-tax hike, cut $8 million of spending and slowed down hiring. But it also shied away from an additional $1.5 million in cuts to projects that County Manager Mark Schwartz has marked as dispensable.
The board hopes to tap into Arlington’s growth to help narrow its $78 million budget gap. But before turning to taxes, it should heed the lessons learned by many of its peers around the country. Suburbs in the New York area and California have recently watched companies decamp for cheaper climes despite their talented workforces, easy access to cities and ample amenities. The services that ever-rising taxes were supposed to pay for in these places—such as public schools, roads, commuter rail—have often stagnated or decayed. Arlington should also watch out for tax hikes at the state level to pay for Virginia’s recent Medicaid expansion and new education spending from Gov. Ralph Northam.
A low-tax starting point has reduced the cash incentives Arlington must offer to draw in new firms. “If you look at the last 228 deals, we’ve incented 17,” Mr. Hoskins says proudly, noting that Amazon was among the few worthy recipients of a local tax break. The higher that taxes rise, the more the county will have to give away to keep firms coming in.
Catering to price-sensitive small and medium-size businesses helped put Arlington where it is, and holding on to them will be essential to sustain its quality of life. No one wants Arlington to become a one-company town. Amazon may have been a gift, but only low taxes will keep on giving.
—Mr. Ukueberuwa is an assistant editorial features editor at the Journal.
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