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If HQ2 Lands in Montgomery

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What’s the Effect on Howard?

Maryland Gov. Larry Hogan has termed what could be coming to a county near you “the greatest economic development opportunity in a generation.”

With that kind of an introduction, Hogan can only be referring to Amazon HQ2 that could be coming to the Washington, D.C., area, or more specifically to Howard County’s neighbor Montgomery County, at the White Flint Mall site.

It’s estimated that HQ2 would add $17 billion in annual economic activity to the state, and $7.7 billion in annual wages, according to Baltimore-based Sage Policy Group. Sage’s study also found that the project would support 101,000 total jobs and bring in $280 million in added county tax receipts, with an additional $483 million for state coffers. It could even increase traffic at BWI Thurgood Marshall Airport and at the Port of Baltimore.

So impressed by those numbers were Hogan and the legislature that the state is offering Amazon an incentive package nearly $8.5 billion. Known as the Promoting Extraordinary Innovation in Maryland’s Economy (PRIME) Act, it includes billions of dollars in property, sales and income tax credits from the state and from Montgomery County, with another $2 billion in transportation improvements.
Including the money for transportation improvements, Maryland’s incentive package appears to be larger than any publicly known offer made by the other 19 finalists named by Amazon.

Long-Term View

So vast is the incentive package that the Maryland General Assembly’s budget analysts estimated it would cost the state almost $5.5 billion during the next 35 years; it would also cost local governments another $924 million in property taxes.
But the above isn’t all HQ2 could do. It could also cause traffic nightmares in Rockville and the northern section of the Capital Beltway, as well as make a tight and expensive housing market even more so.

Officials from Amazon have stated that the corporation will make a decision in the second half of this year. Until then, observers are contemplating the ripple effect HQ2 would have in the region, most notably in adjacent Howard County.

What would the impact be if the game show-worthy woo-fest turns into a win? “It’ll be like having another Fort Meade — about 30 miles from Fort Meade,” said Raj Kudchadkar, CEO and president of the Central Maryland Chamber. “Even if it ends up in D.C. [and/or] Northern Virginia, it’ll impact us.”

To make the point, Kudchadkar noted the roughly 60,000 jobs that came to Fort Meade after the Base Realignment and Closure, which included workers “who live all over the region, even in Pennsylvania.”
Citing the Sage study, he dove further into the numbers.

“One thing I think people should be aware of is that, when the state’s House and Senate passed the incentive package, citizens were using the term ‘corporate welfare,’” Kudchadkar said, “but these are tax credits. The 40,000–50,000 high-skill jobs Amazon would bring to Maryland would pay an average of $100,000 per year over multiple years.

“Therefore, the state is not giving Amazon money,” he said. “The credits are based on the jobs being created. If Amazon doesn’t come here, it doesn’t get the money, anyway; if it does, it’ll keep a small percentage of the money and will still pay corporate income tax.”
Noting that Montgomery County is kicking in $925 million of the $8.5 billion package, Kudchadkar said the key is to understand “that the credits are directly tied to job creation.”

‘Tight-Knit Region’

Observations from other sectors of the local business community were similar. Daraius Irani, vice president at the Division of Innovation and Applied Research at Towson University, also noted that not only would HQ2 attract workers from all over the region, it would generate massive economic activity.

“It would be huge, not only for Howard, but also for Anne Arundel and Prince George’s counties and across the region,” Irani said. “It would result in job creation from various businesses and vendors, for everyone from IT [information technology] people to janitors, and every other type of job in-between.”

Larry Twele, CEO of the Howard County Economic Development Authority, is also on board. “Having Amazon select a location in Maryland for HQ2, and the 50,000 jobs associated with it, has the potential to spread economic growth across the entire region.
“A project of this size, and the high-paying jobs associated with it, will create gravity that will draw businesses and workers from other areas to help support the project and its operation; which, in turn, allows it to spread the economic growth to surrounding jurisdictions,” Twele said. “This has always been a tight-knit region, and [it] is conducive to business collaboration across jurisdictions.”
“We would expect to see both workers and businesses who call Howard County home work and support the operations at HQ2,” he said, “much like we have seen in the past.”

‘Not Super Happy’

While the majority of the impacts will stay in Montgomery County, said Christine Ross, president and CEO of the Maryland Chamber of Commerce (MCC), the MCC’s economists at the Regional Economic Studies Institute “say at least 11% will spill over into central Maryland.”

Given its proximity to the proposed White Flint location, “it’s very likely Howard County will see most of that spillover. The Fort Meade parallel is a good one,” said Ross. “While the Fort is in Anne Arundel County, a number of government contractors in Howard County do business for, or with, the Fort, and many of those contractors’ employees live in Howard County.”

She pointed out that there are many high-skill workers in Howard County who work in cybersecurity and IT, for instance. “That’s very attractive to employers looking for a talent pool, and if Amazon were nearby, Howard County would be a good place [for vendors] to expand or set up shop.

“Plus,” Ross said, “Howard County is also a desirable place to live, with high-performing schools. That would [also] make it attractive to Amazon employees. That influx of residents would boost local tax revenues and drive employment at local businesses. So, although Howard County many not receive many direct benefits from an HQ2 in White Flint, it still stands to gain substantially.”

John Bouman, professor of economics at Howard Community College (HCC), thinks the dozens of new jobs that would be coming to the area “are a good thing for Howard County and a good thing for economic development in Maryland. And think about how the retailers and the vendors in the area would benefit,” he said.
Bouman even suggested that HCC can assist in training some of the workers who would be moving to the area, some from out of state, to work at HQ2; still, he knows that any influx of such magnitude has many angles, and opinions concerning making such a large incentive package available to Amazon is only one concern.

“HQ2 coming to Montgomery County wouldn’t hurt Howard County much in terms of traffic problems,” he said, “but I can imagine that the people who live in and around Rockville, and those who travel in that area, are not super happy.”

Bouman thinks Montgomery County might be able to come up with another spot on the map that’s in a little more remote area, as Northern Virginia has with a location near Dulles International Airport on more than two-dozen acres of undeveloped land on the border of Fairfax and Loudoun counties. If not, “Traffic could be even tougher around that [northern] part of the Beltway. Better roads [woould be needed], and mass transit would have to be improved,” which Hogan has addressed, if the White Flint location is Amazon’s location of choice.

Then comes the issue of where these people would live across a swath on the map that’s known not only for high-paying jobs and great schools, but its tight and expensive housing market.

“Howard County is trying to include affordable housing in its development plans, but know that HQ2 would make housing values rise. That’s good for owners,” Bouman said, “but that would make the issue harder for first-time homebuyers. That’s a problem in Silicon Valley, too. People who aren’t making $100,000 can’t afford to buy there, so they have to rent. Here, our rents would rise, too, which is also good and bad.”

The hope in that case, he said, would be that the housing supply increases over time and makes home prices more level.
“So, there are pros and cons,” Bouman said, “but as a macro economist, I would say [Maryland] would benefit, overall.”

Similar Treatment

As for the state’s $8.5 billion incentive offer, Bouman isn’t quite the fan of the package that Kudchadkar is.

“I’m not crazy about corporate welfare. I’m for creating a business climate that’s favorable for everyone, with tax rates that are reasonable for all concerned,” he said. “I’m against playing favorites, because another corporation that has been doing business in Maryland all along will come back and say it may move to Texas — unless they get the same treatment that Amazon is getting.”
Still, Kudchadkar, in this case, is for the incentives and is looking ahead.

“There were so many proposals at first that we didn’t take a position,” he said, “and I think there is still plenty of vetting going on. But as a chamber president that covers Howard, Anne Arundel and Prince George’s counties, I still want Northern Virginia or D.C. to get HQ2 if Maryland doesn’t. The positive impacts wouldn’t be as intense, but they would still help.

“However, if Amazon agrees to the White Flint location,” he said, with a laugh, “we may have to commission a study to find out how many new members we’ll have at the chamber.”