02 May 2018 | Matt Day and Daniel Beekman| Seattle Times
The company that’s conquered the world of online retail is taking on its hometown City Hall, with Amazon delivering an unprecedented public threat Wednesday against a proposal for a new tax on large employers in Seattle.
The retail giant has paused construction planning on a new downtown Seattle tower until the City Council votes on the tax to fund homelessness programs, a spokesman said.
Amazon also may sub-lease rather than occupy space in a skyscraper under construction downtown, said the spokesman, Drew Herdener.
The questioning of two high-profile ventures by the city’s largest employer is a bold political jab of the kind Amazon has never made in Seattle before and could lend weight to an effort by big businesses to kill the proposed tax.
The company helmed by Jeff Bezos has planned to fill its 17-story “Block 18” tower and the skyscraper being built at Rainier Square with an estimated 7,000 to 8,000 workers.
Mayor Jenny Durkan vowed to seek common ground, while council members pushing the measure gave no indication they intend to back down. Councilmember Kshama Sawant accused Amazon of attempting “blackmail.”
“I’m deeply concerned about the impact this could have on a whole range of issues,” Durkan said in an interview about Amazon’s play, declining to say whether the company gave her advance notice. “Everyone should be.”
The e-commerce behemoth last week reported a quarterly profit of $1.6 billionand has been targeted by local social-justice activists, who argue a company led by the world’s richest person can afford to do more to help people living without shelter.
Seattle’s homeless crisis is among the worst in the country, with an official state of emergency more than two years old and a record 169 deaths recorded last year.
“It’s obviously a little disconcerting when a major business says, ‘We’re rethinking our strategy here,’” Councilmember Mike O’Brien, a sponsor of the tax measure, said Wednesday before a meeting on the proposal at City Hall.
“If Amazon generally wants to engage about how they can be part of the solution, we welcome that conversation. But we need companies that are profitable and making billions of dollars every year to help with the folks that are being forced out of housing and ending up on the street.”
Whether Amazon’s pause is just a negotiating tactic or could turn into a major slowdown in growth for the company in the city is unclear, but it comes at a time when the retailer is rapidly expanding in other cities and seeking a second headquarters in North America.
Amazon’s threat to pull back on its Seattle plans comes as the company is already branching out, said James Young, director of the Washington Center for Real Estate Research at the University of Washington.
“The fact that they have HQ2 already in process tells me that it’s a real option,” Young said, describing the company’s headquarters announcement in September as a warning shot for Seattle with the message, “Look, we can go elsewhere.”
Seattle Times editorial columnist Brier Dudley first reported the pause.
‘Head tax’ proposal
Five of the council’s nine members are backing an employee-hours tax on businesses grossing at least $20 million per year in Seattle that would raise an estimated $75 million annually.
They estimate the so-called “head tax” of about $500 per employee would apply to 500 to 600 companies and they are calling for it to be spent on low-income housing and emergency services for homeless people. The council has been planning to vote later this month.
The Seattle Metropolitan Chamber of Commerce, which counts Amazon as a member, has come out strongly against the proposal, describing it as a “tax on jobs” by a council that can’t be trusted to spend efficiently.
The head tax could cost Amazon — with about 45,000 Seattle workers — more than $20 million per year in 2019 and 2020. In 2021, it would be replaced by a 0.7 percent payroll tax. Under that formula, Amazon’s liability would likely increase.
Assuming the company had 50,000 Seattle employees by 2021, its payroll-tax obligation would be an estimated $39 million. Analysis of employee data posted to the job-reviews site Glassdoor suggests Amazon employees in the city are paid an average of about $110,000 per year.
“I can confirm that 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,” Herdener said in a statement.
The company declined further comment.
A growth juggernaut
With employees spread across more than 40 buildings in South Lake Union and Denny Triangle, Amazon occupies about 10 million square feet of office space in Seattle – about one-fifth of the city’s top-class office space. That’s by far the most of any company in any big city in the country.
But the tech powerhouse still has planned to add at least another 4 million square feet – which would make room for an additional 20,000 employees – and the two endeavors now up in the air account for only a portion of that.
The Block 18 tower would be part of the core campus surrounding Amazon’s new biospheres and would clock in at about 400,000 square feet. The company in October said it would occupy all 722,000 square feet of office space in the Rainier Square skyscraper, slated to be the Pacific Northwest’s second-tallest.
Seattle’s record construction boom in recent years has been predicated largely on Amazon’s growth.
The city has been adding about 10,000 new apartments and a few office towers each year, with developers banking on the company and its employees taking up much of that space.
“Amazon dominates the downtown office market,” said Young, the UW real-estate expert. “Where is the additional demand going to come from if they do this and carry through with the threat?”
There’s also a question of whether other projects that now exist only on paper could be scrapped.
When 2018 began, there were at least 220 slated for the area between South Lake Union and Sodo, according to the Downtown Seattle Association.
Supporters of the tax say the companies driving Seattle’s economic boom are also, by attracting high-wage tech workers to the city, driving up rents and home prices.
Washington state doesn’t tax income or capital gains, leaving Seattle with few new revenue options as its population explodes, the measure’s sponsors said in a joint statement.
“While Amazon didn’t single-handedly cause this problem, they have contributed to the growing income inequality, displacement and housing affordability issues facing our city,” they said.
Since Amazon opened its South Lake Union headquarters in 2010, Seattle housing costs have grown at among the fastest rates in the nation.
The median cost of a single-family house in Seattle has jumped 110 percent to $820,000, while rents have increased 64 percent, with the typical two-bedroom now costing more than $2,000.
The company has stepped up to help recently on the homeless issue, on its own terms. Two years ago, it gave Mary’s Place, a non-profit that shelters homeless women and their families, the free use of a former hotel on land slated for development.
Amazon later promised to give Mary’s Place — at no cost — part of a new company building, which remains under construction downtown. The 47,000-square-foot shelter will house more than 200 people in 65 rooms.
Yet advocates of the tax proposal say philanthropy is no substitute for sustainable public revenue.
“I hope that there’s an understanding that we have an unfair system, starting with our tax system, and Amazon benefits from that system,” O’Brien said.
The council member said he learned about Amazon’s pause Wednesday morning in a meeting with company executives. They didn’t ask for specific changes to the proposed legislation, O’Brien said.
Sawant, who led a “tax Amazon” rally in the heart of the company’s campus last month, argued the council should press ahead. “Amazon has just now done an extortionary thing,” she said.
Council members not yet committed to the tax reacted cautiously, with Sally Bagshaw suggesting the company’s big splash could slow deliberations.
“I think it’s going to take some more time for us to get it right,” she said.
Though he lacks sympathy for a company run by a super-billionaire, Council President Bruce Harrell said he harbors doubts about the legislation.
“One of my biggest concerns is whether we really solve the problem,” Harrell said. “If we don’t move the needle, then all we did is tax business.”
Durkan, elected with support from the Chamber and Amazon, has not been a champion of the tax but has expressed willingness to work with council members on the legislation. On Wednesday, the mayor said an Amazon pull-back could impact a range of jobs, “from our building trades, to restaurant workers, to nurses, manufacturing jobs and tech workers.”
“At the same time, our city must urgently address our homelessness and affordability crisis and lift up those who have been left behind,” she added, pledging to bring together council members and business and labor leaders to strike a deal.
Though the vast majority of companies wouldn’t pay the proposed tax, some small-business owners are worried it could hurt large companies they do business with, Durkan said.
The tax already has the five council votes it needs to pass but would need six to override a mayoral veto — a prospect Durkan declined to comment on.
The Martin Luther King County Labor Council, an umbrella group for local unions, has endorsed the tax proposal.
Under the draft legislation, which has yet to pass through any council committee, about $50 million per year would go to build low-income housing, $20 million to emergency shelter and services and $5 million to administration.
In Olympia, Gov. Jay Inslee’s chief of staff said he speaks with Amazon representatives regularly and has heard them express concerns about the proposed tax “on several occasions.”
Though Inslee isn’t looking to advise Durkan or the council on what to do, David Postman said, “I would hope there is room for compromise on the proposal, and maybe it will look different in the end.”
State Sen. Reuven Carlyle, D-Seattle, spoke out against the measure, encouraging the council to withdraw it in light of Amazon’s move.
“I personally believe that if this plan goes forward, we need to be wide awake to the likely unintended consequences of the loss of many thousands of jobs,” Carlyle said.
“I don’t believe for a New York second that today’s announcement is even close to a bluff.”
Many Seattle-area leaders have sought better relations with Amazon since the surprise news the retailer would invest $5 billion in a second corporate headquarters for as many as 50,000 employees.
Some in the business community interpreted the HQ2 search as a critique of Seattle, and a large group of politicians met with Amazon executives at the company’s campus in February. But the council’s new proposal appears to have further stoked tensions.
People who have spoken with Amazon executives and policy staff say there is a perception within the company that it is being blamed for city problems it did not cause.
Amazon officials generally haven’t voiced such concerns publicly, but the head-tax is proving to be an exception.
Andy Jassy, chief executive of the Amazon Web Services cloud computing division, posted to Twitter last week, saying “Insane what Seattle’s considering,” alongside a link to an article critical of Seattle’s proposed tax. Jassy also posted an opinion piece by the Seattle Times editorial board urging the city to reject the measure.
On Wednesday, legislation sponsor Councilmember Lisa Herbold described Amazon’s leap into the debate as “an unfortunate reaction.”
“It’s not what I would expect from a corporation that says that it is committed to working with Seattle, as it did last year when we worked together to put together the reset meeting,” Herbold said. “This is really backsliding on that commitment.”
Seattle Times staff reporters Vernal Coleman, Mike Rosenberg, Vianna Davlia and Jim Brunner, and editor Jonathan Martin, contributed to this story.