This is an archived article that was published on sltrib.com in 2017, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
In June, Gov. Gary Herbert announced Utah had persuaded Amazon to build a new fulfillment center in Salt Lake City, offering the internet behemoth $5.6 million in tax incentives to bring 130 high-paying jobs to the state.
But more than 90 percent of the facility's expected 1,500 full-time jobs aren't guaranteed to be paid any higher than minimum wage. Though Herbert called the deal with Amazon.com Inc. a "win-win-win," other states have landed similar centers without offering incentives. And unlike other states, Utah won't update taxpayers on whether or when Amazon creates the promised jobs or collects the tax rebates.
The 130 jobs must pay 10 percent above Salt Lake County's annual average of $49,449, the Governor's Office of Economic Development (GOED) said. While other positions can be paid any wage, the average base pay for an Amazon fulfillment associate is about $25,000, according to job and career site Glassdoor.
If Amazon pays below local-average wages, it could undermine the point of the economic incentive, said Timothy Bartik, senior economist with the nonprofit research organization W.E. Upjohn Institute for Employment Research.
"The main point of the incentive that might justify the costs is providing labor-market benefits to local residents," Bartik said. "If the other jobs are lower wage, there will be lower benefits to workers."
Thomas Wadsworth, director of corporate growth and business development at GOED, said that while not all jobs at the $200 million facility will be high-paying, the ones that are will have a positive effect on the economy.
"If we bring high-paying jobs, there's a multiplying effect that comes with it," Wadsworth said. "As you're bringing in new businesses, it raises the wages across the board, across the economy."
Utah will pay the $5.6 million in tax rebates over eight years, if Amazon meets the annual hiring benchmarks.
Natalie Gochnour, associate dean of the David Eccles School of Business and director of the Kem C. Gardner Policy Institute at the University of Utah, analyzed the potential economic impact of the facility.
GOED told Gochnour it would employ 130 people in managerial roles with salaries of about $88,000 and employ about 2,000 warehouse workers for an estimated salary of about $30,000. She estimated the facility will create more than 3,000 additional jobs, due to construction and other new economic activity.
Amazon will "have to pay the market wage or they won't be able to get employees," Gochnour said. "It is a tight labor market and wages are on the rise in the state. And I don't think Amazon would enter this market with any illusions."
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Counting cost per job • Salt Lake City will not contribute any additional incentives, according to Mayor Jackie Biskupski. But with the state funding alone, Utah will pay about $43,000 apiece for the 130 high-paying jobs, much more than many other incentive deals.
That's more than triple what Connecticut agreed to pay. Although that state's deal is potentially worth $25 million, Amazon has to create 1,800 jobs after four years, according to Jim Watson, spokesperson for the Connecticut Department of Economic and Community Development.
Incentive packages offered to Amazon around the country vary drastically.
"It's hard to make apples and apples comparisons," said Josh Goodman, a researcher on state tax incentives for the Pew Charitable Trusts. "You couldn't necessarily say this facility got a bigger incentive in this state than another state."
And even though the Utah Legislature's research arm uses the per-job metric to compare incentive programs, Wadsworth said the number does not paint a full picture of incentives' benefits.
"They're designed to capture a holistic economic benefit to the state," Wadsworth said. "The jobs are just one component."
The Utah deal requires fewer jobs than most other incentive offers. But it ensures the highest wages for the 130 positions included, compared to six other states that offered Amazon incentive deals so far this year.
However, the deal is still pricey compared to similar incentive agreements in Utah. GOED has offered to rebate to Amazon more than 10 times the $3,972 the agency spends on average for jobs created under such incentives.
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Considering the competition • Marc Wulfraat believes Utah could have gained the new warehouse without offering to rebate millions in taxes. Wulfraat is founder and president of MWPVL International Inc., a supply chain, logistics and distribution consulting firm that has studied Amazon for the last 10 years.
"In a place like Salt Lake City, there's no competition," Wulfraat said. "It doesn't make sense for the government to hand out tax incentives, because if Amazon wants to be there, they're going to be there, period."
Utah has more than 3 million residents and has the fastest-growing population of any state in the nation. But residents are relatively isolated from neighboring states. The closest Amazon fulfillment centers are hundreds of miles away in Arizona, Nevada and California, according to a list of every Amazon facility in the world maintained by MWPVL International.
Asked how important incentives are to drawing Amazon to invest, a spokesperson for the company pointed to other considerations.
"Most importantly, we want to make sure a fulfillment center is placed as close to the customer as possible to ensure we can offer a great Prime service and fast shipping speeds to customers," Carey Nickels said in an email. "We also look at the workforce and we've found great talent in abundance in Salt Lake City."
Amazon has ramped up construction of new fulfillment centers as part of its overall cost-cutting strategy.
"A failure to optimize inventory in our fulfillment network will increase our net shipping cost," the company wrote in its annual 10-K filing with the Securities and Exchange Commission (SEC) for 2015.
Amazon has announced 14 new fulfillment centers in 10 states this year, including Utah, according to news releases from the company. That's a continuation from 2016, when the company built 26 fulfillment centers, Brian T. Olsavsky, Amazon's senior vice president and chief financial officer, said in a call with shareholders earlier this year.
When Herbert announced the Amazon deal, he said Utah competed with six other states to land the center.
But it is impossible to know how much influence $5.6 million in potential tax rebates actually had on the company, which logged more than $135 billion in sales in 2016, according to an SEC filing, and recently put in a bid to buy Whole Foods Market Inc. for $13.7 billion.
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Skipping incentives • Some places drew the company to invest with lower or no incentives.
In Colorado, next door to Utah and enjoying similar population growth, state and county officials declined to offer incentives because Amazon could not guarantee high enough wages. The city of Aurora, Colo., offered Amazon just over $1 million in incentives for a minimum guarantee of 900 jobs, which is $1,111 per job. But the nearby city of Thornton offered nothing.
Amazon decided to build a fulfillment center in each of those cities, which are just outside Denver, with a population of nearly 650,000 and some 2.7 million in the larger metro area.
"This project was not driven by incentives," said Tricia Allen, senior vice president for Adams County economic development, which oversees the locations of the Aurora and Thornton fulfillment centers.
She pointed, instead, to the sites' proximity to major highways and Denver International Airport.
All of the new fulfillment centers announced this year are near major highways outside population hubs. The Salt Lake City Amazon warehouse will be located at 777 N. 5600 West, just off Interstate 80 near Salt Lake City International Airport.
Salt Lake City has a population of about 190,000, but the larger metro area has nearly 1.1 million residents.
Whatever Amazon's calculations were, GOED's Wadsworth said the company's presence would attract workers, despite the potentially below-average pay.
"You bring in a company like an Amazon that has that sexiness factor to it," Wadsworth said. "It's typically something that employees want to associate themselves with." —
About the GOED incentives
The deal • The Governor's Office of Economic Development is offering to rebate Amazon $5.6 million in taxes for 130 high-paying jobs — defined as earning 10 percent above Salt Lake County's annual average of $49,449.
Benchmarks • State officials say they cannot publicly share whether Amazon hits future benchmarks set under the deal, or reveal how much the state annually reimburses the retailer over the eight years of the agreement.