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A $5 billion carrot: Larry Hogan’s historic offer to win Amazon HQ2

Maryland Transportation Secretary Pete K. Rahn told lawmakers at a hearing that the state had 'for all practical purposes' offered Amazon a “blank check." (Video: Maryland State Senate)

Maryland Gov. Larry Hogan (R) will offer more than $3 billion in tax breaks and grants and about $2 billion in transportation upgrades to persuade to bring its second headquarters and up to 50,000 jobs to Montgomery County.

Hogan’s proposal, a copy of which was obtained by The Washington Post, is designed to give the state an edge over 19 competitors, including the District and Northern Virginia, in luring the online retail giant to build a 100-acre campus in White Flint or another site in North Bethesda.

It appears to be the second-most generous set of inducements among the 20 locations on Amazon’s shortlist. Of the offerings whose details have become public, either through government or local media accounts, only New Jersey’s is larger, at $7 billion.

Maryland’s package, which Hogan will make public Monday morning, will require legislative approval and would dwarf any previous economic development offering in the state’s history.

“HQ2 is the single greatest economic development opportunity in a generation, and we’re committing all of the resources we have to bring it home to Maryland,” Hogan said in a statement obtained by The Post on Sunday.

‘Game-changer’: Amazon’s HQ2 shortlist includes D.C., Montgomery and Northern Va.

Seattle-based Amazon last week slashed the number of locations it is considering for its second headquarters, from 238 to 20. Finalists include potentially strong competitors such as Boston, Atlanta, Chicago and Philadelphia. But the Washington area is believed to stand an above-average chance, partly because it was the only region with three locations on the list of 20. (Amazon founder Jeffrey P. Bezos owns The Washington Post.)

Amazon chose 20 possible cities for next headquarters. These application videos show how hungry cities are for HQ2. Amazon CEO Jeffrey P. Bezos owns The Post. (Video: Monica Akhtar/The Washington Post)

The District and Northern Virginia have declined to say whether they would match Maryland’s package, saying secrecy was necessary for competitive reasons. Both jurisdictions are proposing multiple sites and are expected to offer tax relief, job training grants and other inducements.

The prospect of winning tens of thousands of good-paying jobs, along with the prestige of triumphing in a North America-wide contest, has sparked a competitive frenzy among politicians and business leaders vying for the prize.

That, in turn, has prompted warnings from experts against state and local governments offering too much. Amy Liu, director of the Metropolitan Policy Program at the Brookings Institution, noted that New Jersey’s offer of $7 billion was larger than the $5 billion Amazon plans to invest.

‘Their eyes are on D.C.’: Capital area said to have good shot at Amazon HQ.

“The question for cities is how do you ensure that the amazing opportunity is good for the community, and reflects your best interests and not simply the interests of the company,” Liu said.

Maryland Senate President Thomas V. Mike Miller Jr. (D-Calvert) said last week that support for Amazon should wait until the state restores funding for programs in Baltimore and a regional hospital in Prince George’s County that Hogan left out of his 2019 budget proposal.

“First we have to take care of the needs of the state and then we can worry about attracting a world-class company like Amazon,” Miller said.

But the Democrat also said he looked forward to working with Hogan and county officials to bring Amazon to Montgomery, one of the wealthiest and most diverse counties in the nation.

The biggest single element in Hogan’s plan is legislation that would provide a 10-year package of tax credits and exemptions. Qualifying companies would get a tax credit equal to 5.75 percent of wages for each new qualifying headquarters job; a state and local property tax credit; and a state sales and use tax exemption for construction material or warehousing equipment used in the project.

Turnabout as fair play? Md. Democrats roast Hogan over Discovery’s move to New York.

The legislation does not name Amazon as the beneficiary, but is unmistakably aimed at the retailer. According to draft wording reviewed by The Post, the benefits would be available to a Fortune 100 company that creates a new headquarters facility in the state with an investment of at least $5 billion over 17 years, along with other conditions.

Maryland used creative capitalization in naming the bill, to give it a catchy — and Amazon-specific — acronym: the “Promoting ext-Raordinary Innovation in Maryland’s Economy (PRIME) Act of 2018.”

The bill includes a clawback provision that would allow the state to recover tax credits if the company fails to hire at least 40,000 people with average compensation of $100,000 a year. Hogan’s proposal also provides $150 million in direct grants to Amazon from the state Sunny Day Fund — $10 million a year for 15 years.

Together, the tax relief and Sunny Day grants would be worth more than $3 billion to Amazon, the state said. The benefit would be greater if the new employees’ average pay was more than $100,000 a year.

The governor’s office declined to detail the approximately $2 billion in road, transit and infrastructure improvements that it will offer or to say whether all of those upgrades represented new spending, as opposed to investments in projects already in the pipeline.

“The state will detail those in the future when it’s strategically advantageous to do so,” Hogan spokesman Doug Mayer said. The package, he said, “includes both roads and transit.”

In addition to New Jersey, which hopes to lure Amazon to Newark, other competitors floating big offers include Chicago, with incentives of at least $2 billion, and Philadelphia, whose inducements are reportedly between $2 billion and $3 billion.

“The Hogan administration has put forth an incentive package that makes Maryland competitive with any state or city in the country — we’re playing to win,” Commerce Secretary Mike Gill said.

The splashy offer could become a campaign issue as Hogan seeks a second four-year term in November.

A centerpiece of his administration and 2014 campaign has been making Maryland more attractive to business, and deep-blue Montgomery is considered must-win territory for Democrats hoping to recapture the governor’s mansion. At the same time, voters also can be critical of excessively generous corporate giveaways, especially if their preferred priorities are underfunded.

Hogan drew sharp criticism from state Democrats earlier this month when Discovery Communications announced it was moving its headquarters from Silver Spring to New York, reducing from four to three the number of Fortune 500 companies hosted by the state.

Hogan caught some heat from potential Democratic challengers last week when Baltimore failed to make Amazon’s shortlist of 20 locations. The governor had strongly backed the city’s Port Covington neighborhood as a site for Amazon, saying Baltimore needed the jobs more than other locations in Maryland. But Democrats said the governor doomed the city’s chance by killing the light-rail Red Line project and not doing more for public schools.

“Larry Hogan underfunded Baltimore’s schools and canceled the Red Line,” tweeted James L. Shea, one of seven Democrats seeking the nomination in the June 26 primary. “What are two of Amazon’s top requirements? Transportation and education.”

Hogan dismissed the criticism as “political nonsense.”

“The Red Line doesn’t go anywhere near Port Covington,” the governor said. “Our proposal [to Amazon] . . . did include light rail to the site and major transportation improvements.”