Arlington pays Amazon HQ2 incentives for first time

For the first time since approving Amazon’s incentive package for its HQ2 East Coast headquarters in 2019, Arlington County will finally cut Amazon a check — triggered by the county’s hotel tax revenue finally meeting a required threshold.

Amazon opened the first phase of HQ2, the $2.5 billion Metropolitan Park, in Arlington in May 2023. About 8,500 employees currently work out of HQ2 five days a week. The county recently announced that it will award Amazon a grant payment of $81,745, based on the performance of revenue from the county’s Transit Occupancy Tax (TOT), a lodging tax.

In March 2019, the Arlington Board of Supervisors approved a performance agreement making Amazon eligible for incentive payments from the grant when the county’s TOT revenue exceeds a baseline of $24,972,737. This was done with the assumption that Amazon’s new offices would attract more people to the county on business trips, staying at hotels and spending money in the area.

The county’s performance agreement also required Amazon to gradually occupy more and more office space in the county over a 15-year period. While Amazon never had issues meeting the occupancy performance targets, the TOT revenue threshold was not reached until this year, a likely function of the pandemic impairments to the travel and lodging industries. The most recent fiscal year, which ended on June 30, was the first time since the county entered into the agreement with Amazon that its local lodging tax revenue exceeded the baseline amount. (The county’s TOT revenue for FY25 totaled $25.5 million, $544,968 above the baseline.)

“This milestone reflects the positive impact of Amazon’s investments in the county and its position as a significant and valued member of Arlington’s business community,” the county said in a statement.

Destiny Esper, a spokesperson with Arlington County Economic Development, said the first half of the fiscal year saw continued post-pandemic recovery in business and leisure travel, and that there was “steady activity across Arlington.” She noted Amazon’s presence contributes to weekday demand in National Landing, but added Arlington does not attribute countywide lodging growth to any single employer.

Economist Terry Clower, Northern Virginia Chair and professor of public policy at George Mason University’s Schar School of Policy and Government, says the payment illustrates how well-structured Arlington’s performance agreement was with Amazon.

Unlike many economic development incentive efforts, which often become “corporate giveaways,” he noted, the county was smart to require Amazon to meet certain performance metrics before awarding incentive funding. Too often, Clower added, jurisdictions “write a blank check” to lure companies and then are left waiting a long time for jobs to materialize and revenue targets to be met.

Clower said it’s “good news” that Amazon has reached a point where it has helped generate enough revenue for the county to pay the incentives as obligated.

The first phase of HQ2 includes a 2.5-acre public park and 2.1 million square feet of office space spread across two 22-story office towers. It also features more than 50,000 square feet of retail space on the ground floor, which is home to 13 local small businesses — the majority of which are women- and minority-owned.

Recent challenges

Despite the touted benefits of Amazon’s second headquarters to the county, HQ2 has hit some roadblocks. When Amazon picked Arlington as the site for HQ2 in 2018 amid a heated national competition among states, Amazon said it expected to create 25,000 jobs by 2030. But in an April 1 application requesting payment of taxpayer-funded incentives from the state, Amazon checked the “moderate” box as a reflection of its confidence that it would meet that job target by 2038. In every previous application filed with the state, Amazon had checked the “high” confidence box.

In its April application to the state, Amazon requested more than $6.4 million from Virginia’s Major Headquarters Workforce Grant Payment, a grant that pays out $22,000 per qualifying job. The average annual wage paid for these positions is above the wage target specified in the agreement of $161,593. The application said that last year, Amazon hired 293 incentive-qualifying employees.

Between 2018 and the end of 2024, Amazon hired 7,232 employees at HQ2 who qualified for incentives, falling short of its goal of hiring 10,000 qualifying workers by 2024.

“While we experienced incremental new job growth in 2024, we exceeded hiring goals in previous years,” Holly Sullivan, Amazon’s vice president of worldwide economic development, stated in the document.

In 2023, the company paused construction on HQ2’s second phase, PenPlace, which was set to include 3.3 million square feet of office and retail space spread across three 22-story buildings.

Amazon’s progress with HQ2 has been “slower than I think most people anticipated,” Clower said, noting that HQ2 was likely impacted by economic challenges stemming from the COVID pandemic, as well as Amazon initially overhiring workers during the e-commerce boom that kicked off just before the pandemic. He said the company has still contributed to economic growth in the region, just at a slower pace than some initially anticipated.

“From a local job creation [standpoint], particularly in light of what’s going on with the federal government, I’d love to see Amazon’s hiring pick up in pace to create more opportunities for folks that may be in other sectors so that they can maybe, with a little bit of retraining, be eligible for jobs” with Amazon, Clower said. “However, I would much rather [Amazon] slow the pace of the development of the second building, so that you don’t wind up with a huge piece of inventory being added to the market that’s underutilized.”

Esper, the Arlington Economic Development spokesperson, said that Amazon and the county’s vision “remains intact even as timing evolves.” In a statement, she added, “Amazon’s agreements for HQ2 represent a long-term commitment spanning 20 years. As with any major project or investment of this scale, economic fluctuations are natural and anticipated. Amazon has reiterated its long-term commitment to Arlington and Virginia, continues to meet or exceed its occupancy targets each year, and remains active in the community.”

An Amazon spokesperson said the company had indefinitely paused construction on PenPlace, but stressed that the second phase isn’t dead. The company says it currently has “ample space” to grow at Met Park.

“HQ2 has always been a long-term commitment and we are proud of the progress we have made,” an Amazon spokesperson said in a statement. “In addition to creating thousands of direct and indirect jobs to-date, we’ve invested more than $2.5 billion in capital investments, $1.2 billion to preserve and create over 9,500 affordable housing units and provided $239 million to more than 100 local nonprofits and schools.”

The spokesperson noted the company has so far reached 30% of its hiring goal, and that Amazon has brought “thousands of new direct and indirect jobs to HQ2.”

In June, Arlington’s county board granted a three-year extension to Amazon for plans to develop PenPlace, with a deadline of June 30, 2028, to act on the plan.