The cost of incentives could dampen the positive impact of winning the competition to house’s second headquarters but not enough to eclipse the winner's expected economic dividends, S&P Global Ratings says in a new report.

“The direct costs or foregone revenues in the incentives that some communities have offered to attract Amazon could offset some of the potential local gains,” the rating agency wrote.

Finalists for's HQ2 second headquarters announced 20 finalists for a second headquarters to supplement its Seattle base. S&P Global Ratings

While incentives could complicate the credit picture, “we think an investment at the scale of HQ2 could be transformative and deliver a variety of direct and ancillary economic and revenue benefits to the doorstep of the community that receives it,” concludes Thursday's report, authored by analysts Chris Morgan and Chris Grant.

Amazon’s September announcement that it was hunting for a second home with plans to possibly create 50,000 jobs and spend more than $5 billion on real estate set off a frenzy with 238 governments submitting bids in hopes of mimicking the economic boost Seattle has experienced from hosting the firm.

“We think that local economic changes, including's growth, during the past decade have supported the city's credit quality overall by making it easier for the city to balance its budget and afford infrastructure investments” and a “shift in its headquarters growth elsewhere in the coming decade could benefit the city by lessening its exposure to the fortunes and decisions of a single employer,” S&P wrote last year.

The company recently whittled down the list to 20 finalists: 19 U.S. locations and one in Canada. They are Atlanta, Austin, Boston, Chicago, Columbus, Dallas, Denver, Indianapolis, Los Angeles, Miami, Montgomery County, Md., Nashville, Newark, N.J, New York, Northern Virginia, Philadelphia, Pittsburgh, Raleigh, Washington, D.C., and Toronto.

Chicago is the lowest rated at BBB-plus. Two are rated three notches higher at A-plus: Philadelphia and Pittsburgh. Eight are rated in the double-A category – Atlanta, Dallas, Indianapolis, Los Angeles, Miami, Nashville, New York, and Washington, D.C. Newark does not carry an S&P general obligation rating.

The rest are AAA – Austin, Boston, Columbus, Denver, Montgomery County, and Raleigh as are the four Northern Virginia counties that would likely host the site if that bid is chosen.

“We think the arrival of HQ2 could have significant and sustained positive effects on the chosen community's economic characteristics, which could affect local government credit quality in a variety of ways under our local government general obligation criteria, particularly for communities with relatively low economic scores,” S&P wrote.

The chosen city stands to reap benefits based on the scale of real estate investments that would boost per capita market value and job creation with high-paying jobs strengthening per capita income, generating new tax revenue from the company and its employees.

Local investments in transit as part of an incentives package could also generate broader community benefits and local business opportunities could expand to accommodate the new growth.

The full weight of any benefits, however, could be tempered by what incentives the city offers in its bid.

“The company's stated search for a ‘partnership’ in helping to locate and develop a site have led some governments to consider infrastructure investments, service enhancements, or tax abatements, the costs of which could partially offset some of the positive effects of Amazon's real estate investment and employment growth,” S&P said.

Negative risks on a city’s credit profile also exist. “With so many direct and related jobs, we view taxpayer and employment concentration as potential long-term risks, as is the potential for local businesses and governments to pull pack on investment during Amazon's development phase if construction costs rise significantly,” S&P added.

Under the rating agency’s local GO criteria, HQ2 could negatively impact a local government's economic profile if Amazon's hiring causes some single economic sector outside of education/health, government, and transportation, trade, and utilities to account for more than 30% of the city's nonfarm labor force.

If Amazon's real estate holdings cause the 10 largest taxpayers to account for more than 35% of assessed value, the rating agency would also view that negatively in its assessment, making a larger adjustment if concentration exceeded 45%.

Incentives offered by governments typically include tax abatements, service improvements, infrastructure spending, or a combination, S&P said. “We would evaluate any incentives in the context of a forward-looking assessment of how they might affect a local government's financial performance, financial flexibility, and debt profile,” the report said.

But the report’s authors conclude that “the long-term credit effects of Amazon's new headquarters for the selected community are likely to be positive on balance due to the direct and indirect effects on economic characteristics and local revenues.”

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