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Amazon pauses construction on HQ2 in Northern Virginia

Amazon is holding off on the second stage of it HQ2 megaproject in Northern Virginia, the company announced Friday.

HQ2 is predicted to eventually bring 25,000 new Amazon employees to Arlington, Virginia, in an area near the Pentagon. The first phase of the project, dubbed Met Park, is scheduled to open this summer as planned. Amazon has hired 8,000 new employees for the facility, which will measure 2.1 million square feet in size, a company spokesperson said.

Now, the retail giant said it will delay starting construction on PenPlace, the second phase of its headquarters.

"We're always evaluating space plans to make sure they fit our business needs and to create a great experience for employees, and since Met Park will have space to accommodate more than 14,000 employees, we've decided to shift the groundbreaking of PenPlace (the second phase of HQ2) out a bit," John Schoettler, vice president for World Wide Real Estate and Facilities, said in a statement to CBS News. 

The announcement comes after the Seattle-based company announced the biggest corporate layoffs in its history, slashing 18,000 jobs early this year. It has also cut money-losing projects, such as the Alexa voice assistant team. Amazon joins other tech companies that are scaling back on costs after having boomed during the pandemic, including Alphabet, Microsoft and Meta.

The company said the construction pause is unrelated to the layoffs, and that the plans to eventually host 25,000 workers at the location have not changed.

The company "remain[s] committed to Arlington, Virginia, and the greater Capital Region — which includes investing in affordable housing, funding computer science education in schools across the region, and supporting dozens of local nonprofits," Schoettler said.

"I told you so"

Amazon started the project in 2018 after inviting cities to a nationwide bidding war for the chance to host the company's second campus. It chose Northern Virginia and New York City, but dropped its New York plans after local elected officials and labor leaders objected to the nearly $3 billion in taxpayer subsidies the company was slated to get under the deal.

Some seized on news of the North Virginia pause as a chance to say "I told you so." 

"Maybe a multibillion dollar subsidy for the biggest corporation in the world to build an office was a really bad idea after all," State Senator Mike Gianaris said on Twitter

Virginia's bid for HQ2 came with promises to invest in the regional workforce, particularly a graduate campus of Virginia Tech that is under construction just a couple of miles from Amazon's under-construction campus in Crystal City.

Still, there were significant direct incentives. The state promised $22,000 for each new Amazon job on the condition that the average worker salary for those new jobs is $150,000, annually. Those incentives were about $550 million for 25,000 projected jobs.

Arlington County also promised Amazon a cut of its hotel-tax revenue on the theory that hotel occupancies would increase significantly once Amazon builds out its campus. That incentive, projected initially at about $23 million, is dependent on how many square feet of office space Amazon occupies in the county.

Suzanne Clark, a spokeswoman for the Virginia Economic Development Partnership, said state officials are not concerned about Amazon filling its commitments. The total of 8,000 workers now employed at the new headquarters is already running about 3,000 ahead of what was expected at this point, she said.

Clark said no incentive money has been paid out yet to Amazon. The company is scheduled to submit its first application for payment on April 1, which will be based on the job creation from 2019 through 2022. Amazon would then receive its first grant payment on or after July 1, 2026.

In a statement, Democratic U.S. Rep. Don Beyer, who represents the district, called on the company to "promptly update leaders and stakeholders about any new major changes in this project, which remains very important to the capital region."

Arlington County Board Chair Christian Dorsey said during a news briefing Friday that Amazon hasn't earned any of the performance-based incentives and it has not received any funds from the county. He said it's unclear how long the delay might be, but it's "not really disappointing" since officials there had initially projected the buildout to be completed by 2035. Amazon had previously said it planned to complete the project by 2025.

"Amazon is still very much committed — as we understand it — to certainly fulfilling all of their plans and obligations within the window that was envisioned when they struck the deal to come here," Dorsey said.

Dorsey shared the company notified him about the pause in advance of releasing the information to the public. He said Amazon didn't provide a reason for the delay, but it wasn't challenging to guess it was tied to the economic uncertainty in the county.

"They are really trying to take a pause and think about this consciously. And make decisions that not only make sense in light of current conditions but expected future conditions."

CBS News' Irina Ivanova contributed reporting.

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