by Paula Fitzgerald
A lot of finger-pointing is currently taking place in New York over Amazon’s decision to pull its planned HQ2 investment out of Long Island City. Some people are placing blame on Amazon, at the politicians who worked to secure the deal in the first place, and now, at the politicians who chased them away.
Amazon was always going to have a tough time selling this to New York. The day after they announced they were moving to Long Island City (LIC), most of the front pages of local newspapers carried the headlines; “City gives $4.1bn Gift to Amazon” next to pictures of a gleeful Jeff Bezos
Immediately, questions circulated: “Why should we be giving the richest company in the world money when we can’t even fix the subway?”. It conjured up the image that the city was going to re-allocate taxpayer funds to write a cheque to Jeff Bezos for billions of dollars, the moment the first shovel broke ground in LIC. This helped shape the narrative in many New Yorkers’ minds, but overlooked much of the substance, and the performance aspects of the plan.
Legitimate concerns about the cost of housing, the impact on infrastructure and gentrification have led some protestors to conclude that New York “dodged a bullet”. But killing off 25,000 jobs and the economic activity that would have accrued, make this a missed opportunity for New York on many fronts. Not least the ability to generate taxable income to address these issues without increasing state debt, which is projected to reach a deficit of $2.3 bn this year.
What was in the proposal?
New York runs an initiative called the Excelsior Jobs Program, which is designed to encourage businesses to expand in, and relocate to, New York. Businesses who do, earn refundable tax credits that can be used to reduce their tax liability at the end of their financial year.
With Amazon, New York proposed that they could receive up to $1.2bn in Excelsior tax credits over a ten-year period. That number is huge because the proposed scope of the project and job creation was huge; Amazon committed to creating 25,000 full-time jobs (paying over $100,000) by June 30, 2028. This employment had to be maintained through January 1, 2029, and they also had to make qualifying capital investments of $2.3bn through 2028.
In order to claim the maximum credits, Amazon would have to submit an annual performance report showing the number of jobs that it had created and the investment it had made that year. If in any year Amazon created less than 75% of the net new jobs projected, it would not receive any job growth credits that year. If Amazon exceeded the number of jobs projected, it would not receive additional credits.
The incentives package from New York meant that the state would waive the future obligation to pay the first $3bn in tax, in exchange for Amazon’s $2.3bn of capital investment to build HQ2 and hire thousands of local New Yorkers. The money is a tax credit, not a payout from the treasury. It does not mean they receive cash payments.
Corporate Giveaway or Catalyst for Development?
Every state in the US offers some form of assistance to private enterprises, to help attract or retain business. Amazon is not the first company to take advantage of these types of incentives, but they received much criticism when they released their RFP in 2017 for not concealing the fact that the level of incentives offered by states and cities would be critical location decision drivers.
However, when you look at the numbers within the RFP, there is a reason Amazon can be so open about this. They estimate that between 2010 through to 2016, for every dollar Amazon invested into Seattle, it generated an additional $1.4 for the city’s economy overall, resulting in an additional $38 billion. On top of the 40,000 people Amazon employs directly in Seattle, an additional 53,000 jobs have been created, boosting personal income to even non-Amazon employees in Seattle by $17 billion.
Local legislators who opposed the plan pointed to Seattle’s homelessness problem and said that all the benefits would go to the already well-off, not the low-skilled jobs that working-class people need. As with any city, Seattle has its challenges, affordable housing being one of them. Amazon’s growth there over the years has no doubt contributed to that problem, but Amazon also offers opportunities and resources most cities can only dream of.
Large parts of LIC are already gentrified. Would the subways have become more crowded? Maybe. But this would have expanded the tax base by a minimum of 25,000 people. That’s an extra $2.5 billion in taxable income per year that could have been added to New York coffers to fund desperately needed fixes for the Metropolitan Transit Authority and the NYC Housing Authority.
Unlike Walmart, who has tried and failed for years to set up a presence in New York’s boroughs but has faced resistance from local mom and pops retailers, the jobs at HQ2 were going to be a mix of management, software development and administrative roles. They were not going to compete with local retailers or put them out of business. If anything, they were just going to create more foot traffic for local family-owned restaurants and grocery stores.
A New Precedent?
Will other cities feel emboldened by New York to reject corporations like Amazon who seek out tax incentives in exchange for their investment? Legislatures in Florida, Illinois, New York and several other states are considering forming a multistate compact known as the End Corporate Welfare Act, that would stop the practice of offering tax incentives to woo businesses and focus on investing in growing the talent in local businesses instead. Most states do already offer programs like Start-Up NY, to support and nurture new companies but the reality is that new businesses do not share anywhere near the same resources to create the same number of new jobs or payrolls as Amazon does.
In a poll conducted on February 12 2019, two days before Amazon announced they were pulling the deal, 70% of voters said they supported the project. And despite the strong opposition by local legislators, no alternative plans have been put forward for how else they might create 25,000 jobs and generate billions of dollars in new payroll for the community. This may prove especially difficult now since any prospective employer, particularly in the technology sector, is going to think twice about opening an office in LIC given the hostility Amazon encountered.
At a time when trade wars and tariffs risk plunging the global economy back into a new financial crisis, Amazon were ready to commit to creating 2,500 new jobs, per year for the next 10 years, because they took comfort from the fact that the size and diversity of our workforce would reduce the risk of not being able to find the talent they need. HQ2 would also have supported New York City’s economic development goal of growing the technology sector to diversify away from financial services and help the city better withstand the next global financial crisis.
Out of the longlist of 238 regions that submitted plans for HQ2, Amazon chose New York City. One can only wonder the reception Amazon would have received had they chosen to go with an alternative location instead.