Amazon To Apple After All

Update 402 — Amazon To Apple After All; 
A Bird in Manhattan Worth Two in da Bronx?

This February, we wrote up Amazon’s decision to renege on plans to build a new second headquarters in Long Island City, after a furor over the $3 billion in public money at stake.  Fast forward to this past weekend and Amazon announced that it will be moving to New York City after all — just in Manhattan, not Queens and without any tax incentives from New York.  

Who exactly is the winner here? Are 1,500 jobs in Manhattan sans public subsidies worth more than 25,000 jobs in Queens with a billion-dollar taxpayer price tag?  We look at the merits of the two deals and the implications for public finance incentives and corporate welfare policymaking.  

And for those in Washington tomorrow (Thursday) night, we have an invitation for you and a reply (and cost-free raffle entry) form.  

Best,

Dana

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Just over a year ago, Amazon announced the chosen locations of its so-called “HQ2”: Crystal City in Arlington, Virginia and Long Island City in Queens, NY. Both Virginia and New York offered Amazon generous tax breaks in exchange for the move. In New York, the uproar from many in the local community, and their representatives in Albany and Washington DC, was so pronounced that Amazon ended up pulling out of the billion-dollar deal. Amazon’s decision was much to the chagrin of some, including NYC Mayor Bill de Blasio, who called the deal “mission critical,” at the time. 

Amazon’s new plans are to lease a 355,000 square foot office in the Hudson Yards area of Manhattan, creating 1,500 new jobs in the heart of the city. Rep. Alexandria Ocasio-Cortez chalked up the latest decision by Amazon to move without any financial incentives as a win. She was a vocal opponent of the original Amazon deal that would have cost New York taxpayers $3 billion, in exchange for 25,000 jobs. 

Some Jobs More Equal Than Others?

The ill-fated HQ2 deal between Amazon, the city, and the state of New York would have handed the tech giant $3 billion in tax subsidies in exchange for 25,000 jobs over ten to twenty years. The company made no promises about hiring within the Queens community, nor were there any assurances about the quality, accessibility, wages, benefits, or collective bargaining opportunities of the jobs. In contrast, Amazon’s Virginia deal had a much lower percentage of direct subsidies and instead included dedicated funding for transport infrastructure, investment in expanded tech education, job training programs, etc. 

The new plan for Amazon’s expansion is much more modest — definitely not another HQ2. Earlier this month, tech titan Facebook also announced it would be leasing 1.5 million square feet in the same Hudson Yards neighborhood. According to Amazon, the office will host employees in their consumer and advertising departments — white-collar jobs similar in nature to the original HQ2 plans. 

State Politics

On the national stage, Rep. Alexandria Ocasio-Cortez was perhaps the most vocal opponent of the original $3 billion tax break, but there was significant opposition on a state level, as well. Last year, Democrats took control of both chambers in New York’s state legislature for the first time in a decade. State Senator Michael Gianaris, a Queens native, was subsequently elected to the influential Public Authorities Control Board. 

The Board has veto power over major public-financed deals, exercising such authority when it scuttled plans for a new $2.2 billion “West Side Stadium” in Manhattan back in 2004. Sen. Gianaris’ was a very public critic of the original HQ2 deal, and with the Board’s veto power, some have posited that Amazon likely pulled-out of the deal in anticipation of a veto. In a statement issued after the Manhattan lease was announced, Sen. Gianaris expressed vindication for opposing the original HQ2 deal:

“Amazon is coming to New York, just as they always planned. Fortunately, we dodged a $3 billion bullet by not agreeing to their subsidy shakedown earlier this year. Now, we must enact reforms to our economic development programs to ensure no company can seek to take advantage of the public again.”

Housing vs. Jobs: The Seattle Experience

Much of the attention on Amazon’s original decision to move to Queens was on the number of jobs it was ostensibly going to create. Twenty-five thousand is a big number of new jobs anywhere in the country, even New York City. But, jobs are not the only thing Amazon brings to a city. Just ask Seattle. 

Median Single Family Home Sale Price 2010 – 2019

Source: Zillow

Amazon arrived in Seattle in 2010. Since then, the company has created 45,000 jobs, in a city of 725,000. House prices in Seattle have doubled over the past six years, forcing existing residents — many of whom minorities — out of the city. The black population of Seattle’s downtown Central District is down nearly 30 percent since 2010. The rise of homelessness in the city also triggered local lawmakers to impose an “Amazon tax,” a measure that imposed a levy on large corporations in the city, with the money raised going towards ameliorating the burgeoning crisis. The tax was later repealed after an intense and sustained lobbying campaign, led by Amazon.

Responsible Enterprise and Commonwealth

Last week, we wrote about the merits of a corporate alternative minimum tax (CAMT) to ensure that corporations pay at least some amount in taxes. The issue of public subsidies to encourage business investment is the other side of the same coin. As corporations consider other stakeholders over just their shareholders (the recent words of the Business Roundtable), then big deals, such as the Amazon deal in New York City, must be viewed from many different angles. 

More factors are at play besides employment, including the impact on affordable housing and strained local infrastructure. If companies like Amazon want to tap into a deep and well-trained workforce like that in New York City, they must prioritize the mitigation of the project’s negative aspects. If the original HQ2 in Queens was better thought-out and took into account the various externalities of their move, then the outcome for Amazon and the city might have been very different.