The fallout from Amazon’s cancellation of plans to build a headquarters complex in New York City continues to rain down on local politicians and fans of tax giveaways to pay corporations to relocate or expand.
The debate boils down to one camp arguing that the incentives promised Amazon — nearly $3 billion in return for a project bringing 25,000 jobs to the city — were a bargain, and another camp arguing that it was wasteful and abusive to pay one of the biggest corporations in the world, headed by the richest man in the world, to move to a location it might have chosen anyway, and to lay out billions for a relatively meager gain in employment.
Each camp includes many members who feel that Amazon shot itself in the foot by announcing on Feb. 14 that it was giving up on plans to build the complex in the Long Island City neighborhood of the borough of Queens. The company cited local opposition, which didn’t mollify Mayor Bill de Blasio, who had diligently supported the project.
“There was a clear path forward,” De Blasio wrote in the New York Times. “Put simply: If you don’t like a small but vocal group of New Yorkers questioning your company’s intentions or integrity, prove them wrong. Instead, Amazon proved them right.”
Much of the ire over the canceled project has been directed at Rep. Alexandria Ocasio-Cortez (D-N.Y.), a leading critic whose Queens district neighbors the Amazon site. In an impromptu interview with CBS News after Amazon announced its withdrawal, Ocasio-Cortez greeted the news with unalloyed glee.
“If we were willing to give away $3 billion for this deal, we could invest those $3 billion in our district ourselves,” she said. “We could hire out more teachers, we can fix our subways, we can put a lot of people to work for that money.”
Andrew Ross Sorkin of the New York Times and CNBC came back at Ocasio-Cortez with a tweet bemoaning “a financial literacy epidemic in America.” (He meant, we presume, a financial illiteracy epidemic.)
Sorkin continued, “Quick lesson: NYC wasn’t handing cash to Amazon. It was an incentive program based on job creation, producing tax revenue. There isn’t a $3 billion pile of money that can now be spent on subways or education.”
This is partially wrong, and partially irrelevant.
First, some of the incentive was to be in the form of a $325-million capital grant to help Amazon pay for construction at the site — in other words, cash. Sorkin also overlooks that the deal would have deprived the city and state of a “pile of money” that could be spent on subways or education — two of the sectors that would suffer the greatest impacts from an influx of 25,000 workers and their families.
That’s one of the fundamental flaws of many such incentive programs. They treat the appearance of new residents as an unalloyed boon, but ignore the costs of infrastructure needed to support them.
Typically, the taxes paid by the newcomers can be used to build new schools and hire teachers or add capacity to road and transit networks; tax abatement deals shortchange the community of that funding at the time it’s most needed.
New York’s package, moreover, included at least $1.3 billion in refundable tax credits — that is, payments to Amazon even if it didn’t owe the taxes in the first place. Altogether, New York would be paying Amazon as much as $120,000 per new job — a subsidy amounting to 80% of the average $150,000 first-year salary the company said it would be paying its New York employees.
The employees wouldn’t receive any of these benefits directly, since they’d still be on the hook for their own state and city taxes; the money would flow to their employer. In effect, they would be paying some of the incentive costs themselves.
What has gotten lost in the debate over the Amazon deal is how little the city would gain from its payout. Since December 2009, the end of the last recession, New York City has gained an average of 93,500 jobs a year, according to the Bureau of Labor Statistics. Amazon said it planned to bring 25,000 jobs to New York over 10 years, or 2,500 jobs a year. Measured against the city’s job growth, that’s tiny, and underscores the questions about whether the city and state were offering too much.
One reality exposed by Amazon’s cancellation is that New York, in common with many other big cities, doesn’t have a workable plan to build affordable housing in places where it’s most needed.
As Kriston Capps of CityLab reports, the borough of Queens is burdened by “a local oversupply of luxury condos and a shortage of affordable housing.” The advent of Amazon might have made this mismatch worse, by driving up rents in the areas closest to the development, displacing moderate- and lower-income residents. Capps observed that the percentage of Queens residents judged in 2016 to be severely rent-burdened, “meaning they spent more than 50 percent of their income on rent — was 48.7%, the highest share of all five boroughs.”
These issues weren’t adequately aired before Amazon announced its plans to move to New York, because the city and state had arranged to take the City Council out of the loop. Their incentive package included a streamlined permit process that would have short-circuited local community questions about the project’s impact. The consequence was an intensification of community opposition.
De Blasio acknowledged those shortcomings in the planning process, but too late — and he blamed the company, rather than his own administration or that of Gov. Andrew Cuomo, another supporter of the deal. “Amazon seemed unwilling to bend or even to talk in earnest with the community about ways to shape their project,” De Blasio wrote. “They didn’t want to be in a city where they had to engage critics at all.”
When the critics became inescapable, he wrote, Amazon made its “capricious decision to take its ball and go home.”