Why you should care
Because the rich are getting richer.
Amazon will receive more than $2 billion in financial incentives from New York, Virginia and Tennessee following a 14-month-long search for its second headquarters.
That is less than the subsidies offered by other contenders in the high-stakes contest among North American cities for a major economic development prize. Maryland and New Jersey each dangled more than $7 billion in tax credits and other sweeteners in hopes of securing a single “full equal” headquarters to Amazon’s Seattle home.
But the company’s confirmation yesterday that it would split $5 billion in investment and more than 50,000 jobs between the Crystal City area of Arlington, Virginia — just outside Washington, D.C. — and the Long Island City neighborhood of Queens in New York attracted ire from the company’s critics, who said it was “unfathomable” that the states would be offering hundreds of millions to the ecommerce giant.
Amazon said its choice ultimately came down to where it could find the best software developers and other high-skilled workers. “These two locations will allow us to attract world-class talent that will help us to continue inventing for customers for years to come,” said Jeff Bezos, Amazon’s founder and chief executive.
Amazon also said on Tuesday that it would put a smaller hub with 5,000 jobs in Nashville, Tennessee, which was another finalist in the contest to win the project dubbed “HQ2.”
Billions in Incentives for Job Creation
The company will reap the benefit of financial incentives in return for creating tens of thousands of jobs with an average wage of more than $150,000. New York state, for example, has promised Amazon $1.53 billion in return for creating 25,000 jobs and reaching building-occupancy targets over the next decade. That includes $1.2 billion in refundable tax credits under the state’s Excelsior jobs program — equivalent to $48,000 a job over the next decade.
The state is also giving a $325 million cash grant tied to the number of square feet Amazon occupies over the next 10 years. The company will also apply for additional incentives from New York City. New York’s total incentives could increase to $1.7 billion if Amazon expands its presence to 40,000 jobs within 15 years.
The more jobs you create, the more incentives you get.
Joseph Parilla, fellow at the Brookings Institution’s Metropolitan Policy Program
In Virginia, meanwhile, the company will get $573 million to create 25,000 jobs, consisting of a state workforce cash grant equivalent to $22,000 per job over 12 years with a separate grant from Arlington county tied to growth in revenue from a tax on hotel rooms. Virginia will also invest $195 million in infrastructure improvements to Metro stations and pedestrian routes near the project.
Nashville and the state of Tennessee have offered up to $102 million in return for Amazon creating 5,000 jobs at a new planned office for the company’s logistics division over the next seven years. That consists of cash grants equivalent to $13,500 per job and a tax credit equivalent to $4,500 per job.
Critics Call Inducements “Unfathomable”
Economic development experts said the incentive packages were broadly in line with what cities and states typically offer for big projects. “The more jobs you create, the more incentives you get,” said Joseph Parilla, a fellow at the Brookings Institution’s Metropolitan Policy Program. “Because of the scale of the jobs Amazon is creating, they get pretty big very quickly.”
But the significant size of incentives offered by New York and Virginia — locations that were considered likely choices for a corporate expansion all through Amazon’s search process — have infuriated the company’s critics. Michael Gianaris, a Democratic member of the New York State Senate representing Long Island City, and Democrat Jimmy Van Bramer, deputy leader of the New York City Council, said in a joint statement that it was “unfathomable that we would sign a $3 billion check to Amazon” at a time when the New York City subway was “crumbling” and schools and health care providers were under pressure.
“We are witness to a cynical game in which Amazon duped New York into offering unprecedented amounts of tax dollars to one of the wealthiest companies on Earth for a promise of jobs that would represent less than 3 percent of the jobs typically created in our city over a 10-year period,” they complained, calling Amazon “a bad deal.”
Google, which is planning its own major expansion in New York that would more than double its staff numbers in the city, said on Tuesday that it had not received any tax breaks.
Parilla described the conundrum facing cities wooing big companies as a “prisoner’s dilemma.” “It’s likely they aren’t necessary, but this is the status quo in economic development,” he said.
Jason Horwitz, director of public policy and economic analysis at Anderson Economic Group, a consulting firm, said his organization had ranked New York as the top contender for Amazon’s second headquarters from the earliest days of the search.
“The big question you have to answer in evaluating these incentives is what would have happened if they didn’t provide them?” he said. “Nobody really knows the answer except Amazon.”
Rolling Out the Welcome Mat
Critics aside, many of the vested interests in the winning cities cheered Amazon’s arrival. In Virginia, Democratic Senator Mark Warner told a conference on Tuesday: “This process is probably the most unique economic development. The whole country was chasing this.”
The New York Building Congress, a coalition of construction and design groups, said: “Amazon will be a tremendous boost to New York’s economy and stimulate countless industries, from technology and innovation to design and construction.”
Some of its members will hope to benefit from public spending on infrastructure improvements for Long Island City that were promised as part of the package to lure the online retailer.
Savannah, a developer with several properties in Long Island City, said Amazon had signed a letter of intent to lease 1 million square feet of space at One Court Square, the office tower long associated with Citi Bank. The bank, whose lease was set to expire in 2020, said it would move about 1,100 employees out of the building during the first half of next year to make way for Amazon.
Nicholas Bienstock, a Savannah managing partner, said the company was “thrilled” by Amazon’s choice and thanked Citi “for its critical role in facilitating delivery of the space.”
One Court Square, with the Citi logo atop it, has been an iconic feature of the Long Island City skyline. Once a lonely figure, the building has suddenly been thronged by dozens of newer office towers as the neighborhood just across the East River from Manhattan has boomed in the last few years.
Savannah is one of several developers that have plowed money into the area, including Rockrose, TF Cornerstone, Tishman Speyer and the Related Companies, among others.
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