News & Politics

How Much Is It Worth to Bring Amazon to Town?

At these prices, the winner in the race for the retail giant’s new headquarters may end up the big loser

by

Today is deadline day for bids to become the home of Amazon’s new second headquarters, and New York City is among the dozens of cities and states throwing welcome mats into the ring. A joint production of the New York City Economic Development Corporation and the state’s Empire State Development agency — conjuring images of de Blasio and Cuomo holding hands, cats lying with dogs, etc. — the New York bid’s public overview touts the city’s deep talent pool, its transit links, and available office space in four neighborhoods (Midtown West, the Financial District, Long Island City, and Downtown Brooklyn); its not-for-public-release addendum reportedly includes a hefty but unspecified helping of state tax breaks as well.

Under normal circumstances, that might be enough of a sales pitch to lure a new corporate headquarters. However, circumstances are anything but normal: The whole purpose of Amazon’s public call for bids was to see just how wide local elected officials would be willing to open their wallets. And the answer so far is oh, so wide indeed.

“People are really concerned that there’s going to be a giant burden shift, a big transfer of wealth,” says Greg LeRoy, executive director of the D.C.-based subsidy watch group Good Jobs First. “If you’re paying attention to their labor practices and their tax practices, this is a predatory company. And they could go on steroids to affect a million-plus people in a metro area.”

While full bids haven’t been made public, and likely won’t be even after they’re submitted, we’ve already seen several cities and states fall all over themselves to show what they’re willing to do for corporate love. Frisco, Texas, has put in play 40 percent of its land area for whatever Amazon has in mind. Stonecrest, Georgia, suggested it could de-annex a section of the city and rename it Amazon, Georgia. And in the brute-force cash department, New Jersey governor Chris Christie has offered a staggering $7 billion in tax breaks if Amazon agrees to build in Newark. With goodies like these on the table, getting to have a nice view of New York Harbor seems small potatoes.

It’s all reminiscent of the International Olympic Committee’s biannual bid-a-thon, where cities line up to offer anything they can in order to land the big prize. And while, as with the Olympics, not every city is playing along — San Antonio mayor Ron Nirenburg issued a public letter to Amazon CEO Jeff Bezos last week, saying his city wouldn’t be submitting a bid because “blindly giving away the farm isn’t our style” — Amazon only needs one sucker in order to cash in big.

At least unlike Olympic stadiums that are likely as not to end up white elephants rusting away for eternity, an Amazon office complex would pack a decent economic punch: The company’s existing HQ has brought tons of jobs and new residents to Seattle, even getting blamed for disrupting the city’s banana market. So there’s undoubtedly a price point where getting as many as 50,000 Amazon jobs (eventually, as the company says it could take as much as seventeen years to roll out the new positions) would be worth it; LeRoy recommends a top public expense of $50,000 per job, which he says is somewhere close to the “fiscal break-even” point.

The scale of money likely to be thrown at Amazon, though, is of another level entirely. Recent “megadeals” for new facilities for such companies as Boeing’s $8.7 billion deal in Washington and Alcoa’s $5.6 billion in electricity discounts from New York State have had an average cost for taxpayers of $658,000 per job, according to LeRoy — an amount the typical Amazon worker could never repay even in a lifetime of local income taxes and area spending.

“Everybody wants Amazon — it would really be a really good project for New Jersey,” says Jon Whiten of New Jersey Policy Perspective. “But $7 billion in tax breaks for a single project is just insane.”

In addition to direct tax breaks, companies have become adept at leveraging such schemes as kicking back employees’ state and local income taxes to corporate coffers, or laws allowing companies to collect more in tax credits than they owe in taxes and then sell the surplus to other companies — both of which can allow a corporation to reduce its effective tax rate below zero, thereby collecting tax money from the public for being willing to bestow its presence on a city. A negative corporate tax rate may sound crazy — it is crazy — but in our Oligopoly Nation where there are fewer and fewer giant companies expanding and still just as many cities looking for development projects, it’s more and more the norm. (It doesn’t help, says LeRoy, that “we’ve never before had a president who’s endorsed the war among the states and actually participated in it, by helping broker the Foxconn deal.”)

On Tuesday, Good Jobs First and 92 other civic groups sent their own open letter to Bezos urging him to “build a headquarters that works for everyone in our communities.” In particular, they asked Bezos to agree to pay full property taxes (without which cities can’t provide good schools and infrastructure), help out local small business with grants and subcontracting, and respect local labor laws.

All nice thoughts, but given that Amazon has already extracted more than $1 billion worth of public subsidies for its shipping centers and other projects — and has specifically instructed bidders to “outline the type of incentive (i.e. land, site preparation, tax credits/exemptions, relocation grants, workforce grants, utility incentives/grants, permitting, and fee reductions) and the amount” — it seems more likely that the company will choose a winner based on which city promises to cut the largest check.

If there’s a possible silver lining for New Yorkers, it would be if New York’s bid ends up too light on filthy lucre to earn serious consideration. De Blasio said yesterday that he won’t offer any special city tax breaks, so Cuomo’s subsidy plan would have to blow other states out of the water on its own. On the other hand, the secret bidding process may make it easier for Amazon to use offers like Christie’s to go back and quietly demand more from locales it’s most interested in; when Elon Musk laid out a similar bidding war for a new Tesla plant in 2013, he ended up squeezing Nevada to up its ante from a more modest bid to $1.4 billion.

Or, if you want to conjure nightmare scenarios, try this one on for size: New York City could lose out, only for the winner to be the joint bid submitted by Buffalo and Rochester, leaving us with all of the state tax drain but none of the juicy jobs. (And, OK, also none of the banana price wars.)

With bids now in, Bezos and his crew can take a few months to sift through the applicants, deciding which ones to throw back and which to ask for sweeteners from. (With Tesla, Musk kept this up for ten months before settling on Nevada.) A location like Newark, with proximity to a big city and its labor force, lots of schmancy places nearby with good schools for top executives to live in, plus that $7 billion as the cherry on top, could be among the prime candidates — or at least the city that Amazon can hold up as the price to beat.

But whether New Jersey wins or loses, the Amazon chase could end up a potential disaster for the state. Groups like Whiten’s have been fighting for years to get the legislature to rein in the subsidy megadeals that have been the governor’s specialty — thirteen nine-figure deals in eight years, after only one such previous agreement in the state’s entire history — and offering to throw open the vaults for Amazon would be a large step in the wrong direction.

“Amazon is just a shiny distracting ball in the corner,” says Whiten, who is hoping against hope that the state legislature will come to its senses and not rubber-stamp an Amazon tax break plan before Christie leaves office in January. Otherwise, he says, “it moves the goalposts in terms of reforms that a lot of legislators have been getting on board with. And makes it that much harder to bring it back to sanity.”

Most Popular