The Smart Money on Amazon
Strengths and weaknesses in the Long Island City deal
Read the original op-ed here.
As New Yorkers search for Black Friday deals, including on Amazon, we are also scrutinizing the deal offered to the retail giant to come to Long Island City. Just as you would look at the numbers when shopping for that new TV, the best way to scrutinize this deal is by weighing the economic evidence, unclouded by politics or ideology.
Amazon announced a $2.5 billion investment that includes the construction of headquarters in Long Island City and 25,000 new full-time jobs with an average salary of $150,000 over the next 10 years. To enable this investment, New York State has offered more than $1.5 billion in tax breaks and grants and New York City has offered $1.3 billion in benefits, for a total of $2.8 billion, most of which are either as-of-right or calculated as a percentage of new wages.
State and city incentives could increase to a combined $3.5 billion if Amazon creates 40,000 jobs and up to 8 million square feet of office space within 15 years.
The Amazon headquarters will bolster New York City's technology sector, create well-paying jobs and diversify the city economy away from its reliance on financial services. These are good things. It will provide tax revenue to the city and state and benefits will only be paid to Amazon for actual results.
Nevertheless, the deal highlights a number of weaknesses in the city and state's approaches to economic development. There are five takeaways from the deal and lessons for future policy.
First, it sets a troubling precedent by offering benefits over a legislatively set limit. Most of the state benefits will come via the Excelsior Jobs Program, which is capped under law. Amazon's package exceeds the current annual cap and expiration date of the program, which is scheduled to sunset in 2024.
Other state programs, including the Film Tax Credit and the now-ended Empire Zones program, were significantly broadened through revisions, making them insufficiently targeted and costly to taxpayers. Excelsior should not follow this path. The Legislature should closely scrutinize an increase in the cap.
Second, we should not pay benefits for the salaries of Amazon executives. A cap to the level of wages eligible for the Excelsior credit should be considered. The Start-Up NY program caps eligible wages between $200,000 and $300,000 annually depending on the employee's filing status; a similar cap on the Excelsior wage credit would minimize the state's financial exposure.
Third, the deal includes a dubious discretionary capital grant from Empire State Development to reimburse Amazon for construction of its headquarters. The state funding streams typically used to make these grants circumvent legislative oversight. State capital funding is best invested in general infrastructure, not for the direct benefit of an individual company.
Fourth, it is past time to reevaluate city tax expenditures. Amazon will receive city tax breaks under programs that offer benefits to any employer that meets predetermined criteria set in statute — in this case, programs that are meant to encourage growth outside of Manhattan's central business district. The economic landscape of the city has changed significantly in the decades since these programs were established. These programs should be narrowed or eliminated to ensure benefits are only spent to induce job creation that would not otherwise occur.
Finally, capital investment should go through the regular budgetary process. Rather than pay property taxes directly to the city, Amazon will make an equivalent payment, some of which will be diverted to a fund for the surrounding neighborhood. It is worthwhile to make capital investment in growing areas of the city, but such investment should be considered alongside citywide needs.
Whether or not you like this deal, we all have an obligation to learn from it for the future.