Tuesday, November 20, 2018

Amazon Comes to My Neighborhood (Sorta)

I have wisely refrained from commenting on Amazon’s decision to move one of its new headquarters across the river from me. You see, if you look out my office window, you have a direct view of the East River and on its eastern shore you can see the block of new apartment buildings in Long Island City. You can also see the Citi tower, the one that Amazon is going to take over.

So, I feel directly involved in the decision. And, I confess, I was pleased to see that New York City had attracted a major business. Whereas the city had recently been a function of the financial services industry-- if Wall Street catches cold New York City gets pneumonia-- the arrivals of tech titans like Google in Chelsea and now Amazon in Queens make one more optimistic about the city’s future.

Besides, if notable imbecile and newly elected Congresswomen Alexandria Ocasio-Cortez (i.e. Occasional-Cortex) opposes the move, it must have some redeeming value.

But, then again, many conservative writers have expressed outrage that the city and state would have had to bribe Amazon to relocate to Long Island City.

Of course, tax abatements are not exactly my bailiwick, so I have had to rely on other people. And yet, nearly all the commentators on this matter are self-interested, so we step gingerly into the unknown.

New York Magazine explains the deal:

The numbers are big. Amazon plans to spend $3.7 billion to build 4 to 8 million square feet of office space — the equivalent of One World Trade Center two or three times over — for 25,000 workers in ten years, and possibly another 15,000 in the following five years. The state will kick in up to $505 million toward construction and forgo $1.2 billion in taxes. The city is ponying up another $1.3 billion in incentives, mostly in the form of tax breaks that apply to any company (not just Amazon) that moves jobs into the five boroughs.

What’s in it for New York? New York Magazine explains:

Cuomo and de Blasio rely on a report they commissioned, which claims Amazon’s presence will pump $186 billion into the state economy over the next 25 years, generating $13.5 billion in new city taxes and slightly more for the state. It’s hard to know whether business in the city would have grown by that much anyway, without the need for $3 billion worth of giveaways

The magazine adds the obvious point, so obvious that it was overlooked by Occasional-Cortex: without the new business generated by Amazon, the city will not have the money to invest in New York’s failing subway system et al:

Cuomo and de Blasio rely on a report they commissioned, which claims Amazon’s presence will pump $186 billion into the state economy over the next 25 years, generating $13.5 billion in new city taxes and slightly more for the state. It’s hard to know whether business in the city would have grown by that much anyway, without the need for $3 billion worth of giveaways.

Governor Cuomo, for instance, denounced the news organizations who denounced his tax giveaway. As he explained, via the New York Post, these same organizations have also been granted tax incentives to stay in the city:

He [Cuomo] said The Post argues “we should lower taxes for all businesses rather than just provide incentives. Their theory is that if taxes were reduced, you wouldn’t need to incentivize any company to come to this state because taxes would be irrelevant in their economic calculus.”

He said that’s “unrealistic and impossible” because “unless all states had the same tax rate, there would always be economic incentives to move to one state or the other.”
He then took aim at the Times.

“The New York Times is also being totally hypocritical. . . .The New York Times itself makes the same economic decisions and has also received significant tax benefits from New York State and New York City in making decisions on their locations,” Cuomo said.

“In fact, when the Times announced in 2001 that it would move into a new building in Times Square, it received tens of millions in tax breaks from New York City. What’s more, the Times asked the State to use its powers to override city zoning processes over local opposition—the same powers now being criticized for their use in the Amazon deal.”

He noted that CNN, which also rapped the transaction, has “also been the recipient of significant public subsidies receiving over $1 billion in state tax credits.”

Among the more difficult questions for New Yorkers is this: Amazon is surely not going to be hiring members of New York City’s underclass. For whatever reason, these people will not be able to compete for the high tech jobs that Amazon will bring. Keep in mind, the Amazon jobs that involve factory and warehouse work are located in places like Kentucky, not New York City. This suggests that the process of gentrification will continue and that Amazon will be a primary gentrifier. Surely, the same is true of Google. New York City is likely to become even more divided between the rich and the rest.

And yet, Amazon will now need to deal with New York’s political class, which increasingly represents the underclass. Those politicians are fanatical about their devotion to diversity… which might mean that Amazon will be funding a new school or two. It is unlikely that the company will start hiring underqualified people in the name of diversity.

Then again, Joel Kotkin, who worked for mid-western cities in the Amazon derby, has pointed out some of the problems that Amazon is going to face, It begins with the brain drain and moves on to the exorbitant price of housing:

As for the “talent” already in New York, millennials and others have in fact been leaving the city at a faster clip in recent years as costs have soared. Many industries, notably finance, are moving jobs to less expensive locales. Last year Brooklyn, the epicenter of the urban gentrification, lost population, as young people look for more affordable places to live and older ones flee cold weather and high taxes. Due in large part to foreign investment and continued strong immigration, New York already has among the most exorbitant housing prices in the country and after Amazon’s announcement speculators—the prototypical New York opportunists—immediately focused on the Queens neighborhood the tech giant plans to occupy and where rents and housing prices are sure to shoot up.

Of course, Amazon will attract talent, all by itself. As for real estate, the Republican tax bill has already damaged the real estate market. With the exception of Long Island City and perhaps Chelsea, prices are down across the board.

Kotkin throws some shade on the deal, for Amazon, that is:

New York City, like cities across the country, is becoming more aware of the forces diminishing its middle class and stripping opportunity from the poor. Amazon is likely to make life for the average New Yorker worse before it even begins to get better, and New Yorkers just might return the favor.


Dr. Irredeemable Dreg said...

Without having any skin in the game or knowing anything about the deal other than three major players, Bezos, Cuomo, and Wilhelm-DeBlasio, I think the smart money is on Bezos getting the dry end of the toilet brush.

Sam L. said...

The NYT is selfish and hypocritical??? I'd NEVER have guessed!

You know, there's a down side to everything. Even Amazon, and NYC.

David Foster said...

New York, along with other jurisdictions, wouldn't have even given Jeff Bezos the time of day when he was first starting Amazon.

These tax subsidies almost always go to companies that are either (a) already very large, and/or (b) in an area of technology that the politicians (who are totally unqualified to make such judgments) perceive a high growth.