By Kenneth Thomas. Originally published at Angry Bear
Well, what did you expect? With 238 entrants and 20 finalists, the Amazon HQ2 location tournament resulted in a resounding victory for Amazon: Billions of dollars in subsidies and binders full of detailed information on the contestants. Plus, we got a surprise twist at the end, when Amazon announced it would choose two “headquarters” instead of one. Of course, I never thought that having two headquarters made economic sense (“Doesn’t that defeat the idea of a headquarters as a central coordinating site?” I asked last year), and the same is even truer when you have three “headquarters.”
Leaving aside how Amazon plans to coordinate three headquarters’ operations, the subsidies boggle the mind and insult our intelligence. Let’s lay out what we know about the subsidies so far, remembering that there are other subsidy elements that are likely to be discovered as things play out. That is what happened with Foxconn, for example: Its subsidies in Wisconsin were originally reported as $3 billion in state subsidies plus local tax increment financing (TIF). By June of this year, Good Jobs First was reporting that further subsidies plus a huge TIF award brought the total to $4.8 billion (Megadeals spreadsheet, June 2018 update; download here). Something is likely to up the total incentives Amazon will receive, above what we know today.
So, which cities got half of HQ2? Amazon split the project in half, with 25,000 jobs set to go to Long Island City, Queens, New York, and 25,000 to Crystal City, Arlington County, Virginia. This much leaked out the week before the official announcement, but the November 13th official notification added that Nashville would get a 5,000 job consolation prize (for $138.7 million in incentives) as well as the incentive packages from each of these three jurisdictions — well, some of the incentives, anyway. As with Foxconn, this announcement was rapidly followed by the discovery of new incentives. I’ll skip the various updates and skip straight to what is currently known.
New York city and state both provided large incentives to the company. State benefits comprise mainly $1.525 billion in Excelsior employment tax credits, plus another $325 million based on the size in square feet of the Amazon offices, or a total state package of $1.85 billion. New York City will provide a job creation tax credit of $897 million over 12 years, plus a partial property tax abatement of $386 million over 25 years, according to a Good Jobs First analysis of the city’s press release on the project.
But wait, there’s more! Good Jobs First reports that the city will also provide a subsidy known as a payment in lieu of taxes (PILOT) that could itself cost another $100+ million. Last, as far as we know, but not least, the project will be located in a federal Opportunity Zone, which will provide further, though not-yet-estimated, benefits to long-term capital investors like CEO Jeff Bezos.
Total so far: $1.850 billion + 0.897 billion +0.386 billion = $3.133 billion, and likely more. While Amazon wants to emphasize the cost per job of its incentives, it only considers the first of these subsidies in its public calculation. But with just these three programs, we are already at a cost of $125,333 per job. While this doesn’t sound horrible compared to some incentive packages we’ve seen recently, it completely omits that with such large numbers of jobs, there are diminishing returns in the value of each job due to the increasing likelihood of dumping thousands of workers and their families on a locality’s infrastructure and educational system. Further, as I predicted in January, it normalizes the use of aid intensities* above 100%: $3.133 billion/$2.5 billion = 125%! Mind you, this is the nominal subsidy, not at present value, but with the 10-year Treasury note at 3.08%on November 16, the proper discount rate will be in that (low) vicinity, as has been the practice of the Organization for Economic Cooperation and Development in estimating the present value of U.S. subsidies for over 20 years.
To add a final insult to injury, the Amazon site will be in a federal Opportunity Zone, but the company’s project is destroying one of the things that would be most welcome there, affordable housing. Politico (h/t Daily Kos) reports that the New York outpost of HQ2 will displace a planned 1,500 units of affordable housing from two developers.
In Virginia, a second $2.5 billion investment, 25,000 job facility will be opened by Amazon as well. There, the company will receive $573 million in job creation tax credits. Virginia Tech University also plans to open a new “Innovation Campus” less than two miles from HQ2/Virginia. The $1 billion campus has been considered one of the biggest draws for Amazon in its location decision, and Good Jobs First includes the entire $1 billion as a subsidy for Amazon. I disagree; building new educational infrastructure will provide benefits to the students that they will always possess regardless of who their future employers may be, so I see the company as unable to capture much of the $1 billion as a subsidy. A university is a great economic draw, but this extends far beyond any single employer. If we exclude the new campus as a subsidy, the aid intensity in Virginia is only 22.92%.
Combining the two locations, we now find, even without the new Virginia Tech campus, that Amazon will receive $3.706 billion in subsidies for the HQ2 project proper. For the combined project, that brings us to an aid intensity of 76.1% of the investment.
Long-time readers know it’s time for a comparison with how this would be treated in the European Union under its regional aid guidelines. First, no region in the European Union is eligible for a 76.1% aid intensity, not even the poorest part of Bulgaria. Second, HQ2 is not going to the non-existent U.S. equivalent of Bulgaria, but to two of the richest places in the United States. What would Amazon get in state aid (=subsidies) for locating such a facility in London or Paris? Not one penny. Rich regions can’t give investment attraction incentives, period. So the entire $3.7 billion and counting subsidy for the company would be disallowed if rational regulation of the bidding wars existed.
Happily, these subsidies have come in for a great deal of criticism around the country. As The New York Times editorialized, “New York’s Amazon Deal is a Bad Bargain.” And how does it know New York overpaid? The same way I recommended back in 2014, comparing to a similar deal. And there’s no more similar deal than the other half of HQ2 that went to Virginia. Seeing that New York paid more than twice as much as Virginia for an equivalent project, the Times rightly concludes that New York paid more than it had to. Whether much political resistance to HQ2/New York develops or not, it’s great to see the press analyzing these deals well.
To end on a down note, though, we need to recognize the harm the Amazon auction did to transparency. The company made the finalists sign non-disclosure agreements, although a couple did make it into the public eye (Newark, New Jersey, and Montgomery County, Maryland, two of the largest finalist offers, though it appears Pittsburgh topped them all). Hopefully some of the losers will now come forward. However, that’s not the point; we need real-time transparency if there is to be any democratic oversight of the multi-billion giveaways that look to become more common than ever.
* Aid intensity is a metric, first used in the European Union, that allows us to compare the size of subsidies regardless of the size of the project. It is calculated as subsidy divided by investment. An intensity of 100% at present value means that the government is paying the entire cost of the investment. Thanks to reader TM for pointing out that I should have clarified this in the original article.
I believe you can expect to see one more popping up yet. They are headquarters after all.
#1 headquarters will stay Seattle. #2 is like the Al Qaeda #2, hundreds of them and new ones popping up everywhere.
Many Seattlelites wish Amazon would move the whole shebang to NYC.
One less Corporate Welfare Queen siphoning local tax dollars.
Perhaps they could take the sports teams and Microsoft, too.
+100
I feel sorry for NYC.
As an apparent “national landing” resident, I’m ecstatic. The ever-tighter property market as 25,000 internet bros show up should let me get the F out of here with a nice profit. They can have this place for all I care.
I never knew that “Free Market Capitalism” meant that the market is totally free for the rich and powerful. Good to finally have it explained so clearly by Amazon and our elected representatives.
pretty sure free market capitalism means that if you’re rich enough you don’t have to pay for anything
This is one of the great cons of the term “free markets”. Markets are created, regulated and policed by a massive government bureaucracy. Take something as simple as patent rights. 20+ years of exclusivity is granted to a patent holder to extract rents. Should anyone infringe on those rights, there are courts and agencies to deal with the infringers and inflect damages.
“Ultimately, it has been a decade of cravenness.”
http://nymag.com/intelligencer/2018/11/tim-wu-on-how-competition-law-could-have-stopped-big-tech.html
As the late Gore Vidal once wrote, there is socialism for the wealthy, and free enterprise for the rest of us.
> . . . Seeing that New York paid more than twice as much as Virginia for an equivalent project, the Times rightly concludes that New York paid more than it had to. . . .
With millions of daily price changes, Amazon has your number.
Exhibit #194,204 on how the Democratic Party is irreformable and rotten to the core. Identity politics liberalism + Neo-feudalism economics.
Whatever Cuomo wants, he gets in NYS. And I guess DeBlasio makes a convenient “liberal” foil and controlled opposition.
So is the GOP. At this point I vote for anyone who will protect my SS and Medicare its all I care about.
Why was deBlasio reportedly booed at a Christmas tree lighting ceremony?
Monopoly Capitalism at its finest. Compared to Amazon, Rockefeller was a piker.
Whole Foods is going to be doing the concessions at the American Film Institute Silver Theater in Silver Spring, Maryland. Whole Foods is Amazon. So from now, see a movie at AFI, pay the Amazon toll. Amazon should be called Anaconda. Bezos wants to be part of every facet of your life. You won’t be able to turn around without interacting with Amazon, and it’s going to squeeze the life out of all of us. What ever happened to antitrust? It’s a rhetorical question.
They’ll get into healthcare as well. Hate the current health mergers all you want but you ain’t seen nothing yet. They are already in clothing etc.. So what you eat, what you wear, your healthcare etc. Because we literally have so little competition and anti-trust that one company will be able own the entire economy.
And they got it all from not having to charge the taxes others (bricks and mortars) were required by law to charge, that was really their main advantage.
> And they got it all from not having to charge the taxes others (bricks and mortars) were required by law to charge, that was really their main advantage.
How about some push back on that? I am the last one to defend Amazon, but that isn’t or wasn’t really their main advantage.
Consider the implication. For that to be true, the price charged for an item plus the shipping cost with no sales tax must be less than the price plus sales tax at the local store. Since that seems implausible, there is likely other factors that have nothing to do with sales taxes, that was or is their main advantage.
I recall an item in Links or Water Cooler a week or so ago about a bookseller meeting Jeff Bezos at a book convention somewhere when Amazon was just getting going, and under the Amazon sign was the slogan “Worlds biggest bookstore” and the bookseller recounted the conversation with Bezos and it went something like this.
bookseller: Worlds biggest bookstore? Really?
Bezos: I am going to sell books at no profit and my customers are going to give me their personal information so that I can sell them other stuff later on.
bookseller: recounting his encounter later on: I just met the biggest snake oil salesman.
Except, Bezos wasn’t selling snake oil, he was being upfront about his plans.
Remember also, Jeff did the rounds with the criminal minds of Wall Street, indeed comes from Wall Street himself, so how can a company sell stuff at no profit or even a loss on a continuous basis?
Investors. Those willing to fund the losses till Amazon grows into a juggernaut and crushes everything in it’s path to eventual profitability.
On one level, you have politicians throwing the peasant’s money into the Amazon furnace, acting as unwitting co conspirators and on another level, government agencies throwing the peasant’s money into the Amazon furnace by grossly overpaying for AWS services, which tides over the money losing selling stuff side.
Sales taxes are a tiny fart in the shitstorm.
Two observations:
Realize that Arlington is the richest county by total household income in the USA. They don’t need any new development, anything to make their place better. It isn’t Seattle when Amazon first moved in. There is little hanging fruit to take, little moderate income people to displace.
If you are a member of the MIC, you want to have some part of your company in Pentagon/Crystal City bc you are a walk to the Pentagon. Why aren’t they all there? Cost. You are competing on gov contracts and cost is the most important element. Virginia could have given a subsidy for any company to go there and that would have worked and been fair. Instead, they gave it to one company. What are the other companies going to do? Move somewhere else that is cheaper to make up for not getting to subsidy. Out of Arlington. Perhaps out of Virginia.
My conclusion is that Virginia just threw away $500M+ for nothing. I know who I’m not voting for in the next state election.
Nothing for whom? The people of the state of Virginia, or the wealthy business’ interests and their political minions looking to get their own
bribesdonations?In Va, Governors don’t serve consecutive terms, so you won’t be not voting for Northam. Allowing Kaine to be elected Senator was the huge misstake after his public private partnerships among his other sins as governor (cutting school funding, repealing the estate tax, ignoring the restoration of voting rights for felons, bungling an opportunity to do anything on transportation while he auditioned to be Obama’s running mate, and even his tenure at the DNC was marked by the 2010 beatdown). The details of the deal with that Australian company to build the HOT lanes on 95 was simply hideous.
All the more reason to boycott Amazon.
Well, that makes two of us, Slim.
Unfortunately, hundreds of millions seem to be addicted.
Looking long term, is the Long Island City HQ only for upper management? I am wondering how Amazon expects to remain non-union in Queens.
The wonderful Democratic Party bosses in NY see union busting by Amazon a huge benefit, and their weak opposition can be used to win election until the sum turns black or climate change flooding distroys the area, whichever come first.
tossing aside Amazon PR, what’ll likely happen is that each of Hydra’s head self-organizes around Seattle, LIC, VA.
Retail/logistics: Seattle. Amazon Media/PR/Advertising: LIC, AWS: VA. Honorary mentions: Amazon consumer electronics: Silicon Valley. Austin: Whole Foods
I wouldn’t be suprised if Bezos one day splits the company apart himself. If the market stops giving AMZN a premium synergy multiple.
That makes sense since Amazon is in as many industries as used to be several different companies, why shouldn’t it actually be logical for them to have several headquarters.
given the belief in decentralization among the techies I’d guess that is the goal, to spread yourself out like a bacteria in a petri dish, you can’t take out one node and kill the thing. I would love it if they left seattle, but they won’t, they’ll continue metastasizing because cancer is their business model.
Isn’t the whole rationale behind tax subsidies to attract business to areas that are depressed and have high unemployment? What conceivable reason can be offered for NYC to spend citizen dollars attracting yet another corporate headquarters? Even stadium subsidies have a civic prestige motive behind them. Should America’s largest and wealthiest city give a flip where Amazon sites its new HQ?
More rhetorical questions of course. On the other hand Bezos’ motives are perfectly obvious. A company that lives by government fiat needs to be in the financial and regulatory control rooms.
“World class, man! Or is that a dead meme?”
Sigh….. it could have been worse:
https://www.syracuse.com/news/index.ssf/2018/07/ny_still_hides_financial_info_for_syracuse_film_hub_at_crux_of_corruption_trial.html
https://www.syracuse.com/business-news/index.ssf/2018/01/ny_taxpayers_built_90m_factory_in_dewitt_for_firm_that_walked_away_didnt_create.html
When you run the whole economy and the gubmint, you can have as many headquarters as you goddamn well feel like, and get well paid for every one of them..
Strange how the whole system has inverted itself. Ideally, you have companies competing against each other, keeping each other honest, and offering the consumer the best possible product for the best price. Instead, consumers compete against each other, keeping each honest, and offering the company the best possible labor for the best price.
Production doesn’t enhance your existence anymore. You exist to enhance production now; for better or for worse.