Amazon just walked away with maybe $4B in public cash for doing what it was going to anyway

In case you somehow missed it, Amazon made it official this morning that its new 50,000-person second headquarters was going to be split into two 25,000-person sites, one in the Long Island City section of New York City and one across the river from Washington, D.C., in Arlington, Virginia. (Nashville, Tennessee, will also get an “Operations Center of Excellence,” which is maybe not the name you want to give your corporate outpost if people are already worried your company is an Orwellian nightmare.)

Attached to its press release, Amazon included the full memoranda of understanding for the New York, Arlington, and Nashville deals — since my purpose in life somehow seems to have evolved into reading these damn things and figuring out what’s hidden in them, I sat down to write up an analysis of the New York deal for Gothamist. The upshot: Between the city and the state, Amazon will cash in at least $2.5 billion in checks from the public (and probably more like $3 billion — see update below) in the form of tax breaks and other goodies. With Jeff Bezos in line for about another $1 billion from Virginia and a pittance of $60 million from Nashville — hardly worth counting the bills, honestly — that’s about $4 billion that America’s richest man will be raking in for the trouble of holding a year-long bidding war before doing whatever he wanted anyway.

A few further notes on this, from our usual perspective of sports subsidies:

  • Damn, that is a chunk of change. Yes, an Amazon headquarters is arguably more valuable than a sports stadium — there’s no way even the busiest sports venue will employ 25,000 workers, and those it does employ only be there a few hours a day during the season of whatever sport it hosts — but even the Steinbrenners have never managed a $4 billion payday. Neither did Elon Musk. (Though Boeing did, and celebrated by laying off workers.)
  • Modern subsidies are really hard to keep count of. Amazon’s press release fessed up to $1.5 billion in subsidies from New York and $573 million from Virginia, but that didn’t count $200 million from each state for bonus jobs created over 25,000, nor a $300 million infrastructure fund in Arlington, nor about $1.3 billion in off-the-rack tax breaks from New York City (I included $900 million of those in my Gothamist article, the New York Post’s Nolan Hicks found another $386 million), nor an additional infrastructure slush fund that will be created in New York from payments in lieu of property taxes. I’ve been staring at this thing all day and I still don’t feel 100% confident there aren’t additional hidden costs lurking about — which is par for the course for both sports and non-sports subsidy deals.
  • Subsidies aren’t what determine location decisions. We’ve seen this before in sports, where team owners have used the threat of going elsewhere to shake down the cities they already want to be in for cash. But it’s especially bald-faced in this case, where other states offered as much as $8.5 billion for Amazon’s hand, only to have Bezos say, Sorry, our first love is big cities where techies want to live. At which point you have to wonder: If Amazon was going to go to NYC and D.C. anyway, why did those locales bother coughing up so much public money? As with sports venues, cities could be thinking, “These people on the other side of the table need us more than we need them” — but they’re largely not.

Anyway: New York just threw a giant wad of cash at Amazon, Arlington can comfort itself that its wad is at least a bit smaller, and all the cities that missed out don’t get the new jobs, but do get to keep their money. There’s probably a lesson in here somewhere, but given that everyone involved is steadfastly refusing to learn it, it’s hardly worth spelling it out.

11 comments on “Amazon just walked away with maybe $4B in public cash for doing what it was going to anyway

  1. Neil, what’s your take on infrastructure as a subsidy? Isn’t building the means to link people and jobs part of what governments do? Are developers expected to kick in the cost of those improvements, even though they’re outside the construction footprint? Any light you could shed would be appreciated.

    • Yes, it’s part of what governments do, but no, it’s not if it’s a special privilege that most businesses in the city don’t get. Running water and sewer lines to your building’s door: not a subsidy. Running a fleet of golf carts so nobody has to walk from the subway: subsidy. We don’t know how the PILOT slush fund is going to be spent yet, so we don’t know how much of this will be subsidy.

      I remember a similar discussion when the Cyclones opened their stadium in Coney Island: Was the MTA moving up something like $200 million in renovations to the nearby subway station a subsidy, or not? It benefited all subway riders! But also, getting to jump the line for MTA improvements was clearly a special perk. It’s a grey area.

    • I would just discount it based on how much of the benefit is accruing to the facility versus the general public (which also includes users of the facility).

      So road out to lake X for recreational area and then you build a restaurant there not subsidy. You approach me with deal to build restaurant if I put down a road to lake X when it was not ever planned = subsidy.

      But the most common case in things like this are hybrid situations where maybe the road benefits me as the restaurant but also is used to access the lake and as a infrastructure spur for further development. In that case discounting is appropriate.

      It is real easy to say “infrastructure benefits the public” but with a lot of stadium deals the infrastructure changes are actually actively harmful to non stadium goers, or at least neutral.

  2. The very reason Amazon is creating an HQ2 is they outgrew Seattle. If and this is a BIG if, this deal can lead to a Hudson Yards style redevelopment of Sunnyside Yards then this deal is worth it.

      • Neil: I suspect that Amazon will first move into the Citibank facility, but the long term growth opportunity for Amazon would be at Sunnyside Yards. Not to mention housing for their employees. Plus, I have read the Mayor wants to develop that 180 acre parcel

        • Read the press reports: After Citibank, Amazon is moving to a location on the LIC waterfront, nowhere near Sunnyside Yards. Yes, the mayor would like to develop the yards, but Amazon’s presence won’t do squat to help pay for decking over the space and paying Amtrak for development rights, which is the reason nothing has happened yet.

  3. I think the losers in this deal are actually the long-term winners. Amazon has shown itself to be a pretty lousy civic partner in Seattle and that isn’t likely to change. (Check out how they reacted to that business tax Seattle enacted to help the homeless, as just one example.) Plenty of jobs and money come with them but when you make a deal with the devil you eventually come to regret it.

    • The tax wont help the homeless (Seattle has already spent boatloads of money on this issue with little effect) and a for-profit company isn’t a ‘lousy civic partner’ for not wanting to get fleeced to pay for a problem that is not its responsibility. I think voting to stick a gun in the ribs of companies that bring jobs, wealth and services to your city and saying ‘pay up or else’ makes someone a lousy civic partner.

    • This reminds me that San Francisco just passed Prop C, a tax on companies with over $50m in revenues to pay for homeless aid. Surprisingly, The Salesforce CEO Benioff supported it strongly and got into twitter fights with Jack Dorsey and the Zynga CEO.

  4. “for a problem that is not its responsibility”