New York City officials touted their deal to land a new Amazon headquarters as cannot-miss mathematics. The city and state put up US$2.8 billion in tax breaks and grants. In return, they get an economic engine expected to generate US$27 billion in new tax money over a quarter-century.
“This is a big moneymaker for us. Costs us nothing,” New York Governor Andrew Cuomo said when the agreement was announced.
Experts said that the economic equation is not that simple.
The state’s predicted nine-to-one return on its investment was based on a widely used economic model that compares the costs of tax incentives with expected tax gains, but it did not factor in the substantial costs of accommodating Amazon’s growth in the city, economic development researchers said after reviewing the documents.
The city and state will have to spend money to educate the children of Amazon workers, improve public transportation to get them to work, collect their garbage, adjust police and fire coverage, and provide all sorts of other services for a growing number of people.
“Claiming 9-to-1 isn’t just implausible. It is a dishonest way to present the return on these incentives,” said Nathan Jensen, a University of Texas professor of government who has been critical of the way that economic development incentives are used.
The reports also do not measure the Amazon “HQ2” project against any other possible development of its intended site in the booming Long Island City neighborhood.
Four academic and think tank researchers who were not involved in the state’s cost-benefit analyses said that while its methods were standard, its scope was limited.
“It’s a standard cost-benefit approach, but it tends to talk a lot about the benefits and not a lot about the costs,” said Megan Randall, a research analyst at the Urban-Brookings Tax Policy Center. “That’s not to say that the costs will automatically override all the benefits ... [but] cities should be armed with that knowledge.”
New York State’s evaluation of the Amazon deal is based on an assumption that the company will ultimately create 40,000 relatively high-paying jobs in the city by 2034. That is the maximum number foreseen in a deal that starts with a promise of 25,000 jobs by 2028.
The state-commissioned analysis by Regional Economic Models Inc (REMI) also predicts that Amazon’s presence in the city will eventually create 67,000 other jobs outside the company, in industries from technology to real estate, to restaurants that might serve Amazon workers.
Over 25 years, all those new jobs would generate about US$14 billion in state income and sales taxes, and about US$13.5 billion in city taxes, according to the analysis and a city report also involving a REMI model.
Cuomo lauded that as “the highest rate of return for an economic incentive program that the state has ever offered.”
REMI’s analysis is deep and thorough, the state’s economic development agency said.
“Their model is widely considered to be the gold standard for economic and fiscal impact analysis, and has been recognized for its analytical depth, sophistication and flexibility,” Empire State Development spokesman Adam Kilduff said in an e-mailed statement.
The analysis might be right about tax revenue, but “it’s incomplete,” said Timothy Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research and a leading expert on incentives. “You need to look at the spending side.”
Opponents of the project have raised alarms about adding to the strain on subways, sewers and schools already struggling to keep up in the fastest-developing neighborhood in New York City.
Some improvements are already in the works. The Amazon agreement promises a new school and infrastructure upgrades. Critics, including some local politicians, are skeptical that it will do enough.
They have held a series of rallies and protests, and are exploring possible options to try to stop the project.
Beyond the costs of growth, the New York analyses also do not address other questions, experts said.
David Merriman, a University of Illinois at Chicago public administration professor who specializes in tax issues, said it did not consider the possibility of economic growth in Queens if Amazon never came.
There were prior plans for big commercial and residential developments on part of the potential Amazon site that have now been scuttled in favor of accommodating the company.
The state analysis also did not examine whether New York could have bagged the same prize while offering less, as Virginia did to score an additional Amazon headquarters there.
“A proper analysis would take seriously that we are uncertain how much, exactly, was needed to attract ‘HQ2’ to New York,” said UT’s Jensen.
Amazon officials have said that “the driving factor” in choosing New York and Virginia was the availability of enough tech talent, not the tax incentives.
Despite the unanswered questions, Bartik said that the financial bottom line is not necessarily the point.
“I honestly don’t think that the main thing that people should be looking at is whether or not it makes money for the state government. That’s not the purpose of state government,” he said. “The bigger impact is if you create jobs that otherwise wouldn’t be there.”
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