Hold the Applause for New York’s Amazon Deal

| City Journal

How many billions of dollars must be wasted across New York on hopeless economic-development schemes before the governor understands that his unveiling of a new billion-dollar subsidy won’t automatically receive thunderous applause? On Monday, Cuomo lashed out at opponents of his proposal to shower Internet behemoth Amazon with billions in tax credits and abatements, in exchange for the company’s promise to build a 25,000-job office complex in Long Island City, Queens.

Criticism extends across the political and ideological spectrum—some of it reasonable, much of it not, but taken together, it has caused the governor, as is his custom, to gild the lily in response. “The Amazon transaction is an historic transformative moment for the entire New York City region,” Cuomo declared in a 2,000-word “op-ed” released by his press office, and published on a government website. In fact, the deal is neither historic nor transformative—it is, at best, a promissory note made out to New Yorkers and endorsed by a company that can well afford to invest in Queens without taxpayer assistance.

But why would Amazon want to do that, if it doesn’t have to? The company has just completed a year-long canvas of scores of U.S. cities to find one willing to stuff billions into its tin cup in exchange for hosting what the company billed as HQ2—its second world headquarters. Along the way, the company discovered that beggars can indeed be choosers.

As it turned out, Amazon split the baby, scoring nearly $800 million in subsidies and tax abatements from Arlington, Virginia, for half of HQ2 and picking New York taxpayers’ pockets for at least $3 billion in assorted benefits for the other half. In return, Amazon promises to deliver 50,000 “high-paying” new jobs over the next 15 years as it builds and populates two office complexes—one in Arlington and the other in Long Island City. This is better than a sharp stick in the eye, of course, and it may be a big deal for Virginia. But in the New York job market, it amounts to small beer, not to mention one more ration of business-as-usual bribery, tarted up as economic development.

According to the state Department of Labor, New York City added 69,000 new jobs last month, bringing private-sector employment to 3.99 million. The municipal economy has been cranking out jobs in recent years, with total employment rising by nearly 15 percent over the past decade, to 4.5 million. Not to dismiss the significance of adding another 25,000 positions to the total, but Amazon’s direct contribution to the city’s employment rolls, assuming it happens, won’t be much. This is true even if Amazon ends up paying its promised average salary of $150,000, for it turns out that the new gigs will cost taxpayers $48,000 apiece in direct subsidies.

Why the subsidies? Because that’s how New York rolls. Both Albany and City Hall are addicted to offering eye-popping bounties to potential large-scale investors put off by the Empire State’s high cost of doing business and its staggering tax burdens. Sometimes these schemes work: consider the boodle scooped up by the Disney Corporation and assorted real-estate developers as they helped convert Times Square from a crime-crippled swamp into a global tourism destination and symbol of what enlightened, disciplined municipal policies can produce. But then there’s Cuomo’s Buffalo Billion debacle, now grown to roughly $1.5 billion, while producing scandal after scandal, along with humiliating criminal convictions. Former top aides Joseph Percoco and Todd Howe, along with longtime Cuomo economic-development guru Alain Kaloyeros, are on their way to prison, but only a handful of the thousands of jobs Cuomo & Co. promised ever materialized.

And sometimes it’s just too soon to tell. Look at Manhattan’s massively subsidized Hudson Yards project, an undertaking meant to transform acres of long-fallow land on the West Side into a commercial (and residential) engine of heroic proportions. So far, so good—if its transformation of the Manhattan skyline is a valid benchmark—but the undertaking needs to weather a serious economic downturn or two before it can be declared a success.

What these enterprises generally have in common—along with projects undertaken by scores of state and municipal economic-development agencies and authorities—is that they seek partially to transfer both the risk and the cost of investment from the private-sector companies that stand directly to profit from new business to taxpayers who, at best, will see secondhand benefits. From the taxpayers’ perspective, to say nothing of left-leaning ideologues, the Amazon deal is particularly irksome. It calls for substantial subsidies for one of the most successful companies in the history of American commerce—Amazon flirted with a $1 trillion capitalization in September—at a time when New York can’t hope fully to fund its infrastructure, public education, and social-welfare obligations.

On the other hand, those obligations and others have become so enormous because of decades of political pandering to special interests—including public-employee and construction-worker unions, social-welfare activists and the state’s health-care cartel. As E.J. McMahon of the Empire Center for Public Policy noted last week, the proposed Amazon subsidies will go a long way toward indemnifying the company for the costs of the featherbedding construction work rules sacred in New York but barely existent elsewhere, and which almost certainly will govern construction of the Queens half of HQ2. Given New York’s track record, if Amazon decides that it needs more financial incentives, you can bet that it will get more.

“I have done enough development work during my career to know there is no large development project that is accomplished without controversy,” Governor Cuomo says. This may be true—but how would he know for sure, never having successfully concluded such a project during his first two terms? Some skepticism about the governor’s latest touted triumph is more than justified.

© 2018 City Journal