While a press release from Amazon says Long Island City, New York and Crystal City, Virginia, will be paying around $2.0 billion dollars in tax breaks and incentives to the company to host its second headquarters, the real cost is likely to be more than double that.
Amazon and CEO Jeff Bezos are set to pocket about $4 billion from the two municipalities, and the total bill could come out to around $4.2 billion. That’s because New York and Arlington County, Virginia, will need to borrow money by issuing bonds to pay for the tax credits. The total means an additional $200 million in interest payments, based on New York and Arlington County’s most recently issued bond rates of about 5%.
Local elected officials in New York have already spoken out against the deal.
“Offering massive corporate welfare from scarce public resources to one of the wealthiest corporations in the world at a time of great need in our state is just wrong,” New York state Senator Michael Gianaris and New York City Council Member Jimmy Van Bramer wrote in an op-ed earlier this week.
New York will have to issue bonds because it is already more than $100 billion in debt ($116 billion as of fiscal year 2017). For just the city, debt service costs totaled about 11 percent of tax revenues last year. Debt for New York City has grown from $4,923 per person in 2000 to $10,113 in 2017, an increase of 105 percent, the comptroller’s office reports.
In addition to the $1.5 billion in subsidies from New York and $573 million from Virginia that Amazon highlights in its press release, the company is in line to collect $200 million from each state for bonus jobs created over 25,000 ($400 million total), a $300 million infrastructure fund in Arlington and an additional $1.3 billion in additional tax breaks from New York City. Those will come from the Relocation and Employment Assistance Program and the Industrial and Commercial Abatement Program.
(The $325 million initial outlay from New York is a cash grant, or free money giveaway, to Bezos, the world’s richest man, and Amazon, a company with a valuation of around $1 trillion; the $1.2 billion in refundable tax credits are a tax loophole created to help the poor that essentially allows Amazon to skip tax on its employees incomes up to $1.2 billion.)
More jobs for NY’s already booming labor market
That’s a total of just over $4 billion. That would also mean more jobs in both locations, but New York City, in particular, isn’t exactly short on job creation or money spent on it. According to the New York State Comptroller’s Office, “New York City is undergoing its largest and longest job expansion since World War II.”
The office reports that more than 700,000 jobs have been added during the past eight years, meaning an average of 87,500 jobs per year. At that pace, an additional 25,000 jobs over ten years would be an addition of just 3% more jobs. New York is also paying about double per job what Virginia is paying, as a result of its Excelsior Jobs Program, paying $61,000 per job compared to $23,000 each in Virginia.
Economists generally agree that the tax incentives politicians offer companies tend to make little difference. That was evidenced by Amazon’s decision to pick New York and Virginia or much larger offers from Maryland and New Jersey, said Michael Farren, an economist at the Mercatus Center, a libertarian think tank.
“An additional $7.5 billion in subsidies wasn’t enough to get Amazon to move across the river,” he told the New York Times about the difference between Maryland’s offer of $8.5 billion and Virginia’s of less than $1 billion. “That just says that subsidies were never what mattered in the first place.”
In its announcement on Tuesday, Amazon said that “attracting top talent was the leading driver” of its decision. Incentives were “one factor,” it said, but a secondary one.
In short, New York added $3.15 billion of debt to its $116 billion budget shortfall in an effort to add 3% more jobs annually. Virginia will add around $1.05 billion to its debt in exchange for 25,000 to 40,000 jobs. At some point that money will need to be paid back and will result in the need for either higher taxes or reduced services or both.