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Why an Amazon job costs New York more than Virginia

Krystal Hu

New York City and Crystal City in Arlington, Va., are officially the joint winners of a year-long race to be home to Amazon HQ2. But the cost of winning seems very different for the two cities.

On average, an Amazon job could cost New York taxpayers more than double what it is for Virginia taxpayers. Amazon says it will receive performance-based direct incentives of $573 million from Arlington, based on the company creating 25,000 jobs with an average salary of over $150,000. Meanwhile, for the same number of jobs in Long Island City, N.Y., Amazon will be granted $1.525 billion in performance-based direct incentives.

That means New York is offering $61,000 in incentives for each job at Amazon while Arlington is shelling out about $23,000 for each new job.

Amazon announced Tuesday it has selected the Queens neighborhood as one of two sites for its headquarters. (AP Photo/Bebeto Matthews)

Why is New York paying more? A large chunk of its incentive package comes from the state’s Excelsior Jobs Program, which will provide up to $1.2 billion in tax credits to Amazon over the next 10 years. The program has been providing job creation and investment incentives to firms in certain industries when they come to New York State. Since Excelsior launched in 2010, it has granted $121.7 million in tax credits to 157 companies (as of June).

Amazon (AMZN) is poised to be the biggest beneficiary from the program for the scale and high pay it vows to offer. “It’s just rare for companies to create this amount of jobs with relatively high wages. That’s why the price tag is so big,” said Joseph Parilla, a fellow at the Brookings Institution’s Metropolitan Policy Program.

Virginia has been ‘historically stingier’

Crystal City, in Arlington, Va. is one of Amazon’s new headquarters. (AP Photo/Cliff Owen)

When asked why New York’s bid was so much higher than Virginia, New York Gov. Andrew Cuomo pointed to the higher personal income tax in New York at a press conference on Tuesday. “We don’t start in the same place with Virginia,” Cuomo said.

Part of the gap also reflects the significant difference in property values and rental prices, according to Thomas Cooke, a professor at Georgetown’s McDonough School of Business. Cooke says the 30% price gap between the real estate markets in the two regions required Amazon to do the math and look for different sizes of incentives, as its upfront investment may vary.

“Amazon studied it very, very carefully, in terms of what it would get and what it would need,” said Cooke. He believes the infrastructure investments in New York may also be bigger.

Both New York City and New York State have been known for offering big incentive packages for mega deals. Amazon will become the third-most-subsidized company in the state’s history. Before the Amazon deal, Virginia’s biggest incentive package was $110 million offered to Rolls-Royce, which opened a plant in 2011.

“Virginia has never spent as much on these deals as New York has. It has benefited from its proximity to Washington and has been historically stingier,” said Greg LeRoy, executive director of Good Jobs First, a group that tracks economic development incentives.

Amazon also selected Nashville as the home for a new operations center with more than 5,000 jobs. (The company is getting $102 million in incentives from the city and state government, according to The Tennesseean.)

While some describe bidding for Amazon as “a race to the bottom,” tax breaks aren’t the only deciding factor in its year-long search. Virginia’s and Arlington’s incentives were significantly lower than what Maryland and New Jersey have offered—$8.5 billion and $7 billion, respectively, in incentive plans. (Though Arlington County also pledged to help Amazon secure approval to build a helipad).

The total incentive is likely to be bigger than the number Amazon claims in the announcement. Amazon could qualify for an additional $1.3 billion in as-of-right incentives in New York as long as the development complies with zoning regulations. LeRoy also cautions there could be other hidden supports from governments to help Amazon’s $5 billion investment.  

Krystal Hu covers technology and economy for Yahoo Finance. Follow her on Twitter.

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