NYC driving out Amazon is a self-inflicted wound

After New York State and New York City officials publicized details about the economic costs and benefits of Amazon’s plan to open a new 25,000-employee office in Queens, many New Yorkers and local politicians vocalized objections to the online retail giant’s planned entry into Long Island City (LIC).

Now, it appears Amazon will no longer build a portion of its second headquarters (HQ2) in NYC, according to reports.

Taking a long-term economic view, I believe that Amazon’s HQ2 would have been a significant positive development for New York City and New Yorkers alike.

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A few months ago, the results of a Quinnipiac Poll revealed that a majority of New Yorkers — 67 percent — supported Amazon’s plan to build a waterfront complex in Long Island City. The problem is that the city and state officials who negotiated the deal experienced a public relations issue.

In a deal supported by Governor Andrew Cuomo (D) and NYC Mayor Bill de Blasio (D), the city agreed to grant Amazon huge financial benefits — somewhere between $1.53 and $2 billion, roughly divided into about 80 percent as a refundable tax credit and about 20 percent cash grants.

Despite the staggering numbers, it is important to remember that these financial costs would've accrued over a significant period and that their net present value would have been considerably less.

According to the calculations done by state and city analysts, even with these costs, the deal would've created $27.5 billion in tax revenue over the next 25 years. With the city and state receiving a roughly 50/50 split, that amounts to a 9-to-1 payout on the investment. Talk about ROI!

More of the nation’s top talent would've chosen to live in the New York City area because of the growth in tech jobs that would've been generated from Amazon’s proposed move to NYC. That would have benefitted the city’s innovation ecosystem by contributing to significant growth in tech startups.

Plus, this trend would've led to significant growth in tax revenues, which would've helped improve the quality of life of local residents and make the city more attractive for companies on the forefront of tech innovation.

It is true that the state and city would have beared additional infrastructure investments because of Amazon’s presence. However, these were not as costly as they seemed. NYC’s administration invested in LIC’s infrastructure long before Amazon’s HQ2 decision — roughly $2.2 billion in current investments and $180 million in pledged investments.

LIC, once a thriving industrial area, saw many of its factories shutter before the manufacturing area was re-zoned in 2001 for office and residential construction. This led to opportunities for new types of businesses and talent, which has fed a building boom and attracted an influx of new residents.

A 2017 study conducted by RENTCafé found that since 2010, more apartments have been built in Long Island City than any other U.S. neighborhood, and nearly 36 percent of all apartments in this neighborhood are brand new.

The investments made by city government to create such growth in LIC are sunk costs that should not have been considered as part of a financial giveaway to Amazon.

In fact, Amazon’s arrival would have been a boon to residential property developers who currently have hundreds of vacant properties and who plan to build more than 10,000 new apartments between now and 2022. 

So why was there such strong public hostility to Amazon’s plan to make LIC its HQ2? And why did NYC politicians bash the idea? 

Perhaps it is because they are familiar with the economic effects of state and local incentive programs, commonly referred to as “corporate welfare.” As summarized by Michael LaFaive in an op-ed in December, these studies mostly conclude that such incentive programs are ineffective. While this may be true in general, it is not clear that the state and city’s deal with Amazon was a bad one for this reason alone.

The real source for the hostility can be inferred from the same Quinnipiac poll that showed how popular Amazon’s plan was among New Yorkers. That poll also revealed that nearly 80 percent of voters believed the city should have had more input in the process, which happened in secret and without input from local Queens politicians. 

Amazon’s HQ2 was a perfect example of economic growth that could benefit the city at-large.

However, government officials seeking to make deals based on economic cost-benefit analysis need to start realizing that there is more than just a bottom line.

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They must recognize that public unease is stemming from the perception that economic growth primarily benefits the wealthiest segments of society while marginalizing the disadvantaged. Even if that perception is not true in this case, it can still be a source of strong resentment and anger.  

This moment in history provides a unique opportunity for politicians to change the narrative and better inform New Yorkers of the short- and long-term benefits to the city, its residents and its greater economy. 

If policymakers are able to enact economic development decisions with greater transparency and inclusivity, their constituents will believe that they are truly committed to safeguarding social justice and the public interest.  

Ari Ginsberg is professor of entrepreneurship and management at NYU's Stern School of Business.

Note: This piece was updated to reflect breaking news that Amazon would no longer build a portion of its second headquarters in New York City.