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Here’s Why New York Is Resorting to Paying Amazon $3 Billion for What Google Will Do for Free

Long Island City, Queens. Photo: Spencer Platt/Getty Images

Below, I’m going to present the best argument I was able to gather for New York’s multibillion-dollar subsidy deal to bring Amazon to Queens. I don’t think it’s ultimately a convincing argument, but it’s the best one available, and it’s worth at least thinking about.

The idea is that it’s very important that Amazon is going to Queens, and that by doing so, it will serve two key development goals for the city: moving office development out of the congested Manhattan core, and building a tech cluster that can challenge Silicon Valley.

Before I get into the good argument, I need to address one of the bad arguments. And I need to note, the subsidy package Amazon has been promised is not $1.5 billion, even though that’s a number a lot of people are throwing around. It’s closer to $3 billion — $1.7 billion from the state and a further $1.3 billion from the city.

That amounts to over $100,000 per job, paid over a period of more than ten years. Since each job will pay about $150,000 a year, you can think of the subsidy package as roughly equivalent to forgoing nearly all the personal income tax that would be collected on Amazon workers’ salaries over the subsidy period — an expensive proposition.

Of course, Governor Andrew Cuomo argues you shouldn’t think of it this way at all. “It costs us nothing,” he said at a press conference Wednesday — since, he contends, we are only forgoing taxes we wouldn’t get at all if Amazon didn’t come here in the first place. He says we will make back $9 for every $1 in tax forgone, give or take.

Photo: Justin Lane/EPA-EFE/REX/Shutterstock

The problem with this analysis is it assumes all the economic activity we’re buying with the subsidy package wouldn’t happen without the subsidy package. And that’s not true. Google’s impending expansion in Manhattan — where it will develop a campus nearly as large as the one Amazon plans — shows a mega–tech firm might locate here even if you don’t give it billions of dollars.

Plus, when we do bring Amazon in, it will tend to crowd out other businesses and especially other people that might have located where Amazon is going. New York is crowded — there’s more demand for housing than supply, and the number of top development sites is limited — so the case that subsidized economic development means more net economic activity is much weaker here than it might be in, say, Cleveland.

Amazon’s move to Queens is sure to significantly increase rents and home prices in the western part of the borough. That’s great news if you already own a home there. But their move will make it more expensive for people who don’t work for Amazon to live in Queens, and will therefore make it more difficult for some other firms to expand and hire in New York.

So, “actually this is free” is not the good argument. But here’s the less-bad argument.

The key to the proposition that Amazon’s campus is worth taxpayers paying for is that it will go in Queens, not Manhattan. To help New York’s infrastructure work for the long run, and to reduce crowds on subway trains and traffic in the midtown core, we need a more distributed set of job centers, so more people can live and work in New York without having to come to Manhattan every day. This project will help us move toward that goal.

In Long Island City — the Queens neighborhood right across the East River from Manhattan where Amazon will locate — demand for homes is strong, and there has been a lot of residential construction in the last two decades. But the city has had difficulty retaining major corporate tenants there: MetLife moved its headquarters to LIC and then moved back to Manhattan; Citibank, which occupies the tallest building in the neighborhood, has been eager to leave and consolidate its headquarters in Tribeca.

The one major corporate success story in LIC is JetBlue — a unique case, since JetBlue has obvious and unusual reasons to strongly prefer a location where you don’t have to cross a bridge or tunnel to get to JFK airport. But Amazon stands to change the market.

If Amazon builds in LIC, many of the apartments that have been built or will be built in the neighborhood will fill with employees who will walk to work at Amazon, instead of taking already-crowded subway lines into Manhattan. Amazon’s campus will also draw reverse-commuters, who will live in Manhattan and commute out to Queens — a rare opportunity in New York to add jobs while adding passengers to subway trains that are well below capacity at rush hour.

And with Amazon as an anchor, the city may have success in drawing other corporate tenants to LIC without multibillion-dollar subsidy packages.

For this reason, I think one of the often-voiced concerns about the Amazon campus — that it will tax already-strained transportation infrastructure — is overblown. What’s taxing the subway lines that run through LIC is residential development that causes more and more passengers to board there in the morning to ride to Manhattan. A large office campus — for which people will disembark in the morning — may actually lighten the load as the trains proceed to Manhattan.

The other reason it’s important Amazon will go to Queens is that the company — with its campus in a high-profile site directly on the East River — will serve as an important, physical symbol of New York’s role in America’s tech sector.

New York politicians really, really want New York to be a leader in the tech sector. They’re not content with a limited tech role, where we draw specific tech firms that need proximity to the finance or media or fashion industries. This is part of their sense that New York should be a leader in everything.

This is why the Bloomberg administration was so eager to bring the Cornell Tech campus to Roosevelt Island (in the East River, right near the new Amazon site). Bloomberg, and his successor Bill de Blasio, and Governor Andrew Cuomo all want an East Coast rival to Silicon Valley.

If that’s your goal, this Amazon campus serves it. It will plant an important flag that may help us draw other firms that can grow up around it, much in the way Amazon and Microsoft created the tech cluster that made Seattle America’s second–most-important tech hub after Silicon Valley. Having a neighborhood and a borough where Amazon serves as the commercial leader — unlike Chelsea, where Google basically blends in — does more to raise the profile of tech in New York.

But: Is that an important goal? Does New York need to be the leader in everything, even if that drives up rents for people who don’t work in the tech industry? And even if strengthened core office districts outside Manhattan are an important planning goal for the city, is it worth paying $3 billion just to bolster one of them?

I think the answer is pretty clearly no.

“The city seems to think — and the state seems to think — that we’re still in the 1970s, where our big problem is that large employers are fleeing the city and we need to maintain some kind of tax base at any cost,” says Nicole Gelinas, a senior fellow at the conservative Manhattan Institute, where she focuses on urban economics and finance.* “Rather than chase down every last job, like it’s some kind of jobs crisis, we should be really looking at the real crisis, which is infrastructure: collecting all of the taxes we have a right to from these companies and using that to build infrastructure.”

Gelinas gets at the real tragedy of development in New York: Our major capital projects cost about five times what they should, and that has paralyzed our ability to add capacity to move commuters in and out of Manhattan.

A much-needed project to add two railroad tracks connecting Penn Station to New Jersey stands frozen by President Trump’s political vendetta against Senator Chuck Schumer — a situation that is only possible because construction costs here are so outlandishly high that we, the wealthiest city in the western hemisphere, cannot afford to build our own damned tunnel.

If we could find a way to build subway tunnels affordably, we wouldn’t need to worry so much about the need to move more offices out of Manhattan — we could just move more workers into and out of Manhattan every day.

But here we are: Subways in Manhattan are so clogged, the city has decided it must find a way to get a major employer to fall in love with Queens, and so along with the state it’s handing out billions of dollars in an effort to achieve that goal.

*I worked at the Manhattan Institute from 2009 to 2012.

Why New York Is Paying Amazon $3 Billion