By David Nelson, CFA
After waves of protests Amazon (AMZN) executives are re-evaluating plans to put a campus in New York City. The original plan called for 25,000 jobs in Long Island City and an investment of about $2.5 Billion. Political opponents of the plan have forced a sudden change of heart among company executives. Not at all surprising given a corporation their size with virtually 200 location alternatives, would want to step into a political quagmire. Given the outflow of businesses over the years and the lost tax revenue it’s not surprising New York Governor Andrew Cuomo
said; politicians’ opposition to Amazon’s deal was
“governmental malpractice.”Originally, it was The Washington
Post that published the story. A ploy to get the politicos to back down? Maybe. After all, their owner Jeff Bezos just happens to also be Amazon’s founder and CEO. Given the fact that he’s in the middle of a divorce and a bitter dispute with the National Enquirer over alleged blackmail, the last thing he needs is to go to battle over a deal that was all but signed sealed and delivered.
The loss to the community and the state isn’t small. Estimates put the average salary of the additional 25,000 workers at $150,000. Simple math puts the lost tax base at $3.75 Billion annually.
The Democrat’s rising star Alexandria Ocasio Cortez, Representative of New York’s 14th congressional district posted this celebratory tweet regarding Amazon’s change of heart.
Are big business tax breaks good for the community?
Critics of the deal often point out how tax incentives for new stadiums have failed to deliver on their economic promise. Tax free municipal funding is the financial vehicle of choice giving favorable financing for projects. Financing that seems to benefit the owners much more than the community. A detailed 2016 study by the
Brookings Institute determined; “the evidence for large spillover gains from stadiums to the local economy is weak. Academic studies consistently find no discernible positive relationship between sports facility construction and local economic development, income growth, or job creation…”
The above begs the question why the same thinking wouldn’t apply to Amazon or any large corporation looking to build a high-tech campus in Fun City. Look, any cost benefit analysis of a deal this large isn’t going to be debated in full in a short article by yours truly. Never the less, here’s just one fact that seems to be lost on the critics.
The stadium deals often referred to as justification for blocking a deal this large ignore the obvious. The jobs created and long-term income benefits to the community aren’t comparable. A stadium project produces thousands of well-paying construction jobs that all but disappear once the structure is complete. NFL teams obviously pay very high salaries but by definition, don’t have a lot of employees.
NFL.com puts the 2018 salary cap at $177.2 Million. That seems like a far cry from Amazon’s potential New York annual payroll of $3.75 Billion.
In any negotiation there is posturing and bluffing. Perhaps, local politicians and others like the Retail, Wholesale and Department Store Union, currently trying to organize workers at an Amazon warehouse on Staten Island are just looking to extract some concessions from the internet giant. Even Jeff could be bluffing but I doubt it. According to Fox Business, to date the company has yet to lease or purchase office space for the project, so it would be relatively easy for Amazon to withdraw from its commitment. In the weeks ahead if we find the deal goes south, expect a headline on the front page of your favorite tabloid to read: BEZOS TO NEW YORK “It’s not personal…it’s strictly business.”
*At the time of this article some funds managed by David Nelson were long shares of Amazon
