Published on: February 15, 2019In the wake of yesterday’s announced decision that it was pulling out of its plans to build part of its HQ2 campus in New York, Amazon said yesterday that when it when it finishes building its Seattle campus - 14 million square feet consisting of both existing buildings and some under construction - it will be done expanding there.
Amazon and Seattle have had a sometimes contentious relationship. While Amazon has been an important part of the city’s economic renaissance, there are those within the community who believe that the company’s growth has led to gentrification that has hurt the city’s character, and who decry the high cost of housing that has put the city out of reach for many people. At the same time, Amazon threatened to pull back on its Seattle expansion if the city went through with as “head tax” that would’ve charged big companies hundreds of dollars per employee that would be used to address the city’s homeless problem. (The City Council passed the tax, then repealed it.)
Late yesterday, an Amazon spokesperson walked back the comments about ending the company’s Seattle expansion a bit, saying it is possible that Seattle could expand there yet again.
As reported here on MNB yesterday in a breaking news alert, Amazon announced that due to local opposition, it is canceling its plans to build a headquarters campus in New York City, a move that would have created an estimated 25,000 jobs and brought a minimum investment in the city of $2 billion, in exchange from close to $3 billion city and state incentives.
Amazon’s commitment, the company said in a statement, “requires positive, collaborative relationships with state and local elected officials who will be supportive over the long-term. While polls show that 70% of New Yorkers support our plans and investment, a number of state and local politicians have made it clear that they oppose our presence and will not work with us to build the type of relationships that are required to go forward with the project we and many others envisioned in Long Island City.”
Amazon announced late last year that after months of public consideration and speculation about where it would put a second North American headquarters (HQ2), it would be split the expansion between two of the finalists - New York’s Long Island City, just across the East River from Manhattan in the borough of Queens, and Arlington, Virginia, in the Crystal City neighborhood, adjacent to National Airport and just across the Potomac River from Washington, DC.
The New York City backlash came from a number of quarters, with people questioning things like the size of the incentives, the impact on local neighborhoods and housing costs, the expected stresses on the city’s infrastructure, and the company’s long-held resistance to unionization, which is not the most welcomed attitude in a highly unionized city.
In a final bit of irony, Fortune reported yesterday:
“Those wondering how many zeros Amazon, which is valued at nearly $800 billion, has to pay in federal taxes might be surprised to learn that its check to the IRS will read exactly $0.00.
“According to a report published by the Institute on Taxation and Economic (ITEP) policy Wednesday, the e-tail/retail/tech/entertainment/everything giant won’t have to pay a cent in federal taxes for the second year in a row.
This tax-free break comes even though Amazon almost doubled its U.S. profits from $5.6 billion to $11.2 billion between 2017 and 2018.
“To top it off, Amazon actually reported a $129 million 2018 federal income tax rebate—making its tax rate -1%.”
- KC's View:
The tax story doesn’t make it easier to defend Amazon, but one of the things that was both most remarkable and disconcerting yesterday was the way in which certain politicians cheered the Amazon decision, saying that now the $3 billion in incentives could be spent on schools and infrastructure … which displayed a remarkable level of financial illiteracy. As I understand it - and my understanding of economics is fairly limited - there isn’t a pot with $3 billion in it. Those incentives are dependent on Amazon spending a certain amount of money and creating a certain number of jobs. Those jobs now won’t be created, nor will the ancillary businesses be created that would’ve served Amazon and its workers. That’s an enormous loss.
Some seem to be equating the incentives being offered to Amazon with the decisions by some cities to spend public money to build stadiums for privately owned sports teams … but they’re wrong about that.
The Wall Street Journal writes that the Amazon decision “stunned real-estate speculators, developers and renters who had rushed into the Long Island City neighborhood to be near the new HQ2.
Only three months ago, the prospect that the giant retailer would locate a headquarters in New York City and create 25,000 new jobs set off a real-estate frenzy that the borough of Queens had never experienced. Open houses for Long Island City condos were overflowing. Brokers said customers made offers via text messages on units, site unseen. Developers with office space in Long Island jockeyed to attract the thousands of workers that were expected, and local residents cheered the promise that new restaurants, fashion boutiques and other new stores would flood the retail-starved neighborhood … Now, suddenly, much of the euphoria is evaporating.”
By the way … Amazon took a year to make its HQ2 decisions, so how come it didn’t see this problem on the horizon? It’s possible that Amazon did, but thought that it could get past it, and just ran into a bigger series of obstacles than expected.
The Journal does echo something I wrote yesterday - that this setback doesn’t change the fact that Amazon “still has an enormous amount of information about hundreds of places were, to varying degrees, willing to move heaven and earth to get the HQ2 project. And, let’s be clear … those communities also know what it will take to land a 21st century company such as Amazon, and if I were them, I’d be making a lot of infrastructure decisions based on that information. It doesn’t make sense, after all, to be trying to attract 20th century companies with 20th century infrastructure. (In fact, I’d be thinking right now about 2050 and beyond, and creating community cultures that are designed to meet projected future needs.”
The Journal put it this way: “This stockpile of logistical, planning and demographic data—expansive dossiers on cities such as Atlanta, Boston and Denver—could inform Amazon’s decisions about where to place warehouses and data centers, invest in facilities, and develop regional hubs of employees, according to experts and analysts.”
At the very least, all this data makes it possible for Amazon to spread its bets around. That might be politically wise, and maybe even more economically advantageous.
It seems likely to me that yesterday’s HQ2 decision could send a signal to other major tech companies thinking about expanding in New York, and that won’t be good for metropolis that always has been the greatest city in the world.
In its analysis, the New York Times writes:
“For some, Amazon’s decision will represent a political failure, in which officials and local labor leaders blew a once-in-a-decade chance to bring thousands of high-paying jobs to New York.
“For others, it reflects the hubris of one of the world’s most valuable companies, which sought billions of dollars in tax incentives it didn’t need, and then got cold feet when local organizers and officials objected to that largess.
“But more than anything, the battle poses a challenge to one of Amazon’s bedrock beliefs: that being loved by customers is all that matters.”
One lesson: “Happy customers don’t necessarily translate to political power … For years, the company succeeded wildly by catering to shoppers, and betting — mostly correctly — that its sterling customer reputation would insulate it from criticism over its labor practices, anti-union resistance and other corporate shortcomings.
“But that era may be over. In New York, at least, there are some problems that low prices and two-day shipping can’t fix.”
One other points, if I may. There was a story that popped up yesterday that struck me as relevant to this discussion, even if technically unrelated.
The Associated Press reported that General Electric, which had been lured to Boston from its longtime Connecticut corporate headquarters with a series of incentives, announced yesterday that it is downsizing its plans for Boston, and now will have just 250 employees there, not the originally planned 800. It is selling the property on which it was going to build an office tower, and - this is where it gets interesting - will return $87 million in incentives to the state for which it no longer qualifies.