- Amazon announced on Thursday that it would pull its plan to build a second headquarters, known as HQ2, in the Queens borough of New York City.
- “After much thought and deliberation, we’ve decided not to move forward with our plans to build a headquarters for Amazon in Long Island City, Queens,” Amazon said.
- New York lawmakers had said HQ2 is not worth the roughly $US3 billion in incentives the state and the city promised Amazon.
- A study commissioned by Gov. Andrew Cuomo’s office found that Amazon’s presence in New York City would generate $US27.5 billion in tax revenue for the state and the city – much more than the incentives.
- But there are some caveats to the rosy picture painted by the study.
The company announced on Thursday that it wouldn’t move forward with plans to build a second headquarters in the Long Island City neighbourhood of Queens – and New York governments may have just watched billions of dollars in tax revenue walk out the door.
“After much thought and deliberation, we’ve decided not to move forward with our plans to build a headquarters for Amazon in Long Island City, Queens,” Amazon said in a press release.
A slew of New York lawmakers had criticised the roughly $US3 billion in tax incentives that the city and the state offered Amazon.
But Gov. Andrew Cuomo and New York City Mayor Bill de Blasio were enthusiastic supporters of the HQ2 project, which they argued would bring in more tax revenue than the government was planning to give in incentives, as well as increase economic growth.
Amazon cancels New York City HQ2
Cuomo’s office said when the HQ2 project was announced in November that it would bring in $US27.5 billion in new tax revenue over 25 years, largely based on an economic-impact study commissioned by the governor (another was commissioned by the city but not released). Of that amount, $US14 billion would go to the state, and $US13.5 billion would go to New York City.
Given that figure, Cuomo said the Amazon investment would bring in $US9 in tax revenue for every $US1 of revenue forgone because of the incentives.
“Amazon, by our current tax structure, would generate approximately $US1 billion per year in new revenue,” Cuomo wrote in a November op-ed article defending the HQ2 decision. “Our proposal offered that, when and if those revenues are realised, the government would effectively reduce their $US1 billion payment by about $US100 million for a net to New York of approximately $US900 million. New York doesn’t give Amazon $US100 million. Amazon gives New York $US900 million.”
But based on the study, the advantages may not have been as great at Cuomo made it seem. Inflation would take a bite out of the value of the future tax dollars generated by HQ2 – put another way, $US1 in tax revenue in 25 years would not be worth as much as $US1 of revenue in 2019.
Since much of the tax revenue would be realised later in the 25-year timeframe, the New York state study estimated that HQ2 would bring in just under $US9 billion in state tax revenue in 2019 dollars, versus the promised $US1.4 billion in state tax incentives. The report concluded that “the benefit-cost ratio is 6.3,” well below Cuomo’s promised 9:1 ratio.
Critics of the study also pointed out that the estimates were based on the idea that Amazon would bring in 40,000 jobs for its New York HQ2 over 15 years. Amazon had said when it announced it would split its second headquarters between Northern Virginia and New York that 25,000 jobs would come to each over the first 10 years; it said an additional 15,000 jobs could come to Queens in the five years after the initial wave but made no firm commitment.
Some experts said that the study also did not consider the alternatives for the area where Amazon would put HQ2 and that recent studies had found that investing in existing local businesses could be more economically stimulative than wooing new corporations.
On top of that, the study did not account for the worker influx creating liabilities for the city, such as increased trash collection and education costs. Critics also pointed to other externalities they said would make HQ2 less attractive for New York City residents.
Business Insider Emails & Alerts
Site highlights each day to your inbox.