Earlier this week, Amazon abruptly decided to drop its plans to open a facility in the Long Island City, Queens neighborhood in New York City. Despite support from the local community, Amazon said that a number of state and local politicians oppose their presence and will not work with the company to build the relationships required to go forward with the project.
Here is a statement that Amazon published:
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. For Amazon, the commitment to build a new headquarters 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.
We are disappointed to have reached this conclusion—we love New York, its incomparable dynamism, people, and culture—and particularly the community of Long Island City, where we have gotten to know so many optimistic, forward-leaning community leaders, small business owners, and residents. There are currently over 5,000 Amazon employees in Brooklyn, Manhattan, and Staten Island, and we plan to continue growing these teams.
Amazon is still going to continue its plan to expand to Northern Virginia and Nashville, Tennessee. And Amazon is not planning to select a different location for a different headquarters location.
But that is not stopping politicians from requesting Amazon to expand to their cities. For example, New Jersey Governor Phil Murphy is urging Amazon to reconsider Newark as a location for its headquarters. It is believed that New Jersey was offering $7 billion in incentives, which is lower than the $8 billion being offered by Montgomery County in Maryland.
The hunt for a new Amazon headquarters location began in September 2017. About 238 candidates applied to be considered and a number of them submitted video montages about why they should be considered. And Amazon’s original decision to select two places for headquarters locations came as a shock.
Amazon was going to receive $1.2 billion in refundable tax credits through the New York State’s Excelsior Jobs Program if 25,000 jobs were to be created in the state of New York by the end of June 2028. The state of New York also said it would give a $505 million capital grant to reimburse Amazon for the cost of building its office space.
Overall, Amazon was expected to receive nearly $3 billion in state and city incentives. And Amazon was planning to spend $2.5 billion at the Virginia and New York locations.
It is unknown whether more funds will be reallocated to any of the other locations. The Nashville location is being set up as a new Center of Excellence for its Operations business with more than 5,000 jobs and an investment of more than $230 million.
Political Bottlenecks
To convince Amazon to set up shop in New York City, political opponents Gov. Andrew Cuomo and Mayor Bill de Blasio worked together on making it happen. This past week, Gov. Cuomo set up a meeting between Amazon executives and union leaders. However, the talks ended up in disagreements.
In a statement, Gov. Cuomo blamed a “small group of politicians” who put their “own narrow political interests above their community – which poll after poll showed overwhelmingly supported bringing Amazon to Long Island City – the city’s economic future and the best interests of the people of this state. The New York State Senate has done tremendous damage. They should be held accountable for this lost economic opportunity.”
Government officials also made a number of concessions to attract Amazon. For example, they agreed to revamp plans for the Queens waterfront and relocate a distribution center for school lunches. The officials also agreed to provide CEO Jeff Bezos a helipad.
Within 15 years, Amazon was given the option to occupy 8 million square feet of office space for as many as 40,000 employees. Critics of this concession believed that this circumvented the usual land-use process and eliminated the City Council’s veto power, according to The New York Times.
And critics were also opposed to Amazon’s anti-union practices. Mayor De Blasio blasted Amazon for throwing away an opportunity. “We gave Amazon the opportunity to be a good neighbor and do business in the greatest city in the world. Instead of working with the community, Amazon threw away that opportunity,” said Mayor De Blasio.
In Amazon’s full statement about the decision to not move to New York, the company repeteadly thanked Governor Cuomo and Mayor de Blasio along with their staffs.
Some of the politicians who opposed the move included State Sen. Michael Gianaris (represents New York’s 12th State Senate district, which includes Long Island City) and Rep. Alexandria Ocasio-Cortez (U.S. Representative for New York’s 14th congressional district, which includes parts of Bronx County and Queens County)
Economic Concerns
A number of organizations, real estate agents, and business owners have expressed their disappointment with Amazon’s decision to change its mind.
“Amazon’s decision to withdraw from New York is no doubt a blow to our local economy and the tens of thousands of people the company would’ve employed here. New York City is today one of the most dynamic tech hubs in the world, but there is no guarantee we will maintain this status in the future, which makes this news so disappointing,” said Tech:NYC’s Executive Director Julie Samuels in a statement to sent to AppleInsider. “It’s especially disappointing given the overwhelming local support for the deal and there can be no doubt that bad politics got in the way of good policy here.”
The owner of development sites in Long Island City that Amazon targeted for the campus is also “extremely disappointed” with the decision:
“Since our grandfather opened Plaxall’s doors on the waterfront seven decades ago, our family has believed in the overwhelming promise of Anable Basin and Long Island City as centers of productivity and innovation. We continue to believe that today,” said Plaxall Inc. managing directors Paula Kirby, Tony Pfohl, and Matthew Quigley in a statement to Bloomberg.
Ryan Serhant of “Million Dollar Listing” fame told CNBC that buyers are “freaking out” about Amazon’s decision.
“Was I dumbfounded that New York politicians were going to ruin it for everyone? No. Was it an exhausting day yesterday? Yes,” said Serhant via CNBC — who oversees Nest Seekers International and is one of the stars on Bravo’s Million Dollar Listing New York.
Serhant’s team put about 15 different apartments in contract based on the Amazon move. “All 15 of those buyers called yesterday, freaking out, saying, ‘Should I pull my deposit, can I get it back? Is there an Amazon contingency in my contract?'” Serhant commented on Friday:
Controversy Around Tax Credits
Amazon has also been criticized on both sides of the aisle for not having to pay federal taxes. And the Institute on Taxation and Economic Policy (ITEP) reported that Amazon will not have to pay federal taxes for the second year in a row despite doubling its U.S. profits from $5.6 billion to $11.2 billion between 2017 and 2018.
I have stated my concerns with Amazon long before the Election. Unlike others, they pay little or no taxes to state & local governments, use our Postal System as their Delivery Boy (causing tremendous loss to the U.S.), and are putting many thousands of retailers out of business!
— Donald J. Trump (@realDonaldTrump) March 29, 2018
You know what Amazon paid in federal income taxes last year?
Zero. https://t.co/2bVwXQNATl
— Bernie Sanders (@SenSanders) April 30, 2018
Plus Amazon reported a $129 million 2018 federal income tax rebate, which made its tax rate -1%. However, ITEP pointed out that Amazon’s lack of federal tax payments were due to the Trump Administration’s corporate-friendly tax cuts.
The 2017 Tax Cuts and Jobs Act — which is based on tax reforms advocated by the Trump Administration and congressional Republicans — decreased corporate taxes from 35% to 21%. And the Act kept a number of tax loopholes open that allowed profitable companies to avoid paying federal and state income taxes on roughly half of their profits.
Fortune pointed out that prior to the -1% tax rate, Amazon paid about 11.4% in federal income taxes between 2011 and 2016. This is another reason why it was also a sore subject for New Yorkers upon hearing how much in tax credits Amazon would be receiving.
Amazon counters these claims by saying that it pays all taxes that are required from it from the federal government and the governments of all countries where it operates.
An Amazon spokesperson said that the company paid $2.6 billion in corporate tax and reported $3.4 billion in tax expenses over the last three years. “Corporate tax is based on profits, not revenues, and our profits remain modest given retail is a highly competitive, low-margin business and our continued heavy investment,” said an Amazon spokesperson via 10News.
The spokesperson also said that Amazon invested more than $160 billion in the U.S. since 2011. This investment was spread across a network of fulfillment centers, delivery stations, cloud computing infrastructure, and energy farms.
The spokesperson pointed out that the reason why Amazon is able to avoid having to pay federal taxes is because it reinvests earnings and takes advantage of existing tax credit opportunities.
Bezos’ Leadership Principles Cited
Alex Kantrowitz of BuzzFeed cited Bezos’ leadership principles as one of the reasons why Amazon decided to reverse the decision to set up its headquarters in New York.
Context: I started my career at New York City's Economic Development Corporation. Our development and community relations teams' jobs essentially boiled down to going to meetings, getting yelled at, listening, and adjusting. It's part of the process. Nobody complained.
— Alex Kantrowitz (@Kantrowitz) February 15, 2019
Here's Bezos on reversible (Aka: Type 2) decisions. "You don’t have to live with the consequences for that long. You can reopen the door and go back through." And that's what Amazon did in NYC today. https://t.co/1WZTfJU9Bz pic.twitter.com/KhqfCddgIo
— Alex Kantrowitz (@Kantrowitz) February 15, 2019
“Some decisions are consequential and irreversible or nearly irreversible – one-way doors – and these decisions must be made methodically, carefully, slowly, with great deliberation and consultation. If you walk through and don’t like what you see on the other side, you can’t get back to where you were before. We can call these Type 1 decisions. But most decisions aren’t like that – they are changeable, reversible – they’re two-way doors. If you’ve made a suboptimal Type 2 decision, you don’t have to live with the consequences for that long. You can reopen the door and go back through. Type 2 decisions can and should be made quickly by high judgment individuals or small groups,” wrote Bezos in a letter to shareholders back in 1997. “As organizations get larger, there seems to be a tendency to use the heavy-weight Type 1 decision-making process on most decisions, including many Type 2 decisions. The end result of this is slowness, unthoughtful risk aversion, failure to experiment sufficiently, and consequently diminished invention. We’ll have to figure out how to fight that tendency.”
