Dec 6, 2018

What Could States and Municipalities Have Done with That Amazon HQ2 Money?

Michael Farren Research Fellow , Anne Philpot Research Assistant

By now, most have heard the news about Amazon’s decision to split its second headquarters between New York City and Northern Virginia. After a year-long competition among states and municipalities to woo the tech giant, politicians in these two eastern cities are celebrating their victories and preparing for an influx of Amazon employees.

But taxpayers in New York and Virginia have less to celebrate.  Unlike the states that Amazon bypassed, New York and Virginia actually have to follow through on the promises they made to Amazon. And now that these subsidies have finally been revealed to the public, we know that the money offered by the winning states and localities was no small sum.

Every dollar spent by a state or municipality on corporate handouts is a dollar that could have gone to lowering taxes or to a valuable government service like safety, education, or infrastructure, and many of these alternate investments have serious job-creating potential. To make matters worse, subsidies typically don’t sway corporate location decisions, meaning that subsidies are a waste of public resources. In fact, Amazon based its final decision on factors besides handouts—like the availability of tech talent in the local workforce

The subsidies offered to Amazon for HQ2 provide a useful illustration of the inherent tradeoffs created when politicians provide government privileges to specific companies. Using the publicly-available agreements between Amazon and the winning states and municipalities, we estimated how much each winning municipality and state could spend on expanding public services or reducing taxes over the life of the subsidy instead of providing the subsidy.

To calculate these tradeoffs, we compare the subsidies offered by the winning states and municipalities with the anticipated future state corporate income tax revenue and with the anticipated cost of providing various public services over the same time period. For more on our methodology, see the appendix of our recent study, Amazon HQ2 Is the Only Competition Where the Losers Are Winners.

New York

The state of New York offered Amazon subsidies and perks worth $1.7 billion over 15 years. Our calculations show that New York could have used this money to pay for 11,100 full-tuition SUNY scholarships each year for 15 years, to reduce the corporate income tax paid by all businesses by 1.37% for the duration of the subsidy, or to fully fund an entire year of statewide road maintenance.

 

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Virginia

Virginia offered Amazon subsidies and perks worth $845 million over 15 years (with an extra $200 million possible over the following 10 years). Our calculations show that Virginia could have used this money to pay for over 2,700 full-tuition UVA scholarships each year for 15 years or to reduce the corporate income tax paid by all businesses by 5.6% for the same time period.

 

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Tennessee

While Tennessee didn’t win the official HQ2 prize, Amazon announced the development of a new operations center in downtown Nashville. Predictably, subsidies were involved. Tennessee offered Amazon a total of $87 million over 7 years. Instead of this handout, the state could have provided 800 full-tuition University of Tennessee scholarships each year for those 7 years.

 

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Arlington County, Virginia

It wasn’t just states that offered subsidies to Amazon—municipalities like Arlington County offered them as well. Arlington offered Amazon a total subsidy package of $51 million over 15 years, which could have instead been used to educate 140 additional public school students, hire 15 additional police officers, or expand the existing municipal police department by 4%.

 

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Nashville, Tennessee

Music City offered Amazon a total of $15 million over seven years. Nashville could have instead educated 156 additional public school students or hired 14 new police officers over those seven years.

 

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New York, New York

New York City’s official subsidies to Amazon are relatively small ($5 million) compared to the state’s handout, but the city will be providing other valuable privileges to Amazon whose cash value is difficult to determine. For example, Amazon will avoid property taxes. Instead, it will pay $850,000 in rent annually in exchange for the use of the public development sites that the city and state governments have acquired on its behalf. In addition, Amazon will bypass the environmental review process and receive additional public infrastructure perks at no cost to the company. Plus, the city and state even agreed to secure approval for an Amazon HQ2 helipad!

Photo credit: Leon Neal/Getty Images

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