Sweetheart Deal for Amazon Includes Tiny ‘Infrastructure Fund’ for City

But the deal will bother good government groups because it uses Amazon's tax money to benefit ... Amazon.

Could an infrastructure fund help this mess?
Could an infrastructure fund help this mess?

The fine print of the sweetheart deal for Amazon to move one of its two new headquarters to Long Island City includes the creation of a minuscule “infrastructure fund” to benefit the already cramped subway and bus riders of Queens — but experts blasted the arrangement as too small and too beneficial to Amazon itself.

Amazon’s contribution to the city and state will be $850,000 in annual rent on its new offices, plus “payments in lieu of taxes” that are supposed to be pegged at the prevailing property tax rate (though rarely are). Deputy Mayor Alicia Glen claimed the PILOTs would amount to $1.2 to $1.3 billion over the next 40 years.

At least half of those PILOT payments — roughly $600 million over four decades — will go for transit and other infrastructure improvements, the deal being inked today shows. The development site is on the Long Island City waterfront on land on either side of 44th Drive, about four blocks west of the Court Square E,G and 7 trains.

The state spun its PILOT deal and resulting fund as a positive.

“The Infrastructure Fund shall be used to pay for any infrastructure improvements (including but not limited to streets, sidewalks, utility relocations, environmental remediation, public open space, transportation, schools and signage) … within a to-be-determined geographical area within Long Island City,” the deal states.

The deal puts Amazon's new HQ2 on the waterfront in Long Island City. Photo: Empire State Development
The deal puts Amazon’s new HQ2 on the waterfront in Long Island City, about four blocks west of the Court Square E,G and 7 trains. Photo: Empire State Development

The projects funded by the money in the lockbox will be recommended by “an Advisory Board to be appointed … at such time that the Infrastructure Fund is sufficient to finance one or more capital projects.”

And there’s the problem, experts say.

“Amazon should be paying property taxes like everyone else, including Google, Facebook and the bodega owner down the street,” said John Kaehny, executive director of Reinvent Albany. “But this deal allows Amazon to set aside half of its taxes to fund something the directly benefits Amazon and its employees. This is a massive subsidy and, worse, it’s corporatism. It’s letting the corporation decide where its tax dollars are spent.”

Kaehny said the precedent would allow other payers of PILOTs, such as colleges, religious institutions and non-profits, to demand that part of their property tax payments be set aside for improvements that they want.

“What’s next? NYU, Columbia, and the Catholic Church could demand that its money only goes towards cleaning its sidewalks,” Kaehny added. “This deal also stinks from a public perspective. Google and Facebook didn’t get this kind of deal and came to New York anyway, as Amazon would have.

“The name of this game is the governor landing this big fish so he can look good,” Kaehny added.

Nick Sifuentes of the Tri-State Transportation Campaign echoed Kaehny’s contempt for the deal.

“[It] isn’t going to make much of a dent in transit,” Sifuentes said. “For starters, the dollar amounts will pale in comparison to the need — and the money doesn’t even go to the MTA, instead going to EDC and the city. Ferry services might see a boost in subsidies, but the subways aren’t going to see this have much of an impact at all.”

Sifuentes saw a darker motive for Gov. Cuomo — creating a new stream of revenue for transit without having to do any hard work.

“The only way we’re going to fix the transit services that matter is if the state funds Fast Forward,” Sifuentes said, referring to NYC Transit President Andy Byford’s $40 billion plan. “[This deal] lets Amazon avoid paying taxes and instead invest in improvements in their own development. … Basically, riders would be better served if Amazon paid taxes like everyone else, rather than Amazon being able to funnel what would’ve been tax revenues into nicer sidewalks and ferry service for their employees to enjoy. That’s not how we build and maintain a city. That’s how we build a corporate city-state.”

Typically, money from PILOTs goes into the city’s general fund to be spent like other taxes.

Amazon said it would staff its new HQ2 with 50,000 people, though the company is now putting two smaller headquarters in Long Island City and Arlington, Vir., so staffing will likely be less than originally promised.

It is clear that the infrastructure fund won’t be large enough to cover even a tiny part of the wish list put forward Tuesday by the Regional Plan Association, whose Vice President Dani Simons called for investment in “a few key projects” to “dramatically improve regional infrastructure.”

A few?

“The BQX Streetcar would connect LIC to neighborhoods and housing opportunities along the Brooklyn and Queens waterfronts; a new commuter rail station at Sunnyside Yards would enable Long Island residents to take the LIRR; extending the Gateway Tunnel from Penn Station to Sunnyside Yards would provide a one-seat ride from New Jersey to Queens; and Penn Access would link the Bronx, Westchester and Connecticut with the neighborhood,” Simons said.

It’s unclear if any of those could be funded with a $15-million-per-year infrastructure fund, given that the deal requires the money is controlled by the Economic Development Corporation and must be spent “within a to-be-determined geographical area within Long Island City.”

The deal also calls for New York State to “offer a package of project incentives … including Excelsior tax credits and a capital grant.”

So how sweet is the overall deal? In pitching it to Amazon, Empire State Development President and CEO Howard Zemsky promised, “Incentives structured on a post-performance basis that are valued at up to $1.705 billion, if the company creates as many as 40,000 jobs.”

Amazon put out this press release.

Correction: An earlier version of this story wrongly valued the Amazon PILOT. It is $1.2 billion over 40 years.

  • Larry Littlefield

    So do we get the Sunnyside LIRR station that was allegedly already paid for in past MTA Capital Plans?

    They could have gotten a similar deal in Philly and been right next to 30th Street station. But at least if they built Sunnyside Station, Amazon employees could buy Generation Greed’s houses for excess money out in Nassau, Suffolk and Eastern Queens rather than trying to find a place to live in urban New York.

  • I don’t believe a single damn thing the state or Amazon announces. Be skeptical and assume nothing.

  • AMH

    I’ve heard that LIRR quashed that idea because it would reduce capacity/slow down trains headed for Penn.

  • Larry Littlefield

    Really? There are four tracks into Penn. Would it really have been a big deal for trains to stop at two of them? After all, they stop at Woodside.

    In any event, if we aren’t going to get something we paid for (well, borrowed for), shouldn’t there be an announcement?

  • iSkyscraper

    Sang de Blasio in the shower this morning, dreaming of BQX:

    “Clang, clang, clang” went the trolley
    “Ding, ding, ding” went the bell
    “Zing, zing, zing” went my heartstrings
    For the moment I saw Bezos I fell

  • Joe R.

    It’s particularly galling the way cities spend tax dollars to attract rich megacorporations instead of rewarding the smaller businesses that create the most jobs. NYC should get rid of idiotic unincorporated business tax yesterday. It functions as a second income tax for independent contractors. NYC and NYC should also recognize S-corporations instead of taxing them like regular corporations. Amazon will be fine without the city’s largess. A lot of fledgling businesses won’t.

  • Vooch

    Spend the money on

    Protected Bike Lanes
    The entire tootkit of motor traffic calming to encourage walking to work

    You will get the biggest bang for the buck

  • sbauman

    After all, they stop at Woodside.

    Woodside is a 6 track station. It’s before the Port Wash trains merge with the mainline and the mainline merges with Amtrak.

  • HamTech87

    First time I’ve seen the location of the actual Amazon campus. It seems like a pretty long walk from the various stations like Court Street (closest) and the LIRR ones (pretty far), and that’s just to the easternmost or southernmost points on the campus. Will these employees want to walk 4/10th to 7/10th of a mile to work every morning? Consider the competition: Google is one short block from the L and ACE lines.

    As for a Sunnyside station, not sure I’d want to be coming in from points east on Long Island and have to transfer to the jammed 7EF lines to reach Amazonia. I’d be looking to reverse commute from Manhattan as much as possible, or walk or bike there.

  • Larry Littlefield

    Bloomberg News is reporting Virginia’s subsidies per job are half the level of NYC.

    Sounds like what our public sector pays everyone.

  • benbensons

    private shuttles

  • ortcutt

    $15 million per year? It’s basically nothing. More relevant is the tax money that employees will be paying in terms of income tax, sales tax, meals tax, etc… That does go to the general fund.

  • datbeezy

    In terms of bottom line, HQ2s are nothing but black ink for the cities that got them. Unlike a sports franchise, Amazon’s paying a lot of people (~$5 BILL a year) without much ability to meaningfully avoid taxes.

  • Joe R.

    Bezos will enlist the help of Musk to build tunnels with moving sidewalks (open only to Amazon employees, of course) from the nearest subway or LIRR stations.

  • datbeezy

    The point isn’t that Amazon needed a break or not, it’s that they had a product that cities wanted: The cut of tax revenue from roughly $5 billion in wages a year. The city income tax is something like 12% – the city will be taking in ~$600m in incomes taxes alone off these employees each year, let alone sales tax or any other local taxes. But let’s be conservative and cut that by half because of the split HQ2s, and half against in case I’m miscalculating the actual taxes (fed and state deductions, etc, savvy tax avoidance, etc). OK, so we’re talking a $1 Billion per year income stream ALL CASH. That’s real money, even in NYC. And it’s lot bigger than whatever cash outlay the city is providing.

  • Joe R.

    Actually, your calculations are way off. The maximum NYC income tax rate is 3.876% but that’s not on all earned income, only the amount over $50,000. Realistically, considering a lot of Amazon’s employees will earn enough to defer a lot of income via IRAs or 401Ks, you’re probably looking at 2.5% to 3% of that $5 billion in income tax, or roughly $125 to $150 million. The state will get a larger cut, perhaps about twice what the city gets. And of course the city will get sales taxes when Amazon employees spend their money. That might be another $100 million or so. Overall, on the state and city level maybe you’re looking at $500 million in new taxes, give or take $100 million or so. There will also be additional taxes generated when these employees use their insurance for medical care, although that amount is hard to estimate.

    Now look at the other side of the ledger. These people will need city services. Granted, nobody who works for Amazon will be needing welfare or Medicaid. But their children will need schools. If existing schools can accommodate these extra students then there might not be much new spending there. Hopefully Amazon’s PILOT will at least cover whatever extra transit services their employees need.

    Overall, sure this kind of thing at least is in the black from day one. I wouldn’t care if Amazon got these breaks if every business also got them. A tax break to entice a business to move here is basically an admission that your taxes are too high relative to the services you’re offering. If NYC/NYS were really smart it would revise its tax schedule so people making under maybe $50K don’t pay income taxes. It would also get rid of the unincorporated business tax, stop treating S-corps as regular corporations, and get rid of unnecessary regulations which hurt small businesses more than large ones. Amazon has an army of lawyers to deal with NYC’s regulatory environment. The little guy doesn’t.

    NYC also needs to get its spending under control. We pay twice per student what we did 20 years ago in adjusted dollars. We has three times as many police per capita as most large cities. We have bloated pensions and inefficient work rules.

    That said, I’m at least happy that large corporations other than finance, advertising or entertainment are once again starting to view centers as places worth paying the extra money it costs to relocate there. We’ve tried the lifeless suburban office park model for the 40 years. That probably hurt our competitiveness on a world stage because top talent generally doesn’t want to live in soul-sucking places like that.

  • Larry Littlefield

    Right. I’ll have a new line chart out of the state and local tax burden through 2016 in a couple of weeks, but NYC is surely among the highest.

    And yet we also have all these deals. Public employee retirement income — exempt from state and local income taxes. New apartment buildings — exempt from property taxes for 45 years.

    And now this.

    No wonder “progressives” are so in favor of ever increasing taxes. Those in on the deals don’t have to pay them.

    And yours is exactly the right question — who pays for their public services? Perhaps the idea is for them to live on Long Island, and buy up Generation Greed’s houses for inflated prices so millennials won’t move there.

  • AMH

    I would expect the pros (serving a new area) to outweigh the cons (any reduction in speed/increased running time). Then again, railroad intransigence is what got us the ESA.

  • datbeezy

    > A tax break to entice a business to move here is basically an admission that your taxes are too high relative to the services you’re offering.

    I disagree here. Take this scenario and assume the deal is a net financial gain, all things considered [also, they real key to this deal is the $850m in rents/year that Amazon is paying].

    Anyhow, these workers could go anywhere – low tax havens like Atlanta, Dallas, Houston, etc. In order to ensure that NYC gets that positive benefit, they’re willing to take what amounts to a smaller benefit. At the end of the day, as long as the deal is above-normal, it works for cities, unrelated to the overall tax regime.

  • Joe R.

    I think the meme that “workers can go anywhere” is less and less true. I absolutely refused to relocate after graduating college. Logistically, I couldn’t anyway. I had no money, and my parents had no extra money to help me move, or buy the car I would have needed. If workers in the past hadn’t been so willing to relocate, jobs never would have left cities, and companies would just have had to suck up the extra expense being located in a city, instead of a greenfield, entails.

    Amazon was probably planning to go to LIC all along, but played out the ruse of a competition to get NYC to give them some breaks. It worked this time but it also made a lot of people angry. The next time some big company tries this, NYC might just say you’re not getting any special deals. This may even have a good chance of working if the workforce the company hopes to attract largely lives in the city. Unlike previous generations, the millenials have one thing in their favor. The stigma of staying with your parents is slowly disappearing. High housing prices in large cities are helping force the issue. They will be very reluctant, perhaps unable, to leave that big advantage behind to move to another location just for a job which might not exist 5 years from now. And that brings me to another reason why companies can no longer assume workers will go anywhere, namely that they’ll lose employees in a heartbeat when it benefits their bottom line. Why should a worker show loyalty to a company that shows no loyalty to them?

  • datbeezy

    Amazon literally just conducted a nationwide search – they could, literally, have gone anywhere, unless you believe Amazon will be unable to fill all those positions. The *entire fear* of Amazon entering a city is that they will bring with them out-of-town high wage workers to drive up the rent.

    NYC will shell out deals as long as it’s profitable – they’re paying $3 billion to lock in $850m in rent per year for what, 20 years? That’s a massive return on investment. They’ll do that deal all day and firms will understand that if they’re binging a huge cashflow of taxes and rents, that cities value that and are willing to pay for it. There’s a reason every podunk town in America was salivating to get HQ2 in their town. Is there a single city over 100,000 that outright rejected the idea?

ALSO ON STREETSBLOG