Days after Amazon Inc.
The decision triggered more discussion about public incentives to corporations, spending on needed infrastructure and housing, the next wave of corporate relocation and its impact on municipalities, and how it all weighs on municipal credit.
Seattle-based Amazon expects to place roughly 25,000 employees each in Long Island City in New York's Queens borough, and Arlington’s Crystal City in Northern Virginia. The retail behemoth also plans to add an operations center in Nashville. The company has also pledged more than $5 billion in investment for up to 17 years.
Victory will come at a cost, according to Moody’s Investors Service.
“The winning localities will likely need to upgrade infrastructure, expand transportation and improve school facilities, potentially with a hefty debt issuance attached,” Moody’s said.
Additionally, state tax incentives and benefits to the company could eventually outweigh revenue benefits, particularly if Amazon falls short on promises or if the company and public officials overestimated the multiplier effect.
New York State promised Amazon $1.5 billion over 10 years if the company meets certain job creation and wage thresholds. Other incentives are not quantified.
Gov. Andrew Cuomo confirmed approval of the Amazon project will go through the Empire State Development Corp., which he controls. That sidesteps a zoning vote on the New York City Council, some of whose members have questioned the incentive package and Amazon's effect on the city’s housing stock and transit infrastructure.
Virginia said it would provide Amazon with $573 million of similar job creation incentives over 12 years, and has pledged $195 million of transportation infrastructure improvements nearby. Tennessee has pledged $102 million of job incentives over seven years.
“Amazon now has three centers of gravity — Seattle, D.C. and New York City,” said
Splitting HQ2 did not surprise Boyd.
“The only surprise is that it came so late in the game that they decided to do it in this fashion,” he said.
One characteristic New York City and greater Washington share is troubles on the subway.
The problems on both systems have sent riders scurrying for alternatives, such as for-hire, app-based systems including Uber and Lyft, compromising fare revenue streams.
"We believe bottlenecks could intensify as residents wait for expansion of mass transportation options, particularly through the Washington Metropolitan Area Transit Authority," S&P Global Ratings wrote. D.C. Metro had to
Budget strife
In addition, and just as the budget cycle is kick-starting at the state capitol in Albany, the MTA is searching for a new leader. Chairman
“We are in need of additional recurring revenues.” MTA Chief Financial Officer Robert Foran told board members Thursday on the authority's proposed $16.8 billion
One-shot items balanced the budgets for 2018 and 2019, Foran said. "The low-hanging fruit is gone."
As another round of MTA fare hikes looms, transit advocates argue that Amazon's arrival in Long Island City, just across the East River from Manhattan and where modern mixed-use buildings are replacing old warehouses, could further strain a system already bursting with subway and commuter rail riders cramming run-down stations.
The planned shutdown in April of the L-train tunnel between Manhattan and Brooklyn could worsen the situation, sending commuters east of the river scurrying for alternatives.
"There's a lot of transit and Amazon touted that in their announcement, but there still needs to be an accompaniment in additional infrastructure,” said Lisa Daglian, the executive director of the Permanent Citizens Advisory to the MTA and a Long Island City resident. “Amazon could go a long way in showing that they're good neighbors by making investments in transit in the community."
According to Boyd, Amazon’s arrival could help break New York’s transit funding logjam.
“Projects like these often provide the necessary incentive to undertake initiatives that are politically contentious and expensive,” he said.
De-facto winners include cities on Amazon’s short list of 20 and others where Amazon’s arrival could have posed more problems than benefits.
“The question remains, did many of these states and municipalities win by losing this particular competition?” said Joseph Krist, a partner at Court Street Group Research LLC.
“While there are clear economic benefits, in terms of jobs and personal incomes, the existing host municipalities are dealing with housing, transportation, and education issues that are creating conflict with those companies,” Krist said. “Many residents of those cities find themselves at odds with the tech companies over these issues.”
Los Angeles missing out prompted a "thank God" from Christopher Thornberg, founding partner of Los Angeles consultancy Beacon Economics.
“We have record low unemployment, skyrocketing housing costs, horrendous traffic and somehow we wanted to drop 50,000 overpaid techies into the middle of this?” Thornberg, director of the Center for Economic Forecasting at the University of California, Riverside, told the Los Angeles Times.
The biggest winner, according to Boyd, is Newark, New Jersey's most populous city and an Amazon short-list candidate.
"No city was in need of elevation in stature more than Newark," Boyd said. "Newark is now seen as a highly credible, head-office location. Mayor [Baz] Baraka really is an effective salesman and a great ambassador.
"I wouldn't be surprised if, say, seven, eight, nine months or 18 months down the road, that Newark is given a satellite office relative to Long Island City, especially if there's a backlash in Queens about low-income displacement.”
Baraka said the exposure helped showcase the progress of a city long stigmatized as a symbol of urban blight. He cited, among other attributes, Newark’s access to several transportation modes.
New Jersey Gov. Phil Murphy, meanwhile, has pledged to fix chronic problems at NJ Transit, which operates commuter rail, bus and light rail statewide.
Krist called the competition among the states and cities “enlightening.”
“Amazon appears to have succeeded in its effort [intentional or otherwise] to pit the various jurisdictions against one another and it gave Amazon a lot of access to data on the various competitors that may simply result in the company being the big winner at the end of the whole process,” he said.
Boyd expects a domino effect on corporate relocation after Amazon threw down its marker.
“A lot of major employers let out a sigh of relief," he said. "Comcast in Philadelphia doesn't want to compete with 25,000 highly paid Amazon employees and the challenges they bring."
Amazon's maneuvering, Boyd added, could generate another domino effect — the relocation of federal agencies from Greater Washington. Some members of Congress have proposed reversing a 1947 law that requires their location in the nation’s capital unless Congress specifies otherwise.
Crystal City, across from Washington and consisting largely of office towers, is rebranding itself after losing thousands of federal jobs. Amazon has chosen the National Landing area of that city.
“What better place could there be for the National Weather Service than South Florida or the Carolinas?" Boyd said.
