After Amazon’s HQ2 Retreat, New York State Lawmakers Target ‘Corporate Welfare’

Two days before Amazon announced that, after months of planning, it would not be building a new headquarters in Queens in New York City after all, New York State quietly admitted that another economic development deal brokered by the state hadn’t delivered its expected results.

A solar-panel plant that the state had sponsored in 2016 as part of a big investment plan in Buffalo was on track to create fewer than the 3,000 local jobs Governor Andrew Cuomo had promised. Two years in, it had created only 700.

Democratic lawmakers had been skeptical about the “Buffalo Billion” deal, as the broader package of state-funded corporate growth upstate was nicknamed, for a while. Though the negotiations happened without as much national fanfare as the North America-wide bidding war for Amazon’s “HQ2,” the hopes for the Buffalo project—and the concerns raised—were similar.

For the chance to host a 25,000-employee Amazon campus, the state had offered $3 billion in tax incentives, expecting a return of up to 40,000 total jobs and an estimated $30 billion in eventual tax revenue. For the Buffalo solar plant, New York State had offered $750 million in the hopes of becoming a “global capital for clean energy development.”

In February, the fates of the projects had diverged—but neither had gone according to plan. Amazon backed out of its agreement with New York entirely after pressure from lawmakers and local activists in Queens, who criticized the backroom deal for a lack of transparency, and worried that Amazon’s presence would displace or threaten residents. In Buffalo, the status of the broader economic development package is more complicated: As the New York Times reported in 2018, “some projects have bloomed, [while] others have been delayed by years or show no sign of progress, beyond their initial news release.”

But both affairs fall into what Democratic lawmakers from New York describe as a pattern of misguided economic development decisions overseen by their Democratic governor. The state has long offered above-average incentive rates to lure development projects, according to research by W.E. Upjohn Institute economist Timothy Bartik, and the perceived decision-making imbalance between a powerful executive and his legislature has become more tense in recent years. Driven by the momentum that the high-profile Amazon implosion provided, some lawmakers hope to change that when the next legislative session starts in January.

“Governments exist to protect the public interest, not to be subjugated to giant corporations who are telling governments what they should be doing,” said Democratic New York State Senator Michael Gianaris, who represents western Queens. Gianaris opposed the Amazon deal, and his appointment to the board approving the final incentive package was said to have played a key role in reversing the company’s decision to come to Long Island City. “It’s a perilous time, akin to the Robber Baron days over 100 years ago. And the sooner we get our hands around it and regulate it appropriately, the less damage will be done,” he said.

One of the boldest regulatory bills was proposed in the immediate wake of the Amazon deal by Assemblymember Ron Kim and New York State Senator Julia Salazar (both Democrats representing districts in New York City): They aim to create an interstate compact among several states, which would together agree to ban the practice of giving out large economic development incentives altogether.

“We should be investing in technology companies that create real opportunities and add real value, instead of a monopoly designed to extract value from local communities,” Kim said.

Kim and others who want to eliminate or tamp down on “corporate welfare,” as they call it, often argue that they’re not anti-business, they’re just anti-tax breaks: Companies, if left to their pure preferences, would probably choose to flock to the same key talent- and transit-rich players like New York City without monetary incentives, some research suggests. Reports that Amazon is currently shopping for expanded office space in New York City even after publicly spurning Long Island City seem to confirm that hunch.

But advocates of such deals argue that the returns on economic development investments are too great to pass up; and that especially in cases where multiple localities are bidding on the same projects, no leader can afford to abstain from the process.

“We’re in the business of progress, not politics,” said Jack Sterne, a spokesperson for the Empire State Development group, which acts as the state’s economic development agency. “Our focus is on growing the state’s economy, and while we don’t comment on legislation, we also don’t support proposals that will put New York at a competitive disadvantage.” Buffalo recently had the largest share of millennial home-buyers in the U.S., ESD noted, thanks in part to the commitment it made there in 2016.

While she agrees that the current economic development system is “broken,” Amy Liu, a senior fellow at the Brookings Institution, cautions that focusing too much on the flaws of the Amazon deal could blind people to the value of using incentives to support smaller regions. “There’s been so much attention on Washington, D.C., and New York City, but for every one of those deals there’s a Rochester and an Akron, Ohio, that really do benefit from incentives when the market isn’t delivering,” she said.

The attention paid to Amazon’s decision to back out of Long Island City under public pressure was heightened by the months-long bidding war that preceded it, and was especially disappointing to Cuomo, New York City Mayor Bill de Blasio, and several local unions and business leaders because of the loss of thousands of jobs, millions in potential tax revenue, and potential good PR. Republican state senators criticized Gianaris and other lawmakers for needlessly, and naively, obstructing a good business opportunity by fighting the incentive package, and perhaps precluding them from future ones by antagonizing the company. Democratic state senators feared that swing voters who had put them in office would rebel, knowing the hard line they’d taken on economic development. When surveyed, Queens residents themselves said they overwhelmingly supported the project.

“New York State is often talked about as a place that is not friendly to business,” thanks to high taxes and a lagging population, said Rob Simpson, the CEO of CenterState CEO, a regional business group and economic development entity based in central New York. “The selection of New York State as part of the corporate headquarters for this global corporation certainly had the potential to change that narrative in a really positive way.” The way the deal fell apart was “frankly … a tragedy,” he said, especially for the upstate New York cities that could have benefited from the spillover investments.

But Gianaris said that the ordeal has also offered the state a valuable, and overdue, opportunity to revise the way it does business. “The Amazon fiasco put a spotlight on it in a very big way,” he said. “There’s a renewed and increased interest in the way our state does economic development, and the stakes.”

New York’s high ceiling on incentives dates back to a time when finances in the state were more shaky, Bartik says. “You could argue that the incentive structure in New York is somewhat outmoded compared to what would make sense in the current environment,” he said. “Which is not surprising: Frequently, when you look at state incentive structures, whatever happened politically in one year tends to persist in the future, out of inertia.”

In the interest of breaking free of that inertia, Gianaris is co-sponsoring the interstate compact, and has also introduced or is in the process of drafting a number of other economic development regulation bills. One, introduced last session, would limit the ability of the state or cities to enter into secrecy agreements with private entities, when the conversation kept from the public involves public resources—a reaction to the non-disclosure agreements that shielded many cities’ Amazon HQ2 bids from the public eye. Another would curb the potential abuse of the opportunity zone program, which was meant to encourage investments in needy census tracts but which Gianaris says has been misappropriated to wealthier neighborhoods, too. After a bombshell New York Times exposé on the process published last month, Gianaris says he has faith it will pass.

But the bill that could really shift the terms of future corporate deals is one that would require companies to submit a social and community impact statement for projects that receive above $1 million in public dollars before they’re allowed to break ground, similar to the environmental impact statements already mandated for proposed developments.

“I’m glad we force a consideration of development’s plans on the environment, but we should similarly require an assessment of a development on the affordable housing stock of a neighborhood, the stress on the infrastructure—whether it be mass transit or eduction or sewage,” Gianaris, who’s in the final stages of drafting the bill, says. “A lot of the things that were completely disregarded in the rush to embrace and participate in this Amazon beauty contest.”

Deal or no deal

Simpson, the CenterState CEO, says he’s seen the positive effects of Cuomo’s investments in upstate New York—in addition to the Buffalo Billion, the governor spearheaded an upstate revitalization plan that pumped $500 million each into Central New York, the Finger Lakes, and Syracuse. Simpson hopes that, in the wake of Amazon’s about-face, New York State will focus on making smarter deals, not fewer.

“Having companies [that are] willing to make investments in distressed neighborhoods, and … make a commitment to hire residents from those census tracts … might be a higher priority in Syracuse than it could be in some other parts of the state,” he said.

Legislators in other cities and states across the country have been trying to nudge their regulatory processes to that end.

Indianapolis just issued its own guidelines for how to spur “inclusive” growth with incentives. It emphasizes supporting companies that will provide “good” and “promising” jobs (read: well-paying, and benefit-laden); address “persistent racial disparities in access to opportunity”; provide training and education pathways for community members; and generally think more critically about where and how they will develop. These aren’t just guidelines, the report stresses: Only companies that meet certain baseline criteria will be eligible for city incentives.

In California, Assemblymember Jose Medina has introduced a bill, AB 485, which would make any warehouse that gets a subsidy of $100,000 or more subject to more public oversight. Local governments would have to release the specific information on jobs and wages that Amazon held so closely during the HQ2 deal, and reveal whether there are plans to automate any of the labor in the future. It would also “mandate annual public hearings and reports on … incentive deals, projected tax revenue and progress in meeting job commitments,” the L.A. Times reported. Once set, goals will be tracked. If they’re not met, cities would have recourse to claw back the funds.

And in Chicago, Alderman Ameya Pawar has introduced legislation that would allow the city to rescind its tax breaks if companies don’t meet its hiring goals, too, and that would prevent companies that do receive tax incentives from automating any jobs promised during the term of the development agreement.

“I’m not a Luddite,” Pawar told CityLab earlier this year. “But if technology is fully replacing human beings and sectors like supply chain, logistics, trucking, that has a major impact on the workforce. Why are we providing incentives to companies that are investing billions in [creating] in these kinds of jobs?”

Bartik believes that apart from these vocal few, there hasn’t been much of a groundswell of anti-incentive activism. “I don’t think the underlying forces that led to a high bid to Foxconn or to Amazon [have gone away],” he said. “There are still people out there who really believe that that makes sense, that you really should be really aggressive in bidding.”

But it’s undeniable that as the conversation has gone national, it’s spurring a broader tidal shift. “The public believes that capitalism favors the few and not the many,” said Liu. “And therefore [cities and states] have a responsibility to reassess how to create jobs and opportunities in their communities.”

Breaking through gridlock

New York State’s last legislative session ended in June, and the newly Democrat-dominated Senate passed several landmark progressive measures. But Kim’s and Salazar’s interstate compact bills have not yet advanced in the Assembly or the Senate.

Kim told CityLab he blames Governor Andrew Cuomo’s office for purposely creating the gridlock. “The speaker [of the Assembly, Carl Heastie] and the central staff behind the speaker’s office had informed me that there is an agreement with the governor’s office not to touch or move any of these bills that reform the state’s economic development projects,” said Kim. “If you look at what we’ve advanced since [Cuomo] took office, it’s practically zero when it comes to overseeing or holding any of these economic developers [accountable].”

A spokesperson for Heastie told CityLab in an email, “There is absolutely no truth to this.” The ESD, which spoke on behalf of Cuomo’s office for this article, declined to comment on this specific allegation.

A major factor impeding that bill’s progress may be the fact that it’s contingent on other states signing on—though Kim says up to 13 states have expressed interest in the six months since it’s been introduced, none have had their legislation advance. And without collective action, any one ban’s effects will be muted.

One bill introduced in the pre-Amazon days has a better chance of having its ideals realized this year: Nicknamed the “Database of Deals,” it would create an online listing of all the development contracts approved by the state, including information about how much money changes hands, and between whom.

The legislation was first introduced by former New York State Senator Thomas Croci in 2017, and was co-sponsored by Robin Schimminger, the head of the Assembly’s Economic Development Committee.

“This was introduced way before Amazon, but it alludes to a problem with the way this government is being run,” said Democratic State Senator Thomas Abinanti, who has supported the measure. “The economic development deals are not transparent. We have a governor who pretends that New York State is a transparent bottle, when in fact there is no transparency.”

Gianaris says the database would direct welcome sunlight on how public resources are allocated and allow the public to evaluate the success or failure of the funded programs.

Cuomo committed $500,000 in the final 2020 budget to finance such a database, and highlighted it in his 2019 State of the State speech. But, as Rebecca C. Lewis reported in City & State, he “did not draft separate legislation mandating the creation of the database with clear guidelines and rules,” and Abinanti is frustrated by the lack of progress made in creating it. “We can’t get any info at all as to what his plans are,” he said.

In an email, the ESD said that it’s working on getting the “Database of Economic Development Projects” up and running. It just takes time, the group said, to do it “thoroughly and thoughtfully.”

Meanwhile, the knowledge that Amazon hopes to expand in Manhattan’s West Side anyway has vindicated—but also frustrated—even lawmakers that didn’t cheer for its ouster. “Providing those incentives would have been a tremendous waste for us,” said Gianaris. “If Amazon’s going to come here anyway, if that activity is going to be generated anyway, that would be lost money that we saved.”

The office space Amazon is reportedly interested in leasing could reach up to 100,000 square feet, according to the New York Post, but it probably won’t come close to employing 25,000 people; and it is in Manhattan, not on Long Island City, where empty office buildings are ready for filling and an employment boost would be more valuable. Amazon did not respond to CityLab’s request for comment.

Though there is no evidence that Amazon has come asking for more tax breaks in exchange for this new development—and has not confirmed its intentions to fill it—Kim worries that if another tech giant plays hardball with the state, there will be no safeguards in place to deny them incentives.

“We’d hope that in light of global exposure of the barriers behind big projects like Amazon, we would have the courage to rally around this moment to hold every dollar accountable,” said Kim. “But instead, we are still making these deals behind closed doors.”