Why Amazon’s New York HQ2 Deal Failed to Deliver

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Wharton's Susan Wachter and Billy Riggs from the University of San Francisco discuss why Amazon's HQ2 deal with New York fell through.

Amazon’s decision on Valentine’s Day to break up with New York — chosen as one of two sites for its second headquarters — is a story of missteps on both sides set within a politicized environment that resulted in lost opportunities for all, according to experts from Wharton and elsewhere. If cooler heads had prevailed to work through the issues, New York would have gotten a big boost to its standing as a main tech hub on the East Coast while Amazon would have gained an exceptional talent pool and tax breaks.

“It is a missed opportunity, but on the other hand, life will go on for both Amazon and Long Island City” in Queens, said Wharton real estate and finance professor Susan Wachter, who is co-director of the Penn Institute for Urban Research. Added Billy Riggs, management professor at the University of San Francisco: “Amazon was looking at a lot of different things, and what they really got excited about was talent.” The two experts discussed what was at stake for both sides on the Knowledge@Wharton radio show on SiriusXM. (Listen to the podcast at the top of this page.)

Amazon’s choice of Long Island City, along with Arlington, Va., was not just about the size of tax incentives. According to a post by New York Gov. Andrew Cuomo, Amazon could have gone across the river to Newark, N.J. and gotten $7 billion in incentives. And public misunderstanding of New York’s $3 billion incentive package to Amazon also played a big part in the break-up. The state is not writing a big check to Amazon, he said. Amazon has to first bring in the revenue promised and then it gets a tax break. Moreover, New York’s incentives have been around for decades and enjoy bipartisan support.

That message was lost as protests emerged soon after New York won the contest to be one of two hubs for Amazon. One of main objections from local officials was that Amazon would bypass the Uniform Land Use Review Procedure, which would ensure a closer review by city officials. In a December hearing held by the New York City Council, protestors held up a banner that said “No to Amazon.” The council also proposed a bill to ban non-disclosure agreements in economic development deals that can hide things like “giant tax giveaways without public knowledge or input.”

Also, the break-up occurred during a leftward tilt in the political atmosphere. “No question, there was a shift in the political frame right as this was going forward,” Wachter said. “The rise of the progressives was happening.” Elected last November, the same month Amazon announced its second headquarters choice, was New York Congresswoman Alexandria Ocasio-Cortez, a Democratic socialist.

“It is a missed opportunity, but on the other hand, life will go on for both Amazon and Long Island City.” –Susan Wachter

Indeed, the lawmaker called Amazon’s exit a victory. “Anything is possible: today was the day a group of dedicated, everyday New Yorkers and their neighbors defeated Amazon’s corporate greed, its worker exploitation, and the power of the richest man in the world,” she tweeted. But CNBC anchor David Faber tweeted back that “NY forfeits a chance to become a major tech hub, loses tens of thousands of jobs and tens of billions of dollars in tax revenues that could fund programs you support. How is that a victory?”

As for Riggs, he said Amazon leaving “is a little bit of an urban regeneration missed opportunity [for New York, since the addition of] 25,000 jobs is pretty significant. And my understanding is many of them were potentially union jobs. Cuomo had insisted on hiring union workers, [so the exit is] a big loss for that sector.”

Riggs pointed out that it’s important to separate the politicization of the Amazon project with the beneficial use of tax incentives by municipalities to attract businesses. “Tax incentives are levers we use on the local level — and they will continue to be a lever.” It doesn’t help when the rhetoric blasts “corporate greed and the power of the richest people of the world,” he said.

Cities have to be run, and “job growth is important and incentives are an important strategy to make that happen,” Riggs said. But in New York, “there was a deeper politicization of this process that also might have made it more difficult for local residents to [accept] what was being cast as a really bad deal for the region.”

New York Is Not Virginia

Wachter said Amazon should have engaged the local Long Island City community more closely during the negotiations. Its mistake was treating the neighborhood like a city with a much smaller population. She noted that the other site for its second headquarters is Arlington’s National Landing, where Amazon wasn’t picketed. “That’s because it’s basically a mall. There aren’t many people there and [negotiating with mainly state and city officials over the site is a] fine strategy,” she said.

In comparison, Long Island City is a dense urban area where Amazon’s expansion would have a much bigger impact on residents. The company can’t just negotiate with the mayor and governor. “If you’re bringing congestion and higher housing prices, you’ve got to get buy-in from the local community,” Wachter said. Amazon didn’t do enough reaching out to the locals. “They were not at the table.”

Riggs agreed. “You have to be working with local and state governments, and particularly listening to the constituents you’re going to impact,” he said. “Without listening to these constituencies, I do think it is going to be hard for companies to continue to expand at the rate they are.”

Amazon could have looked at the example set by other companies such as Genentech, Google and Facebook, which have been more active in partnering with locals and even investing in these communities, Riggs said. This is something “that is a good takeaway, not just for Amazon but also for other corporations.”

“Without listening to these constituencies, I do think it is going to be hard for companies to continue to expand at the rate they are.” –Billy Riggs

It Could Have Worked Out

Wachter said Amazon, being “quite a sophisticated company” could probably have made a deal work, if it persevered through the issues. Perhaps adding an affordable housing component and upgrade of the impacted subway stations could have greased the wheels with locals. New York Mayor Bill de Blasio made a similar point in an opinion piece in The New York Times. “There was a clear path forward” if Amazon took steps to address the concerns of critics. “Instead, Amazon proved them right. Just two hours after a meeting with residents and community leaders to move the project forward, the company abruptly canceled it all.” Amazon decided to “take its ball and go home,” he wrote.

But de Blasio “had no choice but to position it that way,” Wachter said. “He’s trying to, and rightfully so, be apologetic almost for his own constituency.” But she said this question must be asked: “Why didn’t he see this coming?” Perhaps “in the great hurrah of being picked [as one of Amazon’s headquarters] it was easy to miss [any misgivings of] ‘well, do we really want to be picked?’”

For Amazon, Wachter noted, its decision to quit New York could be boiled down to this: “They don’t want to be held hostage anywhere. That’s their message. That’s why they started this [search for a second headquarters] in the first place in terms of moving out of Seattle.” Last year, Seattle passed and later repealed a “head tax” law that would have assessed $275 per employee at companies making more than $20 million a year. “So why would [Amazon put themselves] in a situation where they have to give up more? That’s the message they’re sending.”

But don’t count New York out just yet. “New York is not out of the game,” Riggs said. “Amazon may still invest in job growth in New York. It’s important to keep in mind that [the state] actually demonstrated that they can play ball with Silicon Valley. [The $3 billion in tax incentives] were already existing in the books.… Those tax breaks are still there.” Wachter thinks Amazon’s growth will be stealthy, “more like Google and Apple, which are expanding in New York, but you don’t see any headlines around that.” In the end, “Amazon cannot ignore New York,” she said. “Over the longer run, New York absolutely will gain jobs, not the [deal’s] 25,000, but they absolutely will gain Amazon jobs.”

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