February 13, 2019 / 8:35 PM / in 10 days

Breakingviews - Amazon can afford to give Big Apple one more shot

General view of Gantry Plaza State Park, in Long Island City, where Amazon.com is reportedly considering as part of its new second headquarters, New York, U.S. November 7, 2018. REUTERS/Eduardo Munoz

NEW YORK (Reuters Breakingviews) - New Yorkers aren’t known for their avoidance of conflict. Amazon has waded into a spat with the city over incentives it won in return for choosing New York as the location for half of its second headquarters, known as HQ2. The fact that other big companies have created jobs without such fanfare weakens Amazon’s hand, but the Big Apple deserves one more shot.

State and city lawmakers have been scrutinizing the deal Jeff Bezos’ e-commerce giant made behind closed doors with Governor Andrew Cuomo and New York City Mayor Bill de Blasio. New York City Council members are concerned about the lack of independent analysis over the deal. State Senator Michael Gianaris, who represents the Queens neighborhood that Amazon selected, was nominated to a committee that could veto the agreement, which also includes a $2.5 billion investment from the company.

The $3 billion in incentives Amazon stands to achieve look generous, even if they are based on performance. Consider the $1.2 billion in tax credits through the Excelsior Jobs Program for the 25,000 jobs the company plans to add. That represents $48,000 per job, about six times more than what Morgan Stanley received between 2013 and 2015. While the comparison is rough, Apple got about one-tenth as much from Texas between 2012 and 2017.

Amazon doesn’t really need anything like what it’s getting. The $780 billion company is expected to generate $25 billion in pre-tax profit in 2020, according to I/B/E/S estimates from Refinitiv. Being close to a fertile market for talented young professionals is its own reward. And Google, the search engine that’s part of Alphabet, is investing $1 billion in a new campus in Manhattan and renting space elsewhere in the city, but hasn’t availed itself of goodies like the Excelsior program.

Bezos’ firm is considering walking away, according to Reuters and the Washington Post. But offering to halve the incentives would be more sensible. After all, New York has a reason not to let Amazon get away too easily: if the company’s plans come off, it will be the fifth-biggest private employer in the city, according to 2017 data from Crain’s New York Business.

More importantly, Amazon is negotiating the beginning of a relationship that could last for decades. If New York’s lawmakers are determined to make life tough, it’s a sign that Amazon is probably better off elsewhere.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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