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Why New York Is Paying Amazon $3 Billion to Do What Google Will Do for Free
The Most Expensive Mile of Subway Track on Earth
The idea is that it’s very important that Amazon is going to Queens, and that by doing so, it will serve two key development goals for the city: moving office development out of the congested Manhattan core, and building a tech cluster that can challenge Silicon Valley.
Before I get into the good argument, I need to address one of the bad arguments. And I need to note, the subsidy package Amazon has been promised is not $1.5 billion, even though that’s a number a lot of people are throwing around. It’s closer to $3 billion — $1.7 billion from the state and a further $1.3 billion from the city.
That amounts to over $100,000 per job, paid over a period of more than ten years. Since each job will pay about $150,000 a year, you can think of the subsidy package as roughly equivalent to forgoing nearly all the personal income tax that would be collected on Amazon workers’ salaries over the subsidy period — an expensive proposition.
Of course, Governor Andrew Cuomo argues you shouldn’t think of it this way at all. “It costs us nothing,” he said at a press conference Wednesday — since, he contends, we are only forgoing taxes we wouldn’t get at all if Amazon didn’t come here in the first place. He says we will make back $9 for every $1 in tax forgone, give or take.
The problem with this analysis is it assumes all the economic activity we’re buying with the subsidy package wouldn’t happen without the subsidy package. And that’s not true. Google’s impending expansion in Manhattan — where it will develop a campus nearly as large as the one Amazon plans — shows a mega–tech firm might locate here even if you don’t give it billions of dollars.
Plus, when we do bring Amazon in, it will tend to crowd out other businesses and especially other people that might have located where Amazon is going. New York is crowded — there’s more demand for housing than supply, and the number of top development sites is limited — so the case that subsidized economic development means more net economic activity is much weaker here than it might be in, say, Cleveland.
Amazon’s move to Queens is sure to significantly increase rents and home prices in the western part of the borough. That’s great news if you already own a home there. But their move will make it more expensive for people who don’t work for Amazon to live in Queens, and will therefore make it more difficult for some other firms to expand and hire in New York.
So, “actually this is free” is not the good argument
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But: Is that an important goal? Does New York need to be the leader in everything, even if that drives up rents for people who don’t work in the tech industry? And even if strengthened core office districts outside Manhattan are an important planning goal for the city, is it worth paying $3 billion just to bolster one of them?
I think the answer is pretty clearly no.
“The city seems to think — and the state seems to think — that we’re still in the 1970s, where our big problem is that large employers are fleeing the city and we need to maintain some kind of tax base at any cost,” says Nicole Gelinas, a senior fellow at the conservative Manhattan Institute, where she focuses on urban economics and finance.* “Rather than chase down every last job, like it’s some kind of jobs crisis, we should be really looking at the real crisis, which is infrastructure: collecting all of the taxes we have a right to from these companies and using that to build infrastructure.”
Gelinas gets at the real tragedy of development in New York: Our major capital projects cost about five times what they should, and that has paralyzed our ability to add capacity to move commuters in and out of Manhattan.
A much-needed project to add two railroad tracks connecting Penn Station to New Jersey stands frozen by President Trump’s political vendetta against Senator Chuck Schumer — a situation that is only possible because construction costs here are so outlandishly high that we, the wealthiest city in the western hemisphere, cannot afford to build our own damned tunnel.
If we could find a way to build subway tunnels affordably, we wouldn’t need to worry so much about the need to move more offices out of Manhattan — we could just move more workers into and out of Manhattan every day.
But here we are: Subways in Manhattan are so clogged, the city has decided it must find a way to get a major employer to fall in love with Queens, and so along with the state it’s handing out billions of dollars in an effort to achieve that goal.
The Most Expensive Mile of Subway Track on Earth
Why Is New York Different?
New York’s struggles come as transit construction is booming around the world. At least 150 projects have been initiated since 1990, according to a recent study by Yale University researcher David Schleicher.
The approximate average cost of the projects — both in the U.S. and abroad — has been less than $500 million per track mile, the study concluded.
“There was one glaring exception,” Mr. Schleicher said. “New York.”
That exception has not gone unnoticed. The independent online journalist Alon Levy first noted the M.T.A’s high construction costs, and 28 City Council members urged officials to research the issue in October.
Mr. Lhota responded by defending the costs. He said in a letter, “There are unique challenges that contribute to high construction costs in New York City in general, and for M.T.A. projects in particular.”
Mr. Lhota listed 10 explanations, including aging utilities, expensive land, high density, strict regulations and large ridership requiring big stations.
To evaluate those arguments, The Times brought the list to more than 50 contractors, many of whom had worked in New York as well as in other cities. The Times also interviewed nearly 100 current and former M.T.A. employees, reviewed internal project records, consulted industry price indexes and built a database to compare spending on specific items. And The Times observed construction on site in Paris, which is building a project similar to the Second Avenue subway at one-sixth the cost.
The review found evidence for one of the issues cited by the M.T.A.: Because most countries have nationalized health care, projects abroad do not have to fund worker health insurance. That might explain a tenth of the cost differences, contractors said.
But the contractors said the other issues cited by the M.T.A. were challenges that all transit systems face. Density is the norm in cities where subway projects occur. Regulations are similar everywhere. All projects use the same equipment at the same prices. Land and other types of construction do not cost dramatically more in New York. Insurance costs more but is only a fraction of the budget. The M.T.A.’s stations have not been bigger (nor deeper) than is typical.
“Those sound like cop-outs,” said Rob Muley, an executive at the John Holland engineering firm who has worked in Hong Kong and Singapore and visited the East Side Access project, after hearing Mr. Lhota’s reasons.
In Paris, which has famously powerful unions, the review found the lower costs were the result of efficient staffing, fierce vendor competition and scant use of consultants.
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