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For Amazon HQ2 deal, Atlantic Yards serves as a warning

Official projections deserve skepticism, scrutiny

November 15, 2018 By Norman Oder Special to the Brooklyn Daily Eagle
Photo courtesy of Gov. Cuomo's office
Photo courtesy of Gov. Cuomo's office
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The plan for a new Amazon complex in Long Island City, Queens, arrived this week with huge fanfare — at least 25,000 jobs! (over ten years). But we must remember that, despite gauzy estimates about public benefits, nothing is certain. So promises of jobs and tax revenue deserve deep scrutiny and continued oversight.

Those are lessons from the Atlantic Yards plan that gave us Barclays Center in Brooklyn, which — though less an office development than arena-plus-housing one — went through the same process touted for Amazon by Gov. Andrew Cuomo and Mayor Bill de Blasio.

That process is overseen by Empire State Development, or ESD, a state authority answerable to the governor. If Atlantic Yards is a guide, ESD will be quite accommodating to Amazon, willing to revise agreements and evade transparency.

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Avoiding local review

The state process allows ESD to override city zoning and avoid the city’s standard approval process, known as ULURP (Uniform Land Use Review Procedure), which requires a City Council vote and mandates hearings before community boards and the City Planning Commission.

Of course, the new Amazon headquarters, slated for a set of parcels on the East River, could go through ULURP: The sites are either privately owned or owned by the city, rather than on (partly) state land, which was the convenient excuse to hasten Atlantic Yards approval.

At a press conference Tuesday, Cuomo described the process breezily, saying ESD’s General Project Plan is done “in consultation with the city and the community, but it expedites the process… and here, the expedition factor was a factor in the competition.”

“There’s going to be a lot of community input in this structure,” de Blasio contended, then sounded very much like former Mayor Mike Bloomberg, who candidate de Blasio criticized in his 2013 race: “That said, you have a democratically elected mayor and a democratically elected governor saying we had an unprecedented opportunity to add to the number of jobs in this city and we were not going to let that slip through our hands.”

The mayor can talk out of both sides of his mouth. Though he now laments ULURP “comes with a very long, slow path and a lot of uncertainty,” this past August he said ULURP was “basically working.” Funny, even Bloomberg’s Deputy Mayor Dan Doctoroff, upon his departure, acknowledged, “If it happened again, and the state were to ask if I would encourage them to take Atlantic Yards through the ULURP process, I would say yes.”

A set of promises, not yet locked in

Amazon’s deal is outlined in the 32-page Memorandum of Understanding (MOU), dated Nov. 12 and signed by ESD, City Hall and the New York City Economic Development Corporation (NYCEDC). But such MOUs are the start, not the end, of negotiable deals. “We are going to ultimately have to reach real legal documents as a part of this process,” stated James Patchett, president of NYCEDC, at Tuesday’s press conference.

Consider the February 2005 MOU signed by the same government entities and Atlantic Yards developer Forest City Ratner. It doesn’t hold up well.

Atlantic Yards within a few years changed significantly, with a distinctly smaller arena and far less office space (and thus fewer “jobs”). The promised $100 million in direct city subsidies was doubled just after Atlantic Yards was first approved by ESD. The plan to negotiate “rent and other terms” if a second professional sports team moved to Brooklyn was ignored when the New York Islanders arrived.

So the key documents regarding Amazon haven’t yet emerged: We await the General Project Plan, which surely will be rubber-stamped by ESD’s board, then a crucial Development Agreement, which contains the fine print and, with Atlantic Yards, saw no public scrutiny until challenged in court.

Though ESD reapproved Atlantic Yards in 2009, estimating the project would take ten years, the Development Agreement signed shortly afterward gave the developer 25 years, until 2035. (A revised agreement in 2014 set a separate 2025 deadline for the project’s affordable housing.)

Another lesson from Atlantic Yards: We deserve not just a best-case scenario but a range of scenarios. Cuomo cited an economic impact study forecasting $27.5 billion in new state and tax revenue over 25 years from Amazon, thus producing a 9:1 return on investment, accounting for some $3 billion state and city subsidies. De Blasio called it “an astounding return on investment.”

What are the assumptions behind that? Another study surely would offer a range of possible outcomes. (And they haven’t even counted potential federal subsidies.) After all, Atlantic Yards jobs, tax revenues and affordability lag far behind estimates — only four of 15 towers are complete, after all — and we’ve never seen an official follow-up.

Subsidies, in context

The huge figure for state and city subsidies for Amazon have drawn ire, but state job subsidies come off the shelf, while city tax breaks would be available to any company outside Manhattan. (The state is offering $505 million, no small sum, to help with construction. The Daily News suspects it’s to defray the cost of union labor)

The question is why jobs subsidies exist in the first place, especially since, as economist Tim Bartik observed, New York’s subsidies are twice those the national average. After all, Amazon wanted New York because of its talent pool, and other tech companies have expanded in Manhattan without any tax breaks.

So if the subsidy package “costs us nothing” — as Cuomo contended, saying that the money only comes in response to Amazon’s spending — it raises the question about whether development would’ve proceeded without such subsidies. De Blasio’s response: The 25,000 jobs made this a special case. (Tell that to smaller companies, right?)

Read the fine print

Often a big benefit to a company is not a direct handout but curiously sweet terms and vague commitments toward public benefits.

Buried in the MOU is that, for part of its construction project, Amazon would pay $850,000 in annual rent, subject to inflation, for some public land in Long Island City. That sum, negotiated by the city for a project previously approved at that site, also reflects Amazon’s expenses to  relocate city agencies and build project infrastructure, so the fair value is maddeningly difficult to suss out. Still, the raw number seems low: For comparison, that’s how much a landlord recently asked of a bookstore in SoHo. Now, if Amazon is getting far more public assistance overall, and likely a bigger project, why wouldn’t the city try to drive a bigger bargain?

Cuomo’s press release also touts “the nation’s highest goal — 30 percent — for utilization of MWBEs,” or minority-and women-owned business enterprises. Indeed, the Incentive Proposal prepared by ESD requires Amazon to use “Good Faith Efforts” to achieve 15 percent MBE and 15 percent WBE participation.

But that doesn’t apply to all construction spending. That’s only as a percentage of $505 million in special ESD capital subsidies, not the total $3.686 billion project. Moreover, MWBE contracts do not necessarily translate into local benefits: The state’s database contains thousands of certified companies, many outside the city and even the state.

Former ESD Atlantic Yards Project Director Arana Hankin has pointed to the need to work with less-established MWBE contractors, not the “same handful of construction firms … used on every single project.”

When I tried to figure out whether Atlantic Yards had met its MWBE targets, it took more than a year for ESD to deliver documents in response to my Freedom of Information Law request. And I never learned whether the target percentage was met.

 

Will clawbacks work?

Another Atlantic Yards lesson is clawback, or getting government subsidies back if the developer fails to deliver. The affordable housing has come more slowly, and less affordably, than pledged, but the Development Agreement didn’t impose penalties.

“We’re believers in clawback,” de Blasio said at the press conference, but the “recapture terms” seem to have loopholes.

For example, the $1.2 billion in tax credits ($48,000/job) under the Excelsior Jobs program requires maintaining employment levels only through Jan. 1, 2029, just over 10 years from now.

Additionally, Amazon will get its annual share of the 15-year state construction grant if it achieves 85 percent — not 100 percent — of its annual job targets. If the job numbers decline below the total required in the previous two years, ESD can get back the grant funds. But that lasts only until Jan. 1, 2037, or roughly 18 years from now.

Essentially, while Cuomo and de Blasio tout economic benefits over 25 years, Amazon is only required to maintain those levels for 18 years at best.

ESD eases the way

Amazon’s project has provoked outrage from local councilmembers, good government groups and community organizations.   

How to balance that? According to Cuomo, the ESD process means a “Community Advisory Committee” that includes “representatives of the State, City and local elected officials.” With Atlantic Yards, that committee played no role of consequence.

I remember numerous ESD hearings regarding Atlantic Yards, which allowed members of the public to vent, providing the veneer of “community input” on a flurry of documents that denied reality, such as a study that considered sidewalk cracks and graffiti signs of blight, all to enable eminent domain.

ESD board members, volunteers appointed by the governor or serving ex oficio, are insulated from political pressure or rigorous preparation. Having attended numerous ESD board meetings regarding Atlantic Yards, I can’t recall a tough question or a dissenting vote.

So ESD faces inevitably contradictory interests of supporting economic development while protecting the public, and neighborhood, interest. With Atlantic Yards, the environmental review downplayed concerns about gentrification. Will ESD do the same with Amazon?

The scales should be balanced. Former ESD official Hankin, who reflected more critically on Atlantic Yards once she left her job, suggested, for example, “mandating third party advocates for local communities” facing megaprojects.

By contrast, de Blasio discounted public concern about process at the press conference saying, “I believe in the end most everyday New Yorkers look at the bottom line.”

What does that even mean? How can the public be expected to gauge return on investment — the bottom line — when even those responsible for the deal are more concerned with results than details?

Asked why the New York incentive package was worth twice as much per employee compared with the one in Virginia, where taxes are lower, Cuomo said he didn’t know how it was calculated. “There’s all sorts of ways to work these numbers,” he said.

That’s for sure. Ultimately, neither he nor de Blasio will be around to do that math, while future governors will have ESD at his or her disposal. The public will have to push for the sunlight this deal merits.

Brooklyn journalist Norman Oder writes the Atlantic Yards/Pacific Park Report, a watchdog blog, and is working on a book about the project

 

 


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  1. Nomcebo Manzini

    This is a wonderful article – no surprise, given the work the author has done over a period of years in connection with AY!

    The lack of transparency, of course, goes against current “best practice,” and certainly makes even somebody HOPING for a good outcome pretty wary about how the costs and benefits will shake out.

    I’d only add that this WAS a kind of auction – certainly a contest. Amazon seems to be a much more “enlightened” employer than Wal-Mart, but I suspect that it’s mostly a calculation that a talented computer person can generate profits at a higher multiple of a $150K salary than 5 or 10 Wal-Mart workers together can on a similar total outlay. Heck, that’s the way business works. But somehow, the destruction of small business jobs and wealth (y’know, the Mom & Pop store that funds – over many years – first generation college kids) seems to have been overlooked. Cuomo may have liberal roots, but his lifestyle has long been Clintonesque-Bushesque. DiBlasio, on the other hand, still pretends to be “well left” of center. Some might talk in terms of “betrayal,” at least of a so-called set of values. (Yes, it would be hard to count the number of lost NY jobs going forward that Amazon directly & indirectly causes, but it won’t be a small number. Similarly, while employing thousands of new tech workers, hundreds of FUTURE AMAZONS won’t start up in NYC. It all boils down to this – nobody would argue that NYC isn’t doing well – for all but the bottom third, say! This IS a “game changer,” and not for the better. That bottom third will be WORSE OFF, … and truly, 95% of the profits are headed OUT of NYC. The deal doesn’t stink – on its face – as bad as Foxconn snookered Wisconsin, but one can argue that that’s just first-rate packaging and its very opaqueness!)

    Last, I’m not sure the author comes down hard enough on the TOTAL set of inducements that brought Amazon to NYC – things like “infrastructure upgrades” that will, no doubt, be dismissed with “We had to that anyway.”

    Nonsense. LIC (just as downtown Brooklyn) HAS generated billions in profits for Real Estate & Construction firms, … but after 20 years, MAYBE, the G train will get an extra 2 cars and join the 30 other lines typical length … 30 years after the fact.

    Ditto, the #7 train, which has the look of the 3rd Avenue El 75 years after that was torn down.

    Only NOW … maybe Amazon insisted on upgrades, … only they’re conveniently nowhere in writing, so the deal looks better than it is.

    And – from day one – with the 2 most unlikely table-mates since Arafat & Rabin – the deal looked like what Amazon has built its gargantuan fortune on – Heads I win/ Tails you lose!

    November 30, 2018 at 7:19 am
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