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Political Tensions Facing Amazon HQ2 Finalists Emerge in New Jersey

Stung by Critics, Newark City Council Defends $2 Billion Share of $7 Billion in Overall Amazon HQ2 Incentives
July 12, 2018
The city of Newark has proposed a mix of existing and planned downtown properties, including Two Gateway Center (pictured above), for Amazon’s HQ2.

The financial and political tension emerging as 20 regions across the country compete for Amazon's second headquarters is spilling over in Newark, New Jersey, where city leaders are defending their offer of $2 billion in tax breaks for the internet retailer that critics say the city can't afford.

The Newark City Council outlined the results Wednesday of what it described as a "third-party independent analysis" conducted by the Anderson Economic Group of Chicago that officials say shows the benefits outweigh the overall $7 billion in financial breaks from both the city and state. The study was commissioned and paid for by the Community Foundation of New Jersey, a Morristown, NJ, organization that educates residents on charitable giving, according to the city.

The debate reflects the concern among critics that Amazon's search for a site may prompt some state and local governments to overspend in hopes of luring the $5 billion Amazon headquarters project. Elected officials are betting the project will spur more local demand for commercial real estate, boost nearby tax receipts and add jobs.

 Read More CoStar Amazon HQ2 Coverage 

Many of the 20 finalists nationwide have heeded Amazon's request to not speak about the process or their offers, but those that have appear to fall into two camps. South Florida, Boston and Toronto are believed to have forgone offering large financial packages in their respective bids, in stark contrast to some finalists, such as Maryland, New Jersey and Philadelphia, that have made no secret of their aggressive financial incentive packages.

In New Jersey, Newark's city council cited the Anderson Group analysis in announcing on Wednesday that it had authorized $2 billion in tax incentives as part of the city's bid. Newark has proposed a mix of existing and planned downtown properties, including Two Gateway Center, all clustered near each other, for Amazon’s HQ2. The Newark governing body passed enabling legislation authorizing the previously announced incentives, which are part of an overall $7 billion package being offered to Amazon by the city and the state of New Jersey.

That offer, the largest of all the ones made public by the Amazon HQ2 finalists, has drawn criticism from some circles. Critics have questioned whether the offer was too rich and was selling the city and state short, because Newark is already in the midst of an economic revival. Some skeptics maintain that the benefits won’t offset the cost to Newark and New Jersey, and that it will gentrify the city and uproot residents.

"It’s concerning because the surge in subsidies and the rosy projections that they’re making has done damage to the state in the past, done damage to the state’s economy," said Sheila Reynertson, senior policy analyst for New Jersey Policy Perspective, a progressive think tank.

"And we’re passing these bills on to future taxpayers, and those just keep getting larger and larger," she said. "It’s concerning to see that Newark is also jumping on the bandwagon with this idea that at a time when reining in tax breaks for large corporations should be the focus, and to maintain focus on tried-and-true economic development strategies -- things like workforce development and job training, and excellent education system, excellent infrastructure systems. Those are the investments that really do get a much better return on the state’s investments than tax subsidies."

The Anderson Economic Group concluded that "the financial and job benefits of Amazon choosing Newark far exceed the dollar amount of the incentives," the city said in the statement it issued. Specifically, Anderson found that:

  • Upon completion, HQ2 would create at least 12,500 direct and indirect jobs for residents. Newark averaged about 8,751 unemployed residents in 2017.

  • HQ2 would increase Newark household earnings by $1.2 billion annually starting in 2035.

  • Amazon HQ2 locating in Newark would result in more than 135,000 net new direct and indirect jobs in New Jersey, increasing state household earnings by $11.4 billion.

  • By 2035, Amazon's HQ2 an annual net fiscal impact on the state would include a $599 million net increase in tax revenue and a $487 million increase in service costs.

  • By 2035, Amazon HQ2 would have a combined net fiscal impact of $41 million on the city, Newark Public Schools, and Newark Public Library, collectively. This includes an $80 million increase in tax revenue and a $40 million increase in service costs.

  • Amazon HQ2 would also have a positive net fiscal benefit on Essex County. By 2035, the annual impact would reach $41.3 million because of increased Payment In Lieu of Taxes and property tax revenue.

    In an email Jason Horwitz, director of public policy and economic analysis at the Anderson Economic Group, confirmed the Community Foundation hired his firm to do the analysis. Officials at the foundation couldn’t be reached for comment.

    While the new ordinances show the city’s commitment to attracting Amazon, they "also apply to any transformative project providing a similar number of jobs and investment," according to a statement issued by the city and Mayor Ras Baraka.

    "The City Council has brought Newark a giant step closer to being Amazon’s choice for HQ2," Baraka said in a statement. "The creation of 12,500 jobs for Newark residents, the added revenue to Newark families plus the added revenue to the city of Newark, Newark Public Schools and Newark Public Library make HQ2 a game changer in the transformation of our city."

    Amazon must commit to creating at least 30,000 new jobs and create investments of at least $3 billion over 20 years to qualify for these incentives, according to the city’s statement.

    One ordinance creates an accelerated process for land-use and permit approvals, and a second allows Amazon to receive a 100 percent payroll tax exemption for employees living in Newark and a 50 percent exemption for all other employees. The total payroll tax exemptions are capped at $1 billion over the life of the project, the city said.

    A third ordinance creating an additional category of "transformative headquarters" within the long-term tax exemption ordinance is also expected to pass, the city said.

    "I am proud to stand by the strong leadership of Mayor Baraka and all who are speaking in a clear and unified voice that Newark is ready to lead and win the Amazon bid," New Jersey Gov. Phil Murphy said in a statement. "Let there be no doubt: we are all in this together and Newark will continue to rise as one."
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