The November 15th Business Section of the New York Times carried the unintentionally insightful headline “Amazon Site is Upscale and ‘Distressed’’’. The Times story dealt with a provision added to last year’s GOP tax cut that created ‘Opportunity Zones’ meant to draw investment to neglected neighborhoods. Inserted by South Carolina Senator Tim Scott, the zones allow investors complying with regulations still being worked out by the Treasury Department to reduce their capital gains tax burden. The idea is that pouring unrealized capital gains into funds that invest in real estate in areas that have opportunity zone status can essentially save investors as much as 15 percent of the taxes they would have owed on their investment gains. If they hold an investment in an opportunity zone for more than a decade, they avoid all taxes on any gains that the investment produces.
This tidy arrangement has many pitfalls. An obvious one is what happens if a neighborhood that could hardly be called neglected gets declared one of these opportunity zones. It just so happens that earlier this year New York State designated the Long Island City waterfront in Queens as an opportunity zone, the same area where Amazon has conveniently agreed to build one of its new headquarters. Therefore Amazon itself could benefit from the designation by starting an opportunity fund to buy real estate in the zones surrounding the office. This could be counted as a further Amazon subsidy. However the bigger windfall will flow to property owners already in the zone and to the investors who will now race in to build and open businesses in the area.
The thing is the neighborhood is already flooded. No other neighborhood in the country in recent years has added as many new apartments as Long Island City. According to a study by RENTCafe, since 2010 Long Island City has added nearly twice as many apartments as Downtown Los Angeles, the neighborhood that was second of the list. The average income along the waterfront is $138,000. So far from being a trigger of revitalization for a poor neighborhood, the new provision will only add rocket fuel to an already white hot process of gentrification.
Yet the Timesbeing the Times its analysis doesn’t match the depth its headline. Geographer Neal Smith brilliantly described the ‘see-saw’ movement of capital, whereby capital is reinvested in areas that had been stigmatized and suffered disinvestment. The withdrawal of capital creating what Smith called a ‘rent gap’, i.e. the potential rent of a property being greater than the actual ground rent being collected, or to put it even simpler- a place becomes cheap enough to become of valuable investment. Back in 1985 Peter Marcuse published an influential essay titled Gentrification, Abandonment, and Displacement: Connections, Causes, and Policy Responses in New York City. Marcuse opened with the observation that ‘Abandonment and gentrification are polar opposites. Abandonment results from demand declining to zero, gentrification from high and increasing demand. Yet, in New York City and elsewhere the two processes are occurring simultaneously.’ The real estate boom in Long Island City mirrors the still earlier and more famous makeover of nearby Williamsburg, Brooklyn (still ranked sixth on the RENTCafe study for new apartments). Both were longtime manufacturing strongholds, particularly on their waterfronts, where ongoing disinvestment from manufacturing (i.e. abandonment), pushed along by city rezonings rapidly has transformed the waterfronts into luxury products with expansive views of the East River.
The Amazon deal was pushed through something called the Empire State Development Corporation, a ‘public benefit’ corporation, meaning the City Council or State Assembly will not have a say in its approval. This is an old game in New York. Back in the late 1960s Nelson Rockefeller as Governor created 230 such entities bringing into existence boondoggles as Empire State Plaza and the World Trade Center, the latter, built on property owned by the Port Authority, wiped out Radio Row and 30,000 jobs and orchestrated the transfer of the New York’s primary port to New Jersey, the accomplishment longed for by elite planners since the late 1920s. For much of their history the towers were full of unprofitable state agencies and were a drain city’s coffers. By 1979 the World Trade Center cost $700 million in lost real estate taxes. Closer to the present day and we got the ghastly Barclays Center and the money devouring Hudson Yards project.
The Amazon deal includes $1.2 billion in credits through the state’s Excelsior job incentive program: straight up subsidies where every dollar spent on wages, the state gives 6.85 cents back to the company. If Amazon comes through with the 25,000 jobs it is promising over the next ten years, the subsidy will be the full $1.2 billion, credits will be pro-rated if less; $325 million in capital grants to repay Amazon’s construction costs over 15 years (up to $505 million if Amazon hits 40,000 jobs); a helipad onsite; Amazon will pay the city $850,000 in rent (scaling up with inflation), the same rent as was set when the site was to be apartment buildings; the state will take over the land thus letting Amazon avoid paying property taxes. Amazon will pay the equivalent though half will go to an “Infrastructure Fund” to be used on infrastructure directly related to the project, only half will go to the city’s general fund. Estimates to how much New York is paying Amazon per job estimate from about $50,000, by economist Tim Bartik from the Upjohn Institute for Employment Research- factoring in the indirect jobs such as the food trucks that will feed Amazon’s engineers, to $100,000 by Business Insider editor Josh Barro. All in all Amazon figures to rake in $3 billion worth of subsidies.
Amazon of course spent over a year dangling the prospect of HQ2 in front of every city in the country. The business embarrassed itself on a near daily basis covering the charade. The $50,000 estimate per job was actually far less than the largesse offered by far more desperate places such as Newark ($7 billion) and Montgomery County ($8.5 billion). The absurdity of this state of affairs was summed up nicely by Derek Thomas in The Atlantic: every year American cities and states spend up to $90 billion in tax breaks and cash grants to urge companies to move among states- more than the federal government spends on housing, education, or infrastructure. A particularly nasty illustration is the Border War between the Kansas and Missouri sides of Kansas City. A billion dollars has been spent enticing companies with no net new jobs while upsetting the commutes of 10,000 workers.
The same week the Amazon deal was announced a federal judge was invalidating a settlement between the city’s housing authority and the U.S. attorney’s office over conditions in the city’s public housing. Earlier this year it was revealed that four out of five public housing residents in New York, 323,098 people, went without heat at some point during last year’s particularly brutal winter. The average heat outage lasted 48 hours. Overlapping the trouble of ageing, malfunctioning boilers an even worse scandal was taking shape. On November 14, 2017 the city’s Investigation Department released a report describing that the Housing Authority knew that its inspectors were not conducting apartment inspections for lead paint in violation of federal law and that then Housing Authority chairwoman Shola Olatoye had falsely signed off on paperwork certifying that the inspections had been completed. Analysis by the New York Daily News shows that from 2012 to 2016 820 children tested positive for elevated lead levels of 5 to 9 micro-grams per deciliter of blood (The city, using a higher standard of 10 micro-grams, originally only admitted 19 children had tested for elevated blood-levels in the past decade).
The judge, William H. Pauley, citing what he called the ‘breathtaking scope’ of squalid living conditions in New York’s public housing conditions, strongly suggested that the federal government takeover control (the city had agreed to a federal monitor as part of the settlement). However it is difficult to see New York’s public housing in the hands of Ben Carson inspiring an overdose of confidence.
In the shadow of the Amazon site stands the Queensbridge Houses. Opened in 1939, the famous, or long derided as ‘infamous’, 96 building Queensbridge Houses are the largest public housing project in North America. The houses are famous for having a legitimate claim to being the birthplace of hip-hop, though the South Bronx also has its claim to that throne, and infamous for being an area that many went out their way to avoid. Queensbridge native Nas may have opened his legendary Illmatic album with references to MAC-10s and stick-up kids but such things have become much less prominent in the years since. Thanks not only to security improvements but also to local community efforts, including one local group named 696 Queensbridge, crime continues to decline. The neighborhood recently went two years without a single homicide. Lest it be said that safety only comes from militarized tedium the past 2016 featured only 11 recorded stop-and-frisks. 2015 had 15- this in contrast to the insane 2365 stops in 2003.
New York Housing Authority faces annual operating deficits of tens of millions of dollars along with nearly $32 billion in unmet capital needs largely due to divestment by the federal government. In other words, while public housing in New York is fulfilling its original mandate of providing safe, affordable housing for over 400,000 tenants it is being neglected on a local level and losing its funding on a federal level. If the city’s housing projects have long been despised by the middle class as vectors of crime and disorder, and the bane of critics as far back as Jane Jacobs for their shabby modernist design, they have become a bulwark of affordable housing.
The poverty rate at Queensbridge is roughly 50 percent; the median salary comes in below $20,000. Residents there wouldn’t figure to benefit much from Amazon’s presence. The city has no deal with Amazon for local jobs, because according to Alicia Glen, New York’s deputy mayor for housing and economic development (former chief of Goldman Sachs’ of Urban Investment Group) and Mayor deBlasio’s point person on the Amazon deal, $3 billion apparently doesn’t buy it: ‘We have no statutory authority to require local hiring. That’s another thing people need to understand. You cannot require a company to hire locally.’
Meanwhile New York’s homeless population has hit 60,000, including 10 percent of the city’s school children. All in all half the city’s population is considered poor or near poor. The argument that the wealth of tech companies, and their much coveted big spending, tax paying engineers, is only positive for a city strains credulity. Though New York was the first city to impose a cap on Uber, halting the issue of new for-hire vehicle licenses for 12 months in the aftermath of several high publicized suicides by medallion cab drivers, the city is still jammed with overworked Uber drivers. The awful conditions in Amazon warehouses are well documented (Amazon has a distribution center in Staten Island), and despite Amazon recently being shamed to raising pay to $15 per hour (offset by cutting other benefits), its warehouse jobs have a ways to go. The tech industry remains a pillar of subcontracting and anti-unionism. Every ballyhooed innovation in recent years, from just-in-time inventory to the overhyped ‘gig economy’ has hit the working class directly.
The past few years there has been much ink spilled about the ongoing sparring match between Governor Cuomo and Mayor deBlasio, with Cuomo allegedly representing the pragmatic ‘centrist’ wing of the Democrats, with deBlasio being the ‘progressive’. If such nonsense was in any way credible before, perhaps the sight of both men together at the same press conference fronting the Amazon deal will break the spell. New York remains very much a tale of two cities, with the same half still calling most of the shots.