Amazon's HQ2 deal with New York might be in jeopardy — and it could mean that the state and city lose out on $27.5 billion in tax revenue (AMZN)

  • Amazon is reportedly reconsidering its decision to develop part of its second headquarters, also known as HQ2, in the Queens borough of New York City.
  • Some New York lawmakers have complained that HQ2 is not worth the roughly $3 billion in incentives the state and city have promised Amazon.
  • According to a study commissioned by New York Gov. Andrew Cuomo's office, Amazon's presence in New York City will generate $27.5 billion in tax revenue for the state and city, much more than the incentives.
  • But there are some caveats to the rosy picture painted by the study.

Amazon's huge move into New York City is suddenly looking like it's in jeopardy, and billions of dollars in tax revenue could be in the balance.

According to a report from the Washington Post, pushback from New York City and state politicians has forced Amazon to reconsider its decision to place a new campus in the city's Queens borough.

One of the biggest problems raised by lawmakers who oppose the development is the roughly $3 billion in tax incentives that the city and state offered Amazon.

On the other side, New York Gov. Andrew Cuomo and New York City Mayor Bill de Blasio have been enthusiastic supporters of HQ2 because the project, they argue, will bring in more tax revenue than the government is giving out in incentives, as well as increased economic growth.

RELATED: Amazon opposition in New York (WARNING: Gallery contains explicit language)

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Amazon opposition in New York (Gallery contains explicit language)
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Amazon opposition in New York (Gallery contains explicit language)
Demonstrators hold signs during a protest against Amazon outside of City Hall in New York, U.S., on Wednesday, Jan. 30, 2019. New York's city council held a hearing today to discuss the tax incentives behind Amazon's HQ2 deal and the potential impact it could have on the city. Photographer: Sangsuk Sylvia Kang/Bloomberg via Getty Images
George Miranda, vice president of the International Brotherhood of Teamsters, left, and Stuart Appelbaum, president of the Retail Wholesale Department Store Union (RWDU), speak during a protest against Amazon outside of City Hall in New York, U.S., on Wednesday, Jan. 30, 2019. New York's city council held a hearing today to discuss the tax incentives behind Amazon's HQ2 deal and the potential impact it could have on the city. Photographer: Sangsuk Sylvia Kang/Bloomberg via Getty Images
Stuart Appelbaum, president of the Retail Wholesale Department Store Union (RWDU), center, speaks during a protest against Amazon outside of City Hall in New York, U.S., on Wednesday, Jan. 30, 2019. New York's city council held a hearing today to discuss the tax incentives behind Amazon's HQ2 deal and the potential impact it could have on the city. Photographer: Sangsuk Sylvia Kang/Bloomberg via Getty Images
NEW YORK, NY - JANUARY 30: New York's city council holds its second hearing questioning the city and state's deal that gave Amazon three billion dollars to move a second headquarters to Long Island City in Queens. City council members criticized Amazon for its anti-union policies and its alleged cooperation with immigration authorities. (Photo by Andrew Lichtenstein/Corbis via Getty Images)
NEW YORK, NY - JANUARY 30: New York's city council holds its second hearing questioning the city and state's deal that gave Amazon three billion dollars to move a second headquarters to Long Island City in Queens. City council members criticized Amazon for its anti-union policies and its alleged cooperation with immigration authorities. (Photo by Andrew Lichtenstein/Corbis via Getty Images)
NEW YORK, NY - JANUARY 30: New York's city council holds its second hearing questioning the city and state's deal that gave Amazon three billion dollars to move a second headquarters to Long Island City in Queens. City council members criticized Amazon for its anti-union policies and its alleged cooperation with immigration authorities. (Photo by Andrew Lichtenstein/Corbis via Getty Images)
NEW YORK, NY - JANUARY 30: New York's city council holds its second hearing questioning the city and state's deal that gave Amazon three billion dollars to move a second headquarters to Long Island City in Queens. City council members criticized Amazon for its anti-union policies and its alleged cooperation with immigration authorities. (Photo by Andrew Lichtenstein/Corbis via Getty Images)
NEW YORK, NY - JANUARY 30: New York's city council holds its second hearing questioning the city and state's deal that gave Amazon three billion dollars to move a second headquarters to Long Island City in Queens. City council members criticized Amazon for its anti-union policies and its alleged cooperation with immigration authorities. (Photo by Andrew Lichtenstein/Corbis via Getty Images)
NEW YORK, NY - JANUARY 30: Protestors rally against Amazon and the company's plans to move their second headquarters to the Long Island City neighborhood of Queens, at New York City Hall, January 30, 2019 in New York City. Some Queens community members and activists say Amazon's move to Queens will further gentrify neighborhoods in the area and add more stress to an already struggling infrastructure system. (Photo by Drew Angerer/Getty Images)
NEW YORK, NY - JANUARY 30: Protestors rally against Amazon and the company's plans to move their second headquarters to the Long Island City neighborhood of Queens, at New York City Hall, January 30, 2019 in New York City. Some Queens community members and activists say Amazon's move to Queens will further gentrify neighborhoods in the area and add more stress to an already struggling infrastructure system. (Photo by Drew Angerer/Getty Images)
NEW YORK, NY - JANUARY 30: Protestors rally against Amazon and the company's plans to move their second headquarters to the Long Island City neighborhood of Queens, at New York City Hall, January 30, 2019 in New York City. Some Queens community members and activists say Amazon's move to Queens will further gentrify neighborhoods in the area and add more stress to an already struggling infrastructure system. (Photo by Drew Angerer/Getty Images)
Protesters gather in Lexington Ave, New York, US, on 19 December 2018, to say "No" to the Amazon "HQ2" decision. Organizers in northern Virginia, Nashville, and New York plan to protest the expansion of Amazon at meetings this weekand call for a community input process that has been noticeably lacking. (Photo by Karla Ann Cote/NurPhoto via Getty Images)
Protesters gather in Lexington Ave, New York, US, on 19 December 2018, to say "No" to the Amazon "HQ2" decision. Organizers in northern Virginia, Nashville, and New York plan to protest the expansion of Amazon at meetings this weekand call for a community input process that has been noticeably lacking. (Photo by Karla Ann Cote/NurPhoto via Getty Images)
Protesters gather in Lexington Ave, New York, US, on 19 December 2018, to say "No" to the Amazon "HQ2" decision. Organizers in northern Virginia, Nashville, and New York plan to protest the expansion of Amazon at meetings this weekand call for a community input process that has been noticeably lacking. (Photo by Karla Ann Cote/NurPhoto via Getty Images)
Protesters gather in Lexington Ave, New York, US, on 19 December 2018, to say "No" to the Amazon "HQ2" decision. Organizers in northern Virginia, Nashville, and New York plan to protest the expansion of Amazon at meetings this weekand call for a community input process that has been noticeably lacking. (Photo by Karla Ann Cote/NurPhoto via Getty Images)
NEW YORK, NY - DECEMBER 12: Activists, New York City politicians, and union members hold a press conference on the steps of City Hall to voice their opposition to a tax break deal given to Amazon, on December 12, 2018 in New York City. New York's mayor and governor offered Amazon significant economic incentives in order for them to build a new location in Long Island City, Queens. (Photo by Andrew Lichtenstein/Corbis via Getty Images)
DOWNTOWN MANHATTAN, NEW YORK, UNITED STATES - 2018/11/30: CUNY students, staff and allies held a rally outside Siebert Cisneros Shank & Co. in downtown Manhattan, protesting CUNYs Board of Trustees chair Bill Thompson for endorsing the Amazon HQ2 deal. The students called on Bill Thompson to withdraw his support for the Amazon deal immediately and instead advocate for the investment of the $2.7 billion promised to the company to be invested in the CUNY university system and its students. (Photo by Erik McGregor/Pacific Press/LightRocket via Getty Images)
DOWNTOWN MANHATTAN, NEW YORK, UNITED STATES - 2018/11/30: CUNY students, staff and allies held a rally outside Siebert Cisneros Shank & Co. in downtown Manhattan, protesting CUNYs Board of Trustees chair Bill Thompson for endorsing the Amazon HQ2 deal. The students called on Bill Thompson to withdraw his support for the Amazon deal immediately and instead advocate for the investment of the $2.7 billion promised to the company to be invested in the CUNY university system and its students. (Photo by Erik McGregor/Pacific Press/LightRocket via Getty Images)
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In fact, Cuomo's office said that the HQ2 project would bring in $27.5 billion in new tax revenue over 25 years based on two economic impact studies, one commissioned by the governor and another by the city. This would well exceed the amount of incentives given to Amazon. Of that amount, $14 billion in tax revenue would go to New York state and $13.5 billion could go to New York City, according to Cuomo's office.

Given that amount of revenue, Cuomo has touted the fact that the Amazon investment will bring in $9 in tax revenue for every $1 of revenue forgone due to the incentives.

"Amazon, by our current tax structure, would generate approximately $1 billion per year in new revenue," Cuomo wrote in a November op-ed defending the HQ2 decision. "Our proposal offered that, when and if those revenues are realized, the government would effectively reduce their $1 billion payment by about $100 million for a net to New York of approximately $900 million. New York doesn't give Amazon $100 million. Amazon gives New York $900 million."

But, based on the study, the advantages may not be as great at Cuomo makes it seem. Inflation will take a bite out of the value of the future tax dollars generated by HQ2. Put another way, $1 in tax revenue in 25 years will not be worth as much as $1 of revenue in 2019.

Since much of the tax revenue is realized later in the report's 25-year time frame, the New York state report estimates that HQ2 will bring in just under $9 billion in state tax revenue in 2019 dollars versus the promised $1.4 billion in state tax incentives. So, the report concluded, "the benefit-cost ratio is 6.3," well below Cuomo's promised 9:1 ratio.

Read more:The evidence is mounting that Amazon's New York HQ2 deal is in trouble

Critics of the study have also pointed out that the estimates are based on the idea that Amazon would bring in 40,000 jobs for HQ2 over 15 years. Instead, Amazon split its second headquarters between Northern Virginia and New York, so only 25,000 jobs would be coming to the Big Apple over the first 10 years.

The company also said that an additional 15,000 could come to Queens in the five years after the initial wave, but made no firm commitment.

In addition to the modeling issues, some experts have also pointed out that the study does not consider the alternatives for the area where Amazon is putting HQ2, and recent studies show that investing in preexisting, local businesses could be more economically stimulative than wooing new corporations.

On top of that, the study also does not account for the fact that the influx of workers will create liabilities for city beyond the incentives, such as increased trash collection and education costs. Critics also point to other externalities that could make HQ2 less attractive for New York City residents.

Whether the incentives are worth these costs will be a central part of the debate going forward, but Amazon may not wait around for lawmakers to untangle the complexities of the revenue benefits. According to the Washington Post, Amazon may soon make the decision whether or not to make the New York City investment.

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