ALBANY – New York isn't taking a conservative approach to how many jobs it's expecting Amazon to bring to New York City. In fact, it's just the opposite.
The state's estimate that Amazon's newly planned Queens headquarters will bring in $27.5 billion in new tax revenue is based on the tech giant hiring 40,000 people — 60 percent more than the minimum the company committed to.
Gov. Andrew Cuomo's administration commissioned a study in October to assess how much money Amazon's move to establish a headquarters in the Long Island City neighborhood would pump into the state's coffers.
The findings were significant, helping justify up to $3 billion in taxpayer-backed subsidies. The study estimated $14 billion in new state tax revenue alone over the next 25 years, separate from New York City's estimate of $13.5 billion in new city revenue.
The state-backed analysis, however, is based on a huge assumption: That the major online retailer and cloud-computing giant will bring 40,000 jobs over 15 years to its new New York headquarters.
In actuality, Amazon has committed to bringing 25,000 jobs to Queens over 10 years while dangling the possibility — not a firm pledge — of another 15,000 five years later, according to its deal with the state.
By focusing only on 40,000 jobs, it pushed the revenue estimates much higher than if the study was based on Amazon meeting but not exceeding its minimum 25,000-job commitment.
"I am here to confirm that New York will be home to one of Amazon's new headquarters and more than 25,000 new, high-paying jobs over the coming decade with room to grow," John Schoettler, Amazon's vice president for global real estate, said Tuesday.
State defends analysis
Robert Mujica, Cuomo's budget director, defended the decision to only examine the high end of Amazon's deal with the state, arguing that Amazon's buildout schedule suggests the company will exceed the 25,000 jobs.
He noted Amazon will get less than the full $3 billion in incentives if they don't exceed 25,000 jobs; the subsidies are based only on the jobs created and how much Amazon invests into the facility.
For example, a cash grant from the state would be $325 million if Amazon hits 25,000 jobs. If it hits 40,000, the grant would increase by $180 million.
"We actually think that they're going to go higher," Mujica said in an interview with the USA TODAY Network's Albany Bureau.
"If you look at the amount of square footage they're talking about — the 8 million square feet — that's actually scaled for 40,000 jobs. So that's actually the reality."
Cuomo and New York City Mayor Bill de Blasio, both Democrats, have relied in part on numbers from the study to repeatedly claim the state and city are in line for a 9-to-1 return on the Amazon deal: $27.5 billion in revenue for $3 billion in grants and tax breaks.
The study, which was conducted by consultant Regional Economic Models Inc., or REMI, only looks at the state's proposed incentives (up to $1.7 billion) and estimated revenue (about $14 billion) over 25 years.
A separate study assessing $1.3 billion in city tax breaks and its estimated $13.5 billion in revenues was conducted on behalf of the New York City Economic Development Corporation, which did not respond to several requests for a copy.
"This is a 9-to-1 ratio, and the state doesn't believe we've ever done an investment program with that high a ratio," Cuomo said Tuesday.
"So we're very excited about it."
What the study does, doesn't do
Peter Evangelakis, the study's lead author, said REMI was provided information on Amazon's job targets and the incentives offered by Empire State Development, the state's economic-development branch.
It plugged those numbers into its modeling software to come up with estimates on the benefits of Amazon's construction and operating phases.
Those estimates include both direct benefits — such as the taxes paid by new Amazon employees — and the indirect benefits, such as jobs created by nearby businesses who see an uptick in foot traffic.
In all, the study estimates the Amazon headquarters would create more than 107,000 direct and indirect jobs and add $186 billion to the gross state product.
"I would say we were trying to play it as down the middle as we could," Evangelakis said. "We wanted to come up with the most reasonable estimate that we could using the data that we had and our modeling software."
E.J. McMahon, founder of the Empire Center, a fiscally conservative, Albany-based think tank, said the REMI study and others like it that don't take into account the tax revenue that alternative uses of the site would generate.
If Amazon weren't coming, McMahon said, at least some portion of the Long Island City site would likely be developed by someone else, which would have some level of an economic impact.
"In other words, it simply treats the alternative to the Amazon investment in this neighborhood as zero investment," McMahon said of the study.
Mujica said that concern is overblown.
Much of the Amazon site had been slated for housing, which wouldn't have near the impact on the economy that Amazon will, he said.
Rate of return
The REMI study, meanwhile, suggested the state would see a roughly 6-to-1 return on its Amazon investment — less than the 9-to-1 figure cited repeatedly by Cuomo, which includes city and state revenue.
The study's ratio took into account a "discount rate," which is a widely used calculation in examining long term costs and benefits. It's meant to account for inflation, lost investments, interest rate-changes and other things that devalue a dollar over time.
When Cuomo touted the revenue estimate publicly, however, he used the current value of the money, not the discounted rate used in the study.
That helped push the state's estimated return-on-investment to better than 8-to-1. Including the city's return pushed it to 9-to-1, Mujica said.
Mujica defended the state's decision to focus on the present value of the tax breaks and revenues rather than the discounted rate.
That makes it easier to compare the revenues with the current value of the incentives included in the Amazon deal, he said.
"We said, fine, let's stick to the nominal value numbers," Mujica said. "That's what's in the (memorandum of understanding), that's what everyone knows."
Jon Campbell is a correspondent for the USA TODAY Network's Albany Bureau.