Oct 3
2022
How Amazon plays the leverage game
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Cathy Rayhill was floored when she heard Amazon wanted to build a three-million-square-foot warehouse on Grand Island.
“It was completely inappropriate for our community, that was my first thought,” she said.
Rayhill envisioned Amazon’s trucks wearing down the island’s two sets of bridges to the point where the town would have to close them and raise taxes to fix them. Not only could the warehouse operation put the island’s infrastructure at risk, it could harm the environment — all for 1,000 jobs that would not pay much above the minimum wage.
Rayhill and her neighbors were outraged and began organizing against the project.
Perhaps you know what happened as a result: Amazon pulled out.
But what Amazon did next is part of a broader strategy the company has utilized as it has expanded into Western New York and other parts of the country: It simply went next door.
If one preferred location doesn’t work out, the company has options, and local officials are often eager to make a deal. That means tax breaks.
Amazon, as it’s pushed its two-day-or-less shipping promises over the past decade, has built warehouses across the country, seeking large tax breaks and other benefits along the way. That’s according to research from Good Jobs First, a nonprofit that tracks corporate subsidies.
Crucial to Amazon’s strategy, though, are local government officials who view their communities as stagnant, desperate, or both, and agree to give Amazon whatever it asks for. Local officials in Western New York have willingly and enthusiastically played into that strategy, awarding Amazon some of the largest tax breaks the company has ever received. Their towns, cities or counties are in desperate need of jobs and a bigger tax base, the officials argue, so if someone else says no to hundreds of Amazon jobs, they will say, “Yes, absolutely.”
To better understand how Amazon has expanded in Western New York in recent years, Investigative Post interviewed more than a dozen experts and local officials, reviewed hundreds of pages of documents detailing Amazon’s projects in Western New York and spoke with workers at some of the company’s Erie County facilities.
What emerged from that reporting is a portrait of the online retail giant that uses it considerable leverage against communities that are much less sophisticated or otherwise equipped to deal with the company. The result: The locals act as though they have little to no leverage.
But, some experts argued, it doesn’t have to be that way.
Amazon needs a presence in Western New York to meet its shipping promises to its customers, they argued, and the company has made clear in the past it locates its warehouses based on logistics and local labor pools, not tax subsidies. Plus, they said, zoning, environmental reviews and tax incentives are all political decisions, meaning local officials could exert more influence and control.
Russell Weaver, the director of research at Cornell University’s Industrial Labor Relations Buffalo Co-Lab, has observed Amazon’s expansion strategy and called it a “mutually destructive arms race.” Rather than companies competing with one another to locate in a particular place, towns and cities are now competing to give the best deal — in Western New York, tax breaks — to companies to locate within their borders.
In that kind of system, Weaver said, “the role of the public sector, at least on the local scale, has become to be a cheerleader or a marketer or a brander, rather than a visionary.”
“And so in that sort of environment, it’s either you compete, or you get looked over.”
Grand Island says no, Niagara says yes
When Amazon told Grand Island it was pulling out in August 2020, the Town of Niagara leapt to action. On August 11, a day before the news broke, Town of Niagara Supervisor Lee Wallace wrote a letter.
“On behalf of the Town of Niagara Town Board, I would like to take this opportunity to acknowledge our total support for Niagara County’s interest and pursuit of ‘Project Olive’,” Wallace wrote, noting that the town was “a definite prime location” for Amazon.
Wallace would later tell residents who spoke against the project that he had “some heartburn and concern” over Amazon’s impact on the town. That didn’t stop his advocacy for the project, however.
He noted a second time in the Aug. 11 letter — of which Investigative Post obtained a copy — that he and other town leaders were “fully on board and committed to assist in bringing this great project” to the town. He later helped Amazon avoid a full environmental review of its project, other records showed.
Wallace refused to comment for this story.
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It’s not clear why Amazon pulled out of Grand Island. An Amazon spokesperson wouldn’t say, only that the company was looking forward to being a “good neighbor” in Niagara County.
That’s left some local officials guessing at Amazon’s strategy for Western New York.
John Whitney, the Grand Island town supervisor, and John Cappellino, executive director of the Erie County Industrial Development Agency, both said Amazon’s representatives had raised concerns about fulfilling the local labor requirements. Whitney suggested that the public outcry and COVID-19 restrictions may have played a role in the project’s cancellation.
Whatever the reason, Amazon took its project over the county line rather than negotiate with Grand Island. And the Town of Niagara was ready to play ball.
Another letter Investigative Post obtained showed Amazon’s attorney, Kim Nason from the firm of Phillips Lytle, asking the town to appoint itself as the lead agency for the New York State Environmental Quality Review process, and to give the company a “negative declaration,” meaning the project would have no significant consequences on the environment. In essence, she had asked for town approval to skip a full environmental review.
Wallace and the other town board members said yes.
That was a big deal, environmental law attorney Arthur Giacalone said, because it meant no one gave a facility the size of 11 football fields a “hard look.”
Amazon, for example, submitted a traffic study to the town covering peak morning and evening commute hours, but not for a 24-hour period. That means the town approved the project without knowing exactly what kind of impact the massive, 24/7 facility would have on the roads it pays to maintain.
Nason didn’t respond to a request for comment.
That was just part of the warm reception Wallace and other officials — including the Niagara County Industrial Development Agency — gave to Amazon. The IDA, for example, approved $124 million in property, sales and mortgage tax breaks. At public meetings, neither town nor IDA officials asked any tough questions.
Mark Onesi, chairman of the Niagara County IDA, argued that had the town and county done anything differently, Amazon would have pulled out for another location, just as it did in Grand Island.
“There’s a lot of places in Western New York that they could go and those jobs will go with that, and any tax advantages we would get would go with that,” he said. “And so yes, we give them the inducements.”
Greg LeRoy, executive director of Good Jobs First, argued that officials need to exert more of their power when negotiating with Amazon. The prize on the table isn’t new jobs, he said, but Amazon winning additional market share in Western New York.
“The trouble is that most public officials play their hands like they have no cards in their hands instead of some pretty good cards,” he added.
Amazon: Compete for our presence
When Amazon comes knocking, it wants two things: incentives and a warm welcome.
Consider Amazon pulling its second headquarters out of Queens in 2018, for example. While New York had offered $3 billion in tax incentives, public protests contributed to Amazon pulling out, the company later said. Besides, Virginia had offered cash, rather than tax breaks.
Amazon’s strategy dates to its earliest days in business when it refused to collect sales tax for online purchases, a practice that allowed the company to undercut its competitors, LeRoy said. That practice began to change in 2012 when it started offering faster shipping, a move that ultimately forced it to have a physical presence in all 50 states.
“And at that point they said, 'We want to get paid to build our warehouses,’ ” LeRoy said. “And so they went on a jag and they've been getting about 20 incentive deals a year ever since 2012, the vast majority of them for warehouses.”
Towns and counties have been willing to oblige.
To wit: Monroe County’s $151 million tax break package in 2021 and Niagara County’s $124 million tax break package this year rank as the fifth and sixth largest subsidies Amazon has ever received, according to the Good Jobs First Amazon Tracker.
Worse, said John Kaehny, of the good government group Reinvent Albany, Amazon has made clear that it locates its warehouses based on logistics and other data, not incentives.
Indeed, Cappellino said, Amazon built its warehouses in Tonawanda and Lancaster without tax subsidies. Those distribution facilities, built between 2017 and 2020, employ 1,100 people. Kaehny said that’s evidence the subsidies are “just pure profit they’re extorting from the local government.”
Paul Leone, a consultant for the Lancaster IDA, said it’s not clear why Amazon didn’t seek subsidies for those projects. Like Cappellino, he said, he never got an explanation.
“I don’t have a clue because they never called,” he said.
Joseph Emminger, the Tonawanda town supervisor, said he, too, was never told why Amazon didn’t seek tax breaks. He said he assumed that the town having a “shovel ready” site — like the Town of Niagara did — was part of the reason.
“We were able to get it off the ground fairly quickly and they were willing to forgo incentives for that,” Emminger speculated.
Amazon wouldn’t answer questions posed by Investigative Post, but said in a statement that seeking incentives is “a standard practice” because governments make those incentives available.
“By securing support for our facilities in a comprehensive manner, it allows our company the ability to reinvest in more locations due to the material cost savings achieved,” the company stated.
Does it have to be this way?
Randy Hoak, the town supervisor of Hamburg, thinks his town may have gotten a raw deal.
About a year before he took office in January, the Hamburg IDA approved a $6.85 million tax break package for Amazon to bring 100 jobs to the town. Amazon hasn’t filled any of those jobs yet, drawing local concern. What’s more, Amazon won’t pay more than 30 percent of its tax bill under the payment-in-lieu-of-taxes deal it secured.
But Hoak said he had some serious concerns about subsidizing one of the world’s largest and wealthiest companies, especially for $15-an-hour jobs.
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Like other local officials, Hoak wants new jobs and economic development in his community. But unlike other leaders, he believes incentives should be given out more sparingly. Tax incentives may be appropriate for a company bringing good-paying jobs to the town, but may not be appropriate for a company like Amazon, he said.
In Hamburg’s deal with Amazon, Hoak argued, it had leverage it didn’t use.
“It’s undeniable, the town of Hamburg had $6.8 million worth of leverage. And what I would have been hoping for would be higher quality and better paying jobs with better benefits than what was offered,” he said.
As a remedy, Hoak said he’s exploring how to change the makeup of the Hamburg IDA board, to appoint members who would scrutinize subsidy deals more closely.
Brian Nowak, a Cheektowaga town council member, agreed, and argued local governments can demand additional benefits from a corporation via community benefits agreements. Grand Island was negotiating such a deal with Amazon before it pulled out. The Town of Niagara sought no such agreement.
“I think we can get better than this,” he said. “And we’ve got to fight for better than this.”
