Quote:
Originally Posted by Mr Roboto
So out of the 2.5B (we know it would have been more like 3B to win),
|
What they offered was estimated at 2.3B. I know it's a "small" difference of $200 million, but still.
Quote:
|
Lets say the workers there average a salary of $80K per job, that means $4K per year of income tax is now going directly to Amazon instead of to the state.
|
First of all, boy you really weren't lying when you said you were not in tech of business. $80K for a company with over $232 Billion in revenue and over $10B in profit per year, that is a tech company looking to hire skilled workforce? Man..that's damn low. Hell, even people with just a Bachelor's degree coming straight out of undergrad college in this industry as consultants in Chicago make more than that at big companies (IBM, Accenture, Deloitte, etc), and Amazon pays better than most of those places (but not all).
This tells me you weren't reading very carefully, because Amazon stated many times that the jobs would all be 6 figures. In fact, it's come out now that the average salary of these new jobs will be $150,000/year. In fact, even they stated that the new center in Nashville with the 5000 new jobs will average over $150,000 per year (
https://www.bloomberg.com/news/artic...lle-hot-streak).
Quote:
And this will go on for at least the next 20 years assuming Amazon hires everyone within 5 years, but probably 30 because even optimistically it will take realistically that long for HQ2 to get to 25,000 workers. Only then will the state reach break-even point and earning income tax, without any interest repaid to the state of course - another disadvantage. They are given a free ride for decades on the tax payers back.
Also with the property taxes, free infrastructure (sewers, roads, transit stations etc) and free property essentially given to Amazon to develop as part of the package, the city forgoes hundreds of millions over the years for that as well.
|
Okay, so I'll cut to more of the chase here. I think what your analysis shows, other than showing that you estimated the average salary of these jobs by basically half, is the ripple effect that it would have.
So let's pretend for a minute that at the end of the day, 25% of people Amazon hires are from the area already (aka 6250 of the 25,000 total). For a minute let's say that it takes Amazon only 5 years to hire this, or 5000 hires per year, of this 1250 per year come from the Chicago area and 3750 come from outside of the area. As the average salary in tech in Chicago is around $100K, we'll use the $150K average that's been stated by Amazon as that increase baseline. Everything else is new money to the area and let's just assume the current 4.95% income tax
Year 1
5000 hires. 3750 are new to the area, which is a new $27,843,750 in income tax revenue. The other 1250 with their raises is another $3,093,750. Combined this is $30,937,500 in tax revenue.
Year 2
Another 5000 new hires, with the same percentage of workers already from the area and the reality of how much more they'll get with Amazon. Another $30,937,500 for the year.
Combined 2 years is now at $92,812,500 income tax revenue. Think of this calculation from now on as a sort of opportunity cost.
Year 3
Another 5000 new hires. Same situation - another $30,937,500 on top of what's there with the now 15,000 workers. Now we are at $185,625,000 for the 3 combined years
Year 4
Same deal with 5000 new hires and $30,937,500 and now up to 20,000 workers. Combined tax revenue for the 4 combined years is now at $309,375,000.
Year 5
Same deal. Combined tax revenue is $464,062,500 for the 5 years.
Year 6
Although the last year was hit, EDGE has to do with retention as well, so we add another $154,687,500 in tax revenue for a total of $618,750,000 over these 6 years. Essentially now let's just say Amazon gets $2.3B after this in tax revenue, so the state is in "the hole" something like $1,681,250,000 when adjusting for the income tax revenue. However, we didn't account for inflation. A company like Amazon is going to raise the average employee around the inflation which has been a little over 2% lately. If you say 2% per year in this, then in reality that $618M+ is actually $649,758,349 after 6 years and thus "in the hole" $1,650,241,651 after this.
The $2.3B is not really per year. So if we assume 2% inflation per year in average salary, then it would take just under 9 years to break even.
Even if we assumed flat inflation and the income taxes stay flat at something like $154,687,500 per year opportunity cost, it would take about 10.87 years to break even from this alone.
However, this is just income tax. The reality is that there will be property purchases from employees, sales tax (not that much, but still), as well as new business that pops up due to these new workers being in an area, new residential buildings being built, cost of bringing in visitors for the business and staying at hotels, etc.
1) Property purchases. If we say that 20% of the new-to-Chicago-area workers purchase property, then we need to take this into account. The average property tax bill in Cook County alone was $5964 per year (
https://www.chicagobusiness.com/arti...ggest-counties) and higher in other counties. At the end of 5 years, that would be another $67,095,000 in property tax revenue in Cook County - opportunity cost. Per year, that would be $22,365,000 in property tax revenue.
2) Many people could want to live downtown, but there might not be enough room for what they want. If there's 3750 people new to the area per year, and 750 buy new properties per year, let's say that 1000 of these 3000 people want to live downtown. This is enough to drive 3 new 333 unit towers per year of construction - or 15 total over 5 years.
Now let's think about the property tax that is generated from these new buildings coming up. The apartment building at 805 N LaSalle for example, which is a handful of years old, paid $51,668 in property taxes last year ($93,941.82 the year before). Just using the $51,668 as a baseline, that's an extra $155,004 new per year until the 15 are built. After those 5 years, it's a total of $2,325,060 in property tax from these 15 new buildings. Opportunity cost. Per year from that point on, it's $775,020 from those 15 buildings.
3) A business like this would bring in a lot of business travelers per week - whether vendors, internal training, internal normal work, etc. There would be hundreds (if not more) people traveling into the city and staying at hotels.
So pretend there's 500 people per week over 48 weeks traveling and staying at hotels at an average cost of $175 per night for a hotel room, and an average of 3 nights per visit. The current hotel tax overall is 17.4% in Chicago. That works out to another $2,129,400 per year hotel revenue - over 5 years that is $10,962,000 in hotel tax revenue.
So with these 3 things alone after 5 years, that's an extra $80,382,060 in various tax revenues. Per year, it works out to another $25,269,420 in tax revenue after that. So in reality with the income tax per year after it's just under $180,000,000 assuming no inflation whatsoever. This works out to about 9.17 years to "break even"
This isn't even taking into account so many other things, like new retail/commercial buildings built and the tax revenue generated from them. It doesn't account for any new jobs that are needed because of new construction, more retail/commercial/other business services. It doesn't account for perhaps a few more hotels being built in the area and the property taxes from that. It doesn't account for the fact that Amazon raising the average salary as emathias has stated, would force other tech companies to pay their employees more - meaning that there's an even greater impact on income tax as it would increase as a result. It doesn't talk about other companies that very well set up shop in Chicago because - damn 25,000 new tech workers? "Chicago must actually be the place to be - and many people are going to want to leave at various points too - that's a lot of talent." It's also not accounting for sales taxes in the city on anything from these new people, but after 5 years that's probably only a handful of million dollars. It's not accounting for the taxes generated from the new businesses, all of the taxes from B2B services (i.e. a new building needs to hire architects, contractors, etc, etc), etc.
There are so many things this could spawn off it's not even funny that you did not think about in your post. The ripple effect is a lot greater than you can even imagine from increasing an already big tech work force's average salaries outside of this company to attracting other high paying tech companies to set up shop in the city making more people come.
New York State estimated that the HQ2 would bring in $27.5B in new revenue over 25 years (
https://ny.curbed.com/2018/11/16/180...city-explained). Even if you halve that to $13.75B, after 25 years if your incentive is even $3B, then you are up nearly $11B. With anything business, you have to think about both the short and long term. But thinking only about the short term for something like this is going to make you see the bigger picture, which I believe there are many people who miss this. I think people like New Jersey who offered something like $8B or $9B is kind of dumb. It will take them awhile to break even. For what Chicago offered though - definitely under 10 years to make that back after the initial 5 years of "building" and retention. This could very well be closer to 7 or even less with a ripple effect that I didn't even calculate from all the other jobs created for this. So let's say that they come to town next year, and 2025 is when the tax incentives hit. It's very possible that in 2032 the state, city, etc basically starts making its pure profit from that point on.
And look, don't get me wrong. The entire premise in and of itself of companies asking for this is kind of weird. In a perfect world, I'd totally say "up yours - do it without doing any of this." However, we're in a capitalist society so essentially they've learned how to more or less game state/local governments in the short term BUT those same governments have figured out, usually, how to make it work in their favor in the long run. That is essentially the key here. I think states like New Jersey offered way, way, way too much. It's ridiculous. A few billion - if Amazon really does go for that long, it'll work greatly in your favor if you look 25 years into the future. However, it's a risk you might have to take sometimes - and the risk is scary of course.
Prev
Linear Mode
