January 11, 2013

7 Degrees of Kevin Bacon in Investment Incentives

Amazon's landlord's subsidiary gets incentives in N.J.

Amazon has announced the location of a major distribution center in Robbinsville, N.J. with incentives that are “valued” at $13.755 million.  I put valued in quotes because I don’t fully understand what is going on.

The Robbinsville Township Council (and any city in N.J.) has the ability to offer firms a payment in lieu of taxes deals (PILOT) where the company pays gradually increasing amounts of money to the city over time instead of paying statutory taxes.  This amounts to a subsidy, but the value of the subsidy is really based on a counterfactual of what the company would have paid without the PILOT program.

It gets more complicated.  The land and building is actually going to be owned by KTR capital partners who bought it from Matrix Development.  Martix sold their land because dealing with Amazon is a very complicated affair.  But only “urban renewal” projects are eligible for PILOT programs.  So KTR formed a new subsidiary.  Check out the uncreative name: KTR NJ Urban Renewal LLC.

The tone of my post is one of skepticism.  But this is a great investment for New Jersey that will generate a lot of new jobs and generate some new sales tax revenue.  But this opaque policy does worry me a bit.