5 interesting elements of the GE incentive deal

When General Electric announced last week that it would move its headquarters to Boston, the accompanying $145 million incentive package received a lot of attention. Now that more details are being released, it turns out the agreement is much more interesting than the total dollar value or cost per job calculations. Here are 5 important points about the deal.

No tax credits

The New York Times reported that GE did not want a tax deal that would continue year after year. Given that tax credits are the workhorse incentive for many states, their absence is noteworthy. It is not entirely surprising, though. As we’ve reported (here and here), tax credits appear to be losing favor among both companies and communities.

$120m in direct grants to public entities

$120 million of the $145 million is for “direct grants to public entities in connection with infrastructure improvements.” So while the funds will certainly support the GE headquarters – and their use will be determined in consultation with GE – this money does not appear to be going directly to the company. The package also identified other transportation investments that will be made in the Seaport District as supportive of the GE facility. We have seen similar substantial commitments to local infrastructure improvements show up more frequently in major incentive deals.

Business climate matters, but not in the way you think

Business climate doesn’t just mean low taxes. It can also mean fiscal responsibility and good governance. The fact that Boston’s Democratic mayor worked well with the Republican governor of Massachusetts was cited as a turning point in the negotiations for this project, but was also reportedly viewed by GE as a positive indication that leaders in Massachusetts could work together to solve larger problems and not get bogged down in infighting. By contrast, Connecticut was seen as unpredictable and less able to address challenging problems facing the state.

At a more mundane business climate level, the agreement also calls for coordinated and streamlined permitting and includes appointment of a permitting ombudsman for the project and explicitly offers the ongoing support of senior staff at the state and city levels. Carrying the theme even further, a City Hall To Go truck will be available for GE employees during the transition to help with things like transit passes and voter registration.

Finally, the Wall Street Journal cited Connecticut’s active support for Pratt & Whitney while it competed with GE in a major a federal procurement as a negative factor. A broader view of what constitutes a business-friendly environment was also an issue in the Mercedes-Benz USA move from New Jersey to Atlanta last year.

Air access is critical

Our work examining the factors behind major headquarters moves highlighted this point, and this deal reaffirms it. The neighborhood where GE will locate is “5 minutes from Logan.” The incentive agreement has an entire section devoted to corporate air access and includes parking and hangar sites for executive jets at Logan and Hanscom airports (for which GE will pay) as well as the ability to have one helicopter on site at Logan plus “coordination with the City and Commonwealth in facilitating a new public helipad in Boston.”

GE isn’t really moving its HQ – it’s remaking its HQ

Headquarters relocations often accompany major changes in corporate strategy. Our research on the topic explained,

A change in headquarters is a powerful signal that the firm will not continue business as usual, and the choice of city will play an important role in conveying that signal and supporting the corporate strategy.

As GE shifts its focus from financial services to “industrial sectors reliant on advanced software and communications technology,” it is no surprise that a suburban campus in Fairfield no longer meets its needs. Reports suggest that only about 200 corporate jobs will actually move to Boston, with the remaining 600 expected jobs to include digital industry product managers, designers and developers. The remaining administrative positions “will be placed in shared service operations throughout the Company.”

They’re moving into the perfect place to really rebrand the whole company to be more of a forward-looking technology company. -- Bill Wagner, chief executive, LogMeIn (Boston Globe 1/13/16)

Download a copy of the “Summary of Incentives, General Electric Company Headquarters Relocation to the City of Boston, Massachusetts, January 13, 2016.”

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