NEW YORK (Reuters Breakingviews) - When General Electric decided in January 2016 to abandon its headquarters in Connecticut’s leafy suburbs for bustling Boston, the industrial company seemed in the best shape in years. The stock had quadrupled from financial-crisis lows, and GE was worth nearly $300 billion. Jeff Immelt, the chairman and chief executive, was finally putting the dark days to rest by wrapping up the biggest takeover of his tenure, the $11 billion purchase of French power group Alstom.
Amid the bullishness, Boston won the competition to provide the conglomerate’s new home. Along with the Commonwealth of Massachusetts, Beantown dangled juicy inducements, infrastructure investments, tax breaks – even privileged parking for GE’s corporate jets, one of which, according to later news reports, trailed Immelt’s around the globe in case his broke down. Boston and GE were going to make wicked, sweet love.
Two years on, Immelt is gone. So is his successor, John Flannery, ignominiously ousted earlier this week. The Alstom deal turned out to be a disaster. The company is selling assets and, since it chose its new head office, has incinerated over $150 billion worth of market value. In terms any Bostonian can fathom, that’s more than 50 Red Sox franchises, according to Forbes’ estimates of the baseball team’s worth. Boston got a very different GE from the one it expected.
That’s a lesson for U.S. cities and states as they compete to host new corporate headquarters, or to poach existing ones. Such jockeying has gone on for years, but arguably reached a zenith when 238 localities in the United States, Canada and Mexico turned in bids to host a second headquarters for Jeff Bezos’ $950 billion Amazon.com. The list has been whittled down to 20.
GE could still recover under new CEO Larry Culp and fulfill its promise to generate jobs, opportunities and tax dollars for its new domicile. This week Massachusetts Governor Charlie Baker told the Boston Herald he’s not worried, and claimed GE’s presence is worth $100 billion. In what sounds like it may be revisionist history, Baker said the state “did not write a big check to GE based on job projections or anything like that.”
It may never be completely clear whether Boston overpaid in its zeal to land GE. But the situation should offer municipalities now engaged in a game of “win the headquarters” some insight into the risks involved. Amazon’s competition pitted hundreds of mayors and governors against each other in a scramble for a promised 50,000 jobs and $5 billion in investment.
The worry is that victory comes with a curse – not just what it takes to win, but what is required to keep Amazon, GE or whichever company to stick around. To woo Amazon will almost certainly require at least the sort of perks Boston and Massachusetts made available. The bulk of these came in improvements directly related to GE’s site worth some $120 million, according to the Urban Institute. On top of that was another $125 million in infrastructure upgrades that will benefit the wider Boston community.
Boston also offered $25 million in property tax incentives if GE makes good on a pledge to hire 800 people. The state dangled $1 million in bespoke employee training, and proffered so-called “concierge” services to help GE executives with their moves. Oh, and Immelt got parking for a jet and a helicopter at Logan Airport, with space for another six at Hanscom Field near suburban Concord. Not that they are much use now. Flannery grounded much of GE’s private fleet a year ago.
GE has said it’s committed to building out its operation in Boston, which it says it chose for reasons beyond financial incentives. Chief among them: with 250,000 students at 55 colleges and universities, including the Massachusetts Institute of Technology and Harvard, Boston offers a deeper pool of educated and younger talent than, say, Fairfield, Connecticut (population 61,000) ever could.
Connecticut did try to keep GE. And there’s no schadenfreude in Hartford over GE’s recent woes. Though the HQ move only directly affected around 200 jobs, says Catherine Smith, commissioner of the Connecticut Department of Economic and Community Development, “The decision was a blow for the state from a perception standpoint – we are still trying to recover.”
Smith is being diplomatic. GE’s defection remains an open political wound in Connecticut. It dominates the race to succeed Dannel Malloy, a Democrat, as governor. The Republican candidate, Bob Stefanowski, was a senior GE executive from 1994 to 2007. He’s using his résumé, and GE’s move, to advance his campaign.
During a recent debate with Democratic rival Ned Lamont, he said Baker, the Massachusetts governor, had called to congratulate him on winning the primary. “I said, ‘Charlie, you know how I’m going to bring GE back to Connecticut?’” Baker asked how. Stefanowski said he’d lower the corporate tax rate. Baker said he’d counter by doing the same in his state. “That’s the type of cycle we want to get into. That increases jobs, it increases revenue,” Stefanowski concluded.
Lower taxes probably do help attract businesses. But if the companies that come are not growing, or in GE’s case shrinking, Stefanowski’s point is debatable. What’s probably not, however, is the difficulty of escaping the kind of arms race between neighboring cities and states that he sounds happy to get into.
Moving away from picking winners and losers, the way Boston did with GE, requires “directing tax dollars in a way that benefits every business or employer – not just multinationals but hospitals, startups and nonprofits,” says Oz Griebel, a former Republican and ex-banker running as an independent candidate for governor in Connecticut. That in turn means “investing in transportation, infrastructure, education, universities,” he says, “And getting your fiscal house in order.”
Politicians, of course, find it hard to ignore the headlines associated with attracting the likes of Amazon’s second headquarters and instead settle for a more supportive environment for all businesses. Maybe Boston’s experience with GE will serve as a reminder that the biggest, most profitable companies don’t always remain that way.
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