Last month when General Electric’s Jeff Immelt blew into town, he boasted that for every dollar the city and state is spending to lure the company here, “you will get back a thousandfold, take my word for it.”
It was a line that laid down the gauntlet. Yes, the big fish — bravado included — has arrived. With that, expectations for the industrial giant’s relocation to Boston were set astronomically high.
On Monday, those words began to settle back down to earth. At a press conference with the business and political glitterati, Immelt acknowledged that Governor Charlie Baker and Boston Mayor Marty Walsh had taken a gamble when they offered incentives worth up to $145 million to lure the firm from Connecticut. It is the richest such package given to a company in Massachusetts.
“They took a bet on the GE team. My colleagues and myself are going to be dedicated to proving them right,” Immelt said. “I’m convinced everybody in this room will see it in a thousand different ways as time goes on.”
We know Immelt can be prone to hyperbole. GE probably prefers to call it exuberance, like when he described wanting the company’s new Fort Point Channel headquarters to have a “GE logo that you can see from Mars.”
But the topic of whether the city and state will ever recoup their investment in GE is a serious one. It’s the reason why a few dozen protesters braved a wintry mix standing outside the press conference to question why a company that generates $117 billion in revenue needs a penny from the government. This as GE brass hobnobbed 33 stories in the sky in the swanky State Room, with beef Wellington and lobster roll canapes.
The upshot is that scores of studies have been done on whether corporate tax incentives are worth the investment, and the results are all over the map. Just take a look at the state’s $1 billion biotech initiative.
A 2014 Northeastern University study credits the program with helping to create 11,300 direct jobs. Meanwhile, Pioneer Institute, a fiscal conservative think tank, released an analysis calculating that the initiative produced 571 direct jobs, and that the industry would have thrived without the money because of the existing cluster of biotech startups, research universities, and teaching hospitals.
But this much is indisputable: The headlines generated by the $1 billion package got the word out that Massachusetts wants to be a player. However we got there, the region is a go-to place for life sciences with almost every major drug company now having a presence here. You could even argue the strength of the sector is a major reason why GE is putting down roots.
Which all leads back to why it’s so difficult to analyze the efficacy of government incentives. How do you begin to place a value on the perception that Massachusetts is a good place for business?
Another way economists weigh the cost versus the benefit of tax giveaways is looking at how else city and state officials could have spent the $145 million. It’s an imperfect exercise given that government isn’t always cutting a check to companies; the money comes in the form of property tax breaks and other assorted handouts.
But let’s take the case of GE, and the state’s contribution of up to $120 million in grants for public infrastructure related to building out the new headquarters. That’s the equivalent of buying about 70 new Red Line train cars, or paying for nearly a decade of the late-night bus and rail service that the MBTA board just axed to save money.
You tell me which is the better investment: transit for all, or bringing GE to Massachusetts?
The reason why Baker and Walsh are doubling down is the hope that a company like GE will be a catalyst for growth spawning everything from digital health care firms to energy startups, or better yet a new cluster of industrial Internet companies. Get used to the term; it’s the catchy name for the field GE wants to dominate next.
According to a study GE commissioned, the company’s relocation will create 4,000 temporary and permanent jobs over the next three years alone — including 2,000 in construction and 800 at the headquarters. In terms of economic impact, GE could inject $1 billion into the region, much of it from new real estate demand and income from employees.
Bob Tannenwald, a retired economist who worked at the Boston Federal Reserve Bank of Boston on tax issues, is not a fan of government giveaways. If it were up to him, better to spend that public money on transportation and education.
But he gets it. In order to lure GE, Baker and Walsh had to put skin in the game.
“In the real world of interstate competition, states are compelled to put up money even when they could perhaps get their prize without the bait,” said Tannenwald.
Tannenwald, like me, is rooting for the bet to pay off. But he is concerned that the high cost of housing and the skills gap could constrain GE’s potential. It was a good sign that the company wants to fix the labor shortage with much of its $50 million philanthropic initiative going to Boston Public Schools and to workforce training outside the city.
Tannenwald likens what Baker, Walsh, and Immelt are doing to starting a camp fire.
“Certainly you have kindling burning with GE,” Tannenwald said, but “in order for the logs to catch, you have to deal with a lot of fundamental problems the economy faces.”
As much as a fan I am of GE moving to Boston, we’re still gambling with taxpayer money. This is not a high-risk game like going after the Summer Olympics. But nothing is a sure thing.
That’s why I hope the #MakeGEpay movement sticks around, if only to keep up the pressure to make sure GE is money well spent.Shirley Leung is a Globe columnist. She can be reached at firstname.lastname@example.org. Follow her on Twitter @leung.