Things rarely stay static in today’s corporate landscape. Mergers go forward, job roles evolve, and headquarters move. But these moving pieces don’t just impact a company’s bottom line— they can also mean big changes for the cities they call home.
When a large company has a move on the horizon, their search sets off a bidding war. Companies say they’ll bring jobs, resources, and infrastructure to a given region. In return, cities can expect new income via property taxes on a company’s buildings, plus a bump in tax revenue from the anticipated increase in population. The winner: the city that ends up the highest bidder.
Today, an estimated $80 billion dollars a year nationwide go toward incentives for companies in industries from manufacturing, agriculture, oil, gas and mining, to film and tech. These incentives come in many forms, but more often than not come out of taxpayers’ pockets.
Give a little, get a little may work well in theory, but it becomes problematic when companies prematurely fall back on their word. Far too often, companies decide to leave cities, but pocket the incentive money they received when they arrived. Not only are cities then left with a massive workforce gap—taxpayers and local governments can be out, in some cases, millions of dollars.
Case in point: here are a few of the biggest moves to make headlines, and the consequences they leave behind.
The Uncertain Future: Fairfax County, Virginia
Company: Exxon Mobil
In the early 1980s, this booming DC suburb—one of the largest in the country—welcomed the headquarters of Mobil Gas. After the company’s merger with Exxon, Fairfax County still served as one of the company’s headquarters, until 2012, when the company announced it would be consolidating the business, and in the process, relocating more than 2,000 employees to the Houston area.
Last year, Exxon Mobil put their corporate campus up for sale, marking the end of an era that made them one of the most important (and profitable) businesses in town. The move comes at a particularly bad time, as the county is also losing jobs because of cutbacks in government contracts. While big names Volkswagen, Hilton, and Northop Grumman still call the region home, many are unsure about how big of a blow ExxonMobil’s exit will deal Fairfax County when it completes the move in 2015.
The City on the Mend: Seattle, Washington
Aviation is part of the fabric of the Seattle region. Boeing was founded in Seattle in 1916, and for decades it has been the state’s largest private employer. Still, the relationship has been rocky for some time. The company moved its headquarters to Chicago in 2001 after receiving massive tax incentive offers from the city. That departure included layoffs and job relocations, and heavily tested the strength of the Pacific Northwest region’s economy.
The tax incentive competition heated up again at the end of 2013, as Boeing searched for a new home to manufacture its next generation of commercial aircrafts. Their search struck fear in politicians, employees, and unions alike as many stakeholders recognized how devastating another departure would be to Washington state. The machinist union narrowly voted to give up their pensions and switch to a 401K system to keep Boeing around, thus keeping their jobs. This latest round of survival has many feeling that it’s time to consider strategies that will keep the region thriving in an (increasingly likely) future without Boeing.
The Comeback Kids: Pittsburgh, Pennsylvania
Companies: Heinz, U.S. Steel, US Airways
Pittsburgh was once the poster child for lost industry. Its decline as a manufacturing center began with the shuttering of its steel mills, and was cemented when production of Heinz products left town. The international airport was built to accommodate the traffic the city anticipated as a US Airways hub, only to see the carrier leave and then merge with American Airlines.
Education, tech, and the arts have stepped up to become the new dominant sectors, bringing an influx of new jobs to the region. While these have helped re-invent the city, a new industry dawn is here too with an influx of drilling companies, interested in the region’s natural gas.
A New Way of Doing Business: Charlotte, North Carolina
There’s an idea brewing in Charlotte that could pave a new path for cities and states looking at dishing out incentives. Charlotte included a provision in their contract with Chiquita Brands International stating that the company had to retain its corporate headquarters in Charlotte. This clawback—a clause mandating a return of money in special circumstances—kicked into effect when Chiquita announced it would be moving to Ireland.
Now the city and county have to decide whether they’ll request the money they’ve paid back, or forgo paying the money they owe. The process is complicated by local government policies and by the fruit company’s merger with a foreign company. Still, it’s worth noting that the clause has given local officials more control over their financial fate than most others in their position.
It makes sense that large localities would want to woo the jobs, infrastructure, and revenue of large businesses. As more money is being paid out, though, there are just no guarantees that companies will stick around, or that cities will successfully weather the aftermath of a big departure. Until there are ways to hold big businesses accountable, the economic picture for the cities they call home will largely remain uncertain—a risk, for some, that’s still worth taking.Images courtesy of Flickr Creative Commons: 1, 2