Playing the Boeing Bidding Game
By Joseph Weber
As relocation announcements go, this one was a stunner. On Mar. 21, Boeing CEO Philip M. Condit declared that the giant plane maker would abandon the corporate headquarters in Seattle it has called home for 85 years. The reason: Condit wants better transportation for his globe-trotting executives and a broader product portfolio that expands beyond jets to space and communications.
Where he's headed is unclear so far, but the news immediately touched off a scramble among the three cities Boeing has signaled it's studying for corporate relocation: Chicago, Denver, and Dallas. Chicago Mayor Richard M. Daley quickly claimed that Boeing would find his town "the best city to call home" and sent an economic development team scurrying to find out exactly what the company wants. The boosterism of Chicago's development honchos and politicians was echoed by their Denver and Dallas counterparts. Dallas Mayor Ron Kirk wasted no time: "We're putting together a package," he announced.
But now comes the costly part: What can local and state governments put on the table to win Boeing over? Daley and Illinois Governor George H. Ryan -- a Democrat and a Republican, respectively -- offered to join hands to do whatever was needed to attract Condit. "We'll make sure the company fully understands our assets," promised Ryan, adding that he and Daley would hop on a jet to Seattle to make a joint sales pitch, if necessary.
Indeed, tax breaks, low-cost or free land, help with bonds to finance construction of a headquarters, highway and road construction, training funds -- all those giveaways and more likely will be part of the battle for Boeing. Paying up to snare such a prize is now a routine part of "business development." Argues relocation consultant Dennis J. Donovan of the Wadley-Donovan Group: "These communities will need to make an investment."
For his part, Condit expressly denied that he was out to prompt a bidding war (see BW Online, Video Views, 3/27/2001, "Why Boeing Is Outward Bound"). But what else can he be after? If he wasn't out to pit the cities against one another, why would he have already narrowed the search down to the three spots and taken the unusual step of naming them? Surely the famously analytical engineers at Boeing -- who likely have already studied the move in depth -- are looking for more than just slick sales pitches to plug into their best-locale models.
These economic development games can get mighty pricey. State and city officials in New York, for instance, are so keen to keep the New York Stock Exchange on Wall Street that they're willing to pony up $1.1 billion in subsidies to help the financiers build a new trading floor, according to Good Jobs New York, a public-policy advocacy group. Just last year, officials in New York pledged some $660 million to encourage IBM to build a semiconductor plant in East Fishkill, N.Y., while General Motors won $256 million in help to build a couple of plants in Lansing, Mich., according to Site Selection magazine. Northwest Airlines snagged hefty aid in the early '90s to encourage it to expand and stay in Minnesota. "This is going on throughout the U.S.," complains Arthur J. Rolnick, a research director at the Minneapolis Federal Reserve Bank who has published studies on the incentives trend. "The end result is you have a number of companies getting very rich -- getting huge subsidies at the expense of other companies and at the expense of the public."
Before they give away the keys to their cities, politicians ought to think twice -- especially about this new deal. Admittedly, having a corporation like Boeing calling your town home adds prestige to the region. More tangibly, it would bring at least 500 new jobs -- the equivalent of a midsize law firm's workforce. And officials at the economic development outfit World Business Chicago figure Boeing may spawn another 900 jobs through demand for goods and services.
"THE SMELL TEST."
But the risk is that benefits from the additional jobs are dwarfed by the perks offered to get them. Just look at Alabama's successful bid to lure a Mercedes-Benz plant to the state in 1993. The Cotton State still hasn't recouped the $253 million it shelled out for a 1,900-employee facility and won't for years to come. "Tailored tax packages are unlikely to be the great benefit the business community tells them they will be," warns University of Maryland economist Dennis Coates, who has written critically about another dubious area of public largesse, subsidies of sports stadiums. Adds Peter Van Doren of the Cato Institute think tank: Most incentive deals "don't pass the smell test."
Recent history suggests that the politicians would do better to take a cue from Colorado Governor Bill Owens, who has refused to play the bidding game. Counting on such natural amenities as the Rocky Mountains, his state's abundant land, and the ever-expanding Denver International Airport, the governor told reporters: "We don't have to pay people to move to Colorado."
Each city should properly plump its own pluses and knock its rivals' flaws: Winter is lousy in Chicago, but summer is no picnic in Dallas. Dallas and Chicago can play this game, too. It doesn't cost a cent. How's this for a pitch from Daley: All of the culture in Denver and Dallas can fit into a 10-gallon hat, with 9 1/2 gallons to spare. Just look at Chicago, where Matthew Broderick and Nathan Lane recently opened the Broadway-bound show The Producers.
Finally, let's be real here: Abominable delays are a fact of life at the airports in Chicago, Dallas, and Denver. They may be giant international airport hubs, but they're not flying nirvanas. Which has the edge? More international flights depart out of O'Hare.
Chances are that Condit has a good idea where he wants to live and work -- although he's not saying. North Dallas? Pretty sterile place. Denver? Well, he's already willing to leave the mountains of Seattle. Chicago's North Shore? It's just a private plane jaunt from either coast. Sounds inviting. But if Condit is trolling for financial sweeteners to make his decision, the pols would be smarter to disappoint him. The giveaways tend only to impoverish everyone else.
Chicago bureau chief Weber has lived in Dallas and Denver
Edited by Douglas Harbrecht