Massachusetts: Stuck Between GE and the Economy

November 22, 2010 by Emsi Burning Glass

image of Lightcast gradiant

The Boston Globe reported last week that General Electric had applied for a tax credit with the State of Massachusetts — in exchange for agreeing not to reduce headcount for the next five years.  The applied-for tax credit was an incentive in the state’s “Economic Development Incentives Program,” which was designed (initially) to encourage job growth.  From The Globe:

Typically the state grants tax breaks to companies that create — not cut — jobs, making the General Electric request unusual. State officials said they cannot recall another case of a company asking for tax subsidies while warning it will continue to reduce employment.

The officials who found this application by GE unusual shouldn’t — given that …

… officials (from the Mass. Governor’s administration) recently refined the program to better focus on job creation. But one of the changes permits state aid to companies that don’t create any new jobs, so long as they promise to retain at least 100 positions. The law is silent on whether companies must retain their entire workforce.

In their application, GE promised to keep 3,000 people employed over the next six years, keeping the ratio of hourly and salaried workers fixed, renovate their plant, and buy new machinery — in exchange for $25 million in tax breaks.  Effectively, they are asking the state to buy a guarantee of employment levels and “business as usual” until the end of 2015.

The application cites the generous payscale of the workers (avg. hourly worker earns 75K, salaried, 100K), the tax base the 3,000 retained workers would represent (approx. $250 million), and the number of in-state suppliers that their plant uses (over 30).

We estimate that for every job in GE’s plant, there are 1.73 further jobs maintained in the state.  That’s over 5,000 further jobs sustained elsewhere in the state by the initial 3,000 GE employees — over 8,000 direct and indirect jobs in Massachusetts tied to GE’s plant.

GE has not said what they will do to their plant’s headcount without a state guarantee — there’s nothing ostensibly stopping them from budgeting $25 million of their own money (GE reported $11 billion in profits last year) towards upgrade and new machinery.  No one is stopping them from independently striking agreements with their own workers about headcount.  But that’s not the point.

The point is that GE has asked Massachusetts whether they will “pay” $25 million in tax revenue to “ensure” the stability of  the jobs in their plant, and all the indirect jobs created throughout the state.  If Massachusetts is willing to pay for this kind of insurance, this sets a new kind of precedent that no state official will be happy about.