Why General Electric Is Moving Its Headquarters to Boston
Free Book Preview Tax and Legal Playbook
General Electric Co said on Wednesday it will move its global headquarters to Boston, tapping the city's technology talent and likely lowering its tax bill as the industrial conglomerate seeks to lift profit and emphasize digital capabilities.
The maker of aircraft engines, locomotives, power turbines and household appliances will move to temporary quarters by next summer, and permanently settle about 800 workers in the Seaport district by 2018, GE said.
"We want to be at the center of an ecosystem that shares our aspirations" as a leader in digital-industrial activities, GE Chief Executive Jeffrey Immelt said in a statement.
"Greater Boston is home to 55 colleges and universities. Massachusetts spends more on research and development than any other region in the world, and Boston attracts a diverse, technologically-fluent workforce focused on solving challenges for the world," he added. "We are excited to bring our headquarters to this dynamic and creative city."
GE said the move would have no material financial impact, with costs offset by state and city incentives and the sale of its current headquarters offices in Fairfield, Connecticut, and its offices at 30 Rockefeller Plaza in New York City.
Massachusetts will provide up to $120 million in grants and other incentives and the city will provide property tax savings of up to $25 million. The state funds must be spent on public infrastructure, including site preparation, building acquisition costs and road and building improvements, GE said.
GE also is eligible for $1 million in workforce training grants, and up to $5 million to foster relations between the company, research institutions and universities.
Boston Mayor Martin Walsh said GE's decision resulted from "the city's willingness and excitement to work creatively" to attract the company, bringing 800 high-paying jobs to the city.
The move also will lower GE's tax bill. Even though Massachusetts is often called "Taxachusetts," it ranked 25th in a 2016 Tax Foundation survey of positive business tax climates among U.S. states. Connecticut ranked 44th, near the bottom.
Connecticut's corporate income tax rate is nominally 7.5 percent, but GE likely pays an effective rate of 9 percent due to surcharges on growth income, versus 8 percent in Massachusetts, said Jared Walczak, a policy analyst at the Tax Foundation, a nonpartisan think tank.
Connecticut also has many corporate tax structures that are less favorable than other states', such as rules that could put more of GE's global sales within Connecticut's grasp, and those probably also tipped the decision, Walczak said.
"Given the cost of corporate relocation, I suspect that GE anticipates substantial tax savings from the move," he said.
GE's decision caps a search that intensified last summer as Connecticut lawmakers passed a budget that increased taxes by $1.2 billion over two years, drawing protests from some of the state's biggest corporations.
The same month, Immelt said in an email to employees that he asked a team to examine the company's options to relocate the headquarters to a state with a "more pro-business environment."
But talent also was a draw. GE said on Wednesday it had been thinking about a new location for more than three years and considered 40 potential sites this year. Those included Atlanta; Austin, Texas, and Nashville, Tennessee, according to people familiar with the matter.
"This wasn’t only about dollars and cents but what Boston and New England brings to the table," said John Fish, chief executive officer of Suffolk Construction Company, New England’s largest building company.
The 124-year-old company is undergoing a major restructuring to emphasize digital and industrial capabilities. Earlier on Wednesday, GE said it would cut up to 6,500 jobs in Europe over the next two years, including 765 in France and 1,300 in Switzerland, as it restructures and integrates its acquisition of Alstom's energy business.
With 800 employees, the Boston headquarters will be the same size as Fairfield, but its makeup will change, GE said. The new office will employ about 200 administrators and 600 "digital industrial product managers, designs and developers," GE said.
Those workers, spread among the company's GE Digital, Current, robotics and life sciences divisions, will share technology developments across business units, GE said, helping develop software to run the machinery the company manufacturers.
GE had been based in Fairfield since 1974. The planned move is a blow to Connecticut, which in December reduced corporate taxes to thwart criticism that the state is unfriendly to business. Fairfield's 2013-2014 annual report listed GE's headquarters with an assessed value $74.7 million and ranked it the city's largest property tax payer.
GE has about 5,700 employees in Connecticut, including about 800 people employed at the Fairfield headquarters. It was not immediately clear how many employees will remain in Connecticut.
"Of course we are disappointed, and we know that many in Connecticut share that frustration," Connecticut Governor Dannel Malloy said. "While GE’s headquarters may be leaving, I have been assured that the company will continue to have many employees working here in Connecticut."
GE's presence in the state had been shrinking because much of it was related to its finance arm, GE Capital. The company is selling off the bulk of GE Capital as part of its restructuring.