Thursday, April 07, 2016

What Density Dividend?

All hail Texas exceptionalism. Because business friendly tax policies as well as general deregulation (e.g. lack of zoning), the state thrives. This meme gets trotted out by boosters whenever there is a demographic data dump or some company moves its headquarters from a place such as tax and spend liberal California. The celebration glosses over the massive subsidies Texas has to dole out in order to win the day. Business friendly isn't good enough. Texas isn't exceptional, save for large public expenditures.

All hail urban density exceptionalism. I can trace the greater-density-begets-more-innovation back to Jane Jacobs and then Alfred Marshall. While in graduate school during the late 1990s, I noted that Jacobs and Saskia Sassen were very popular among urban geographers. This was new to me because I received the tradition discourse of urban geography as an undergrad, von Th√ľnen and the like. I eagerly digested the seminar readings and didn't think much about them (save Sassen) after the semester ended. I was at the University of Colorado to learn about globalization and democratization. Jacobs didn't apply, or so I thought (geographer Peter Taylor says otherwise).

Whatever your stance on Jane Jacobs, Richard Florida has done a great deal to popularize her ideas. Florida now stands at the forefront of a movement that insists that dense cities are best suited for innovative (i.e. creative) activities. Last November, Florida promoting an urban agenda to the incoming Trudeau regime:

Over the past few years, however, venture capital and high-flying tech startups have undergone a fundamental urban shift that works to the advantage of Canada’s big cities. The locus of venture capital and entrepreneurial innovation has shifted from Silicon Valley’s sprawling suburban campuses and office parks to vibrant urban neighbourhoods in San Francisco, New York and London. These dense, diverse, urban neighbourhoods are home to the great research universities, key industries and consumers, and the top tech and creative talent that power innovation.

I argue that wherever you find great research universities, urban localities be damned, you can find a concentration of venture capital and innovation. All I hear is Jane Jacobs when I read "dense, diverse, urban neighbourhoods". Her prescription is Florida's. Thus, the shift of venture capital away from suburban sprawl to dense urbanity is rational.

More recently, Florida applies the Jacobs template to explain the migration of General Electric from suburban Connecticut to urban Massachusetts (Boston):

General Electric is the latest company to give up the suburbs for the city. News of GE’s move from its 1970s-style corporate campus in suburban Fairfield, Connecticut, to downtown Boston’s Seaport District has urbanists like me swooning. After all, it confirms much of what we’ve been saying for years: a massive corporation is moving to a dense, vibrant, walkable city center with abundant transit, lots of talent, superb universities, and great quality of place.

The basic geographic facts are irrefutable. But the rationale of the move is up for debate. Whatever the supposed density dividend is, GE moved to Boston thanks to bribery:

City Hall initially developed a property tax abatement valued at $8 million to $12 million in mid-November, according to documents the Walsh administration released Wednesday in response to a public records request from the Boston Globe. Over the next several weeks Boston officials increased the upper limit of the abatement to $15 million, and then again to a $20 million offer that was included in a memo addressed to a GE official dated Nov. 30.

The amount was subsequently increased to as much as $25 million over 20 years.

The urban revolution will be heavily subsidized. Like Texas exceptionalism, turns out that urban density exceptionalism isn't so exceptional after all. “We didn’t want them to walk away...At the end of the day, we wanted to make sure we closed the deal.


TheLetterAHyphenTheNumberOne said...

"The amount was subsequently increased to as much as $25 million over 20 years."

Do you think GE cares about $1,250,000 per year in tax breaks? It's absurd on its face. That's just a token amount that companies ask cities to provide to prove they're serious about hosting the headquarters. Boston has to answer to voters for a small corporate tax cut, because it's the stuff of campaign ads. Once a tax cut is provided, even if it's a meager pittance like this one, City Hall will make sure the phone lines are open for GE. If they're not rowing in the same direction, the news will be bad. If they are, the news will be good. It's a way to fully align incentives.

Jim Russell said...

GE has a long history of squeezing tax breaks from the host community. The company is taking great pains to make the move as cheap as possible. GE cares a great deal about the tax breaks.

D Holmes said...

It does make for an interesting example. Looks like the total incentives were $151 million – pretty high for 800 jobs and 300,000 SF of office space. Milwaukee has a general policy of not offering incentives for downtown office construction. They made an exception for a new headquarters for NML, offering $54 million in a developer financed TIF – but received a $450 million, 1.2 million SF building and commitment for 1,900 additional jobs. Since then the plans have expanded to include another $100 million building. GE is an exceptional headquarters to recruit– but still – Boston offers one of the 3 or 4 most compelling urban environments in the US. It’s crazy that Boston of all cities should still feel the need to offer financial incentives of this type.

Another Wisconsin company that proves many of your points is Epic Systems in Madison. In a city that offers an exceptionally beautiful and livable downtown that includes the campus of one of the world’s leading research universities, Epic located the campus for its 9,000+ employees not in a suburban setting but in a rural setting in Verona (surrounded by dairy farms and cornfields). It eschews the “open collaborative working space” theories as well – with nearly every employee provided with private offices with doors that close.

Consistent with a point you made a few days ago, the employees have been a major factor in an explosion of apartment construction that has occurred in the downtown.

Jim Russell said...

It’s crazy that Boston of all cities should still feel the need to offer financial incentives of this type.

From the Globe article:

"Boston was in a tough competition with New York City, Providence, and other cities to land the industrial giant."

Just a hunch, but I figure GE wanted Boston all along. Civic pride gives the company the leverage it needs to squeeze the community for the best financial deal. Boston, for all its world class assets, couldn't stand the thought of losing GE to another city.