FREAK Shots: Is Google the Gift That Keeps Taking?

To get Google to open a major routing center in Lenoir, N.C., and bring with it 200 jobs and about $172 million in local investments, the state and local governments offered the company $200 million worth of incentives, reports The Lenoir News-Topic, including sales-tax-free electrical power and computer purchases.

When the deal was signed in 2007, some members of the community grumbled that Lenoir “gave away the farm.” Apparently, however, the giveouts continue — at least by one local restaurant, which, a blog reader tells us, got this sign from Google as a thank-you for delivering free pizza to them every Tuesday.

INSERT DESCRIPTION

Addendum: A Google representative claims the company pays for its food every time it orders from a restaurant and gives the above sign to local restaurants it patronizes frequently, not as a thank-you for free food.


Paul

So a pizza place gives Google free pizza every week. I'm sure they have a motivation, whether it's because Google employs friends and family of the owner, because Google drives business there the other 4 days, for the advertising, or something else. This is Freakonomics, I'm sure you can come up with other reasons why the pizza place would do this.

Google and its employees, in return, give them a framed thank-you in return. How terrible.

blc

I presume you meant $172 million, not $172.

Zach

I don't get it. Why does the pizza place give Google free pizza?

Gabjoh

That's not $172,000, but $172? Wow...

Rory Wohl

I hope that's $172 million in local investments not just $172.

jonathan

Municipalities economic development staff always "give away the farm" to any large business, particularly in a recession. I am a little suprised that they only gave $200 Million for 200 jobs.

The ironic part is that small business, which employ the overwhelming majority of people, never get any incintive to expand.

Kathy A.

jonathan has it exactly right. I've long complained to my city that giving these large incentives to big business is foolish. The incentives cost more than the jobs created, and in every case the large business has left for greener pastures as soon as the incentives run out.

assumo

The sign seems a lot like a picture of a celebrity that you might see at an old diner. It's interesting that the "google" brand is infinitely more recognizable than any person within the organization. Getting a google ad for a thank you gift seems a little impersonal, but it was probably the best the company could do to boost the local joint's reputation.

As far as incentives go, if a business has any chance at longevity, say 20 years, the marginal cost of the incentives is not that great. Outside of the employees earning money to spend in town, the city gets property tax and a future draw for related businesses. When you're as solid as google, you get to choose where you locate. The sweeter the incentives, the more some other factors may be overlooked.

John

One misleading fact when articles and politicians quote the worth of incentives is that they are typically in the form of future tax breaks for the company in question. Since if Google didn't come to Lenoir, they wouldn't be paying income taxes, sales taxes, corporate taxes and property taxes in the area would be lower across the board. Thus, the incentives aren't actually costing Lenoir and NC anything near $200,000,000, if anything. This type of article makes it seem like the city council is showing up with a truckload of cash as Google moves in. I'm not necessarily for the huge tax incentives, but would like to have the articles questioning them lay out how they are structured.

zach

To the other zach here, it seems pretty safe to say that it's a good idea to be friends with the folks at google.

jonathan

If google employs 200 people and the muncipality breaks even they must earn $1 Million per employee. The employees, over 20 years earn a little more than $1 Million. Governments cannot hope to earn that much from the businesses relocation.

I am using the average income of $50,000 in 2008 dollars.

aaron

John makes a good point -- for the most part the municipality has not spent this money, merely giving the company a tax break. if more than $28m of the incentives referred to consist of tax breaks, then the community has come out ahead due to google's presence. They end up being able to recoup some of this in other ways, such as property tax on the pizza joint that stays afloat due to google's business. in the meantime, they have a more stable economic base, and 200 more jobs.

Andr01d

Lets go beyond the basic here. Google got a lot, but Google will bring employees to the community who have to eat every day, by gas, get their cleaning done and inject other money into the cities economy. Also, the 172 million dollar project will go (hopefully) to local contractors who employee people from the local area. This isn't that clear cut. Google is getting a lot, but there is no such thing a s a free lunch - pizza or otherwise. Perks given to the company are calculated and rational. They wouldn't be given if no expectation for repayment - in some form - existed.

Nylund

Is the $200 million is the difference between what Google would have had to pay if they came and got no deals vs. what they'll actually pay? If so, then the baseline measurement is ridiculous since Google would never have come without the incentives. Really, the town should be measuring their revenue compared to the zero revenue it would have gotten with no google (or the alternative revenue that might've come for whomever else took that space, if anyone else even would), not the hypothetical, "if google came and paid in full, which they never would have."

Clay

So first off, this story is just that, a story. There is no "free" pizza delivered every week. This is just the results of poor research (or none). But Nylund and Andro1d have it correct. The property will generate more revenue for the city and county even with the incentives then it did without. This doesn't include the taxes and utilizations from the workers. This turned out to be a win for the area and the company. It is unfortunate that a blogger has to use bad info and write a story that is purely sensationalism. It is even worse that she is the site editor

Russ

Jonathan...you're using $50,000? the avg salary for 2008? They work for Google, I'm sure it's well above $50,000. Also, you're not taking into acct higher property values, which also means higher property tax revenue

john

Maybe the pizza shop gets to use Google's search engine for free, or maybe Google offers them a free Gmail account? Or how about that Earth thing that Google has, I bet the pizza shop could use that for plotting deliveries and such. So it is really a trade between two companies that value each other and use their assets to help each other succeed, a typical American success story all around!

Kevin MN

One of the best things that could happen for the free market, although Republicans would never support it, would be to outlaw states and municipalities from giving these types of incentives. Sure one area gains jobs and tax income, but another area loses. This has caused the South to gain a number of jobs over the last few decades, while destroying several Northern cities. Workers as a whole are worse off because the Southern workers make less than their Northern counterparts did and have significantly worse protections. Local governments as a whole are worse off, because they are subsidizing private industry. The only people who win are the private companies. When pro sports teams do this, people are outraged. When other companies do it, they are applauded for "creating jobs."

Once people realize that it isn't Mexicans who are stealing their jobs, but instead poor, Southern states, I think we will begin to see some national reform.

Read more...

Garbanzo

@Russ: I'm guessing that their data centers have fairly rank-and-file techies, as opposed to the more highly paid rock stars who work in their development centers (although Google isn't known for its lavish salaries). Given that Lenoir is on the outskirts of the Charlotte metro area, I'll guess that the average salary is $70K -- gross that up for 25% benefits/fringes and you have a $87.5K cost per employee or total payroll of $17.5 million per year.

SJ

I don't see a problem it 200 jobs AND $172 million for $200 million of concessions not losses.