Google, Parking, and the Wealth of the City

In his recent talk at a recent UM sustainability conference, Michael Shuman made a point of saying that most local economic development programs focus on efforts to “attract and retain” non-local businesses—and that by doing so, they are striking a bad bargain.  Non-local businesses, he says, often move on, after accepting generous subsidies from localities.  Pfizer comes to mind as one example (they are even asking for more money back after getting plenty from both Ann Arbor and Michigan in tax abatements).  Now let’s look at another high-profile capture – Google.

In July 2006, Governor Granholm announced that the Michigan Economic Growth Authority (MEGA) was granting Google up to $38 million in tax benefits to bring 1000 jobs to Ann Arbor (that’s a cost of $38,000 per each job paying $47,000).  This set off a competition among area municipalities and real-estate venues.  But there was a strong wish to bring Google into Ann Arbor’s downtown, and they finally leased space in McKinley’s Towne Centre on Liberty.  The Google operation at this location is an office of their AdWords advertising sales.

In order to lure them downtown, the City Council promised Google free employee parking (up to 400 spaces)  for four years.  This was estimated by the city’s chief financial officer to cost about $2 million till December 2010.   (That’s $5,000 per space.)   The council also amended the agreement with McKinley so that some of the 252 parking spaces it has been allotted in the Liberty Square parking structure can be used by Google.

The decision put Google at the head of the line for parking permits. There is a waiting list for monthly permits, and a limited capacity in the system. Obviously, for every monthly parking permit the DDA sells, there will be one less space for short-term visitors (retail and restaurant customers).  So the city has both set aside a major part of its General Fund dollars (even more critical now that major service cuts are being made) and allocated a scarce resource (parking), one that many local businesses would have enjoyed.

(According to a policy adopted by the council in 2007 and based on the Nelson-Nygaard study, the objective is to have no more than a 30-day wait for parking permits.  But that will be expensive and difficult, especially since the council  is simultaneously asking the DDA to host all downtown parking within its system and to pay the city $2 million a year for the privilege of this service. As explained in a recent Ann Arbor Chronicle article, the DDA has two revenue funds, the TIF fund (property taxes) and the parking fund.  Up till now, the TIF fund has not been used to pay for constructing parking structures, but that might have to change if the city keeps on draining the parking fund for its own general fund.  As reported by the Chronicle elsewhere, the DDA is making the payments on the bonds for a $55 million parking structure under the “Library Lot” on Fifth Avenue – and also paying the city a service fee of $1.4 million.  Yet the council is asking the DDA for the $2 million a year as “rent” for the parking system. Meanwhile there is scarcity of parking and rates are going up, possibly affecting retail customers.)

But according to a March Business Review story, Google/Ann Arbor is believed to have about 250 employees currently and recent trends are not favorable to AdWords’ business; online advertising is said to be failing to support web-based businesses in this economy.   It appears unlikely that they will make their 5-year goal of 1000 employees, and they may be hard-pressed to make the 500 jobs needed for a partial MEGA grant.

So what is the value of having Google in our downtown?  One is, of course, the jobs.  It’s nice that some relatively low-paid jobs are there.  These are not high-tech or high-paying jobs though, and I doubt that the employees are serving as much of a customer base for downtown businesses. Presumably McKinley is receiving rental payments from the lease, all good.  But it seems that much of Google’s value is in the bragging rights. Certainly the visible glamour of  those cute little primary-color letters and the cachet of merely being able to claim its presence adds to the “sizzle”.  For example, the Wall Street Journal recently cited Google’s presence as evidence of Ann Arbor’s vibrancy, with a statement that Google “opened an Ann Arbor campus in 2006″.    But is the city’s investment really paying off in jobs, new investment, and growth?  In other words, does it add to the wealth of our civic enterprise?

A page on the city website exclaims, “Today, while the university remains a significant contributor to the city’s workforce and driver of economic success, many industries and businesses are located in Ann Arbor, one of Michigan’s largest cities. Fortune 500 companies Borders Books and Domino’s Pizza have headquarters in Ann Arbor, and Google is in the process of relocating to the city, bringing more than 1,000 jobs.”

Ah. Back to Shuman and his argument that local businesses have more “leakage” – that is, more of the wealth generated stays in the local community, and also that they tend to stay in the community.  Note that Borders and Domino’s  both originated here, though they have since become nationally distributed.  Even with all its troubles, Borders has been a downtown anchor and a continual source of jobs. Domino’s seems secure in its Ann Arbor township headquarters.       The Google jobs site does not even list Ann Arbor as a location.

We’ll be hearing more and more about the need for economic development in the Ann Arbor region.  It would be nice to see some strategic thinking about how best to use the increasingly limited dollars we have at both the City of Ann Arbor and Washtenaw County government, both of which are undergoing some extreme budget cuts. What local business startups might do with a little assist from the city, according to Shuman’s recommendations,  isn’t easy to predict – not every one will be the next Zingerman’s.  But we should also consider what is a good price to pay for glamour, especially since wealth is in such short supply these days.

UPDATE: Not all the 400 parking spaces promised Google by the city are actually being used.  The amendment of the McKinley agreement with the city for Liberty Square spots only includes 235 spaces total.  An inquiry to the DDA indicated that it is not known (by them) how many of those are actually being used by Google.

UPDATE 6/2/2009: The Ann Arbor Business Review reports that there has been a management change at the Ann Arbor office of Google.  The reporters were not able to learn anything more about the current state of the office.

UPDATE 8/2/09: AnnArbor.com reports that Google is still “only one-quarter of the way to its initial goal” of 1000 employees and refuses to discuss its hiring plans.

UPDATE 10/19/09:  A new report by AnnArbor.com indicates that Google may have as few as 204 employees, not counting contractors.

UPDATE 9/14/2011: AnnArbor.com reports that Google is now using a global outsourcing firm to hire new employees at much lower wages than the original employees.  The terms of their employment is not clear.

UPDATE 3/19/13:   A new report by AnnArbor.com states that Google failed to pay Michigan Business Tax owed in relation to its Ann Arbor office.  The state has placed a tax lien on the company in Lansing.

UPDATE 11/6/14: McKinley Inc. is reported by the Ann Arbor News to be looking for new tenants for the space Google is leasing in the Towne Center building.  Apparently the current lease expires on April 30, 2016, but the property is already being listed.  No word on what will happen with the Google AdWords operation.  It is not clear how well that mode of advertising is faring in the new media environment; see for example this article from the New York Times about small businesses using AdWords.

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2 Comments on “Google, Parking, and the Wealth of the City”

  1. Steve Bean Says:

    V, a correction for you: local businesses have less leakage, not more.

    On parking availability, I think that saying “there is scarcity of parking” is an overstatement and oversimplification. If you can find out from the DDA the current status of the people on the waiting list for permits, that might shed some light on the situation. Did you see the Chronicle’s coverage of the last DDA board meeting where Roger Hewitt said that the Maynard structure doesn’t get much use in the summer (or something to that effect)? My belief is that our parking system could be better managed to address the perceived scarcity you referred to.

    • varmentrout Says:

      Thanks, Steve, I’ll go back to my notes and Shuman’s book – I suspect that you are right about the leakage statement, I may have gotten it inverted (though the point about more money staying in the community is not in question, but the meaning of the term).

      Parking is one of those “glass half full-half empty” situations. If Maynard is less full in the summer, in the winter it can be a bitter thing to find no spaces left. Just the other day I took one of 6 spaces left, in the open area on the roof. I’m sure there is lots of room to argue both sides of the scarcity question.


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