Episode 55: After The HQ2 Reversal: 25 Minutes With Mike Grella, Amazon’s Former Director of Economic DevelopmentFebruary 20, 2019 | By: DCI
The news that Amazon had reversed its decision to create a technology campus in Long Island City with 25,000 jobs ripped through the national media and economic development world last week. And in the wake of this extraordinary announcement, The Project Podcast had the good fortune to land an exclusive interview with Mike Grella, Amazon’s Director of Economic Development for the past seven years. Mike departed Amazon last week (completely unrelated to the HQ2 news) to launch his own consultancy. From his unique vantage point, he shared his thoughts on the future of mega-deals, incentives and site selection searches.
The Project co-host Andy Levine caught up with Mike by telephone while he was on a Caribbean cruise with his wife and family.
“There is mixed reaction this morning to Amazon’s decision to cancel a multi-billon dollar headquarters right here in New York City…”
“Amazon called it quits on its new New York City headquarters leaving on the table more than 25,000 jobs
“It’s really disappointing. It’s a big loss. You’re talking about tens of thousands of jobs that as of this morning were going to come right here and now there are not.”
Andy Levine (DCI): Amazon’s HQ2 search was the big economic development story of 2018. But the even bigger story came last week when the company’s reversed its decision to put 25,000 jobs in Long Island City, NY.
Patience Fairbrother (DCI): We’re excited to bring you an exclusive interview with Mike Grella who served as Amazon’s Director of Economic Development for the past 7 years.
Patience: So welcome to episode 55 of The Project, Inside Corporate Location Decisions. I’m Patience Fairbrother of Development Counsellors International.
Andy: And I’m Andy Levine, also with DCI and Patience’s co-host of The Project.
Patience: So Andy, first of all congrats on landing this interview. Can you tell the audience a bit about Mike Grella?
Andy: Sure. So back in 2012, Mike Grella took a new job with Amazon as the company’s first director of economic development. The company was much smaller with then – about 80,000 employees — and Mike led dozens of new site selection searches for the company all across America. Today it employs over 600,000 people.
Now completely unrelated to the HQ2 story, Mike left Amazon last Friday to create a new company that he’ll formally be launching in March. And that left him able to do an exclusive interview with “The Project” podcast.
Patience: Now there were some ground-rules to your interview with Mike.
Andy: Yes, there were. Mike didn’t want to criticize his former employer or New York State where he currently resides. So it was difficult to get into the nuts and bolts of the HQ2 decision. But the most interesting part of the discussion focuses in on what the mega-deal projects of the future are going to look like, how incentives will be re-packaged in the future and are we going to see more very public RFP processes like Amazon HQ2.
Patience: Final point: you actually interviewed Mike from while he was on a cruise in the Caribbean.
Andy: Yes, this is a first for The Project. I’m also hoping it’s a last for The Project. And as Mike told me, there are very few conference rooms on a cruise ship but he actually found one. So he snuck away from his lovely wife and three daughters for 45 minutes to speak with me by cell phone.
And literally on the last question of the interview, the captain must have changed the direction of this ship so we lost reception.
But here’s our interview with Mike Grella.
Andy: So, Mike Grella, welcome to the project. Thank you very much for the opportunity to speak with you.
Mike Grella (Former-Amazon): Thank you, Andy, for having me on “The Project Podcast.” As you know, I’ve wanted to be in a position where I could participate for quite some time, and I’m glad that the day had finally come.
Andy: So, before we get started, I just want you to quickly clarify your history with Amazon but also some of the background on, you know, quick little background on the startup that you are about to launch. So just tell us a little about your current position.
Mike: I started with Amazon in March of 2012 and was hired as their first director of global economic development and was in that position until November of 2016, when Amazon Web Services, the cloud computing unit, had grown and scaled to a point where they required their own separate economic development team. And I feel they did a pretty good job of building a bar-raising team and left it in very good hands. And as of, I believe, yesterday, I decided to announce that I have left Amazon and I’m launching a new venture.
Andy: I wanna get to kind of the big issue on everyone’s mind, and given your unique position as a long-time Amazon executive but also a New York state resident, I understand any trepidation you might have about critiquing either your former employer or your home state. But in simplest terms, what do you think went wrong with the HQ2 deal in Long Island City?
Mike: Well, you are absolutely correct. As a former Amazon executive and a very proud New Yorker, I’d rather not comment on what went wrong and leave that to the pundits, media and those involved in the deal. But with that said, it’s not unreasonable to conclude that the dialogue that took place did not adequately address the concerns and risks expressed by the impacted parties who had broadly disparate use of what a successful HQ project would look like. A lot of talented people whom I know work extremely hard on putting together a successful deal. Holly Sullivan, who led the incentive negotiations, is very talented, engaged, insightful, and I consider her a friend. She was, all in the past 18 months, making tremendous personal sacrifices in support of the HQ2 project, and she should be recognized for the incredible success and delivering results in Northern Virginia, Nashville, as well as developing a framework for the deal in Long Island City.
New York is an amazing and unique city in countless respects, including its citizens and representatives who take great pride in their city. With 20 cities on the shortlist, it was always going to be a challenge to muster the bandwidth to address every single concern of every constituency. I think it’s also worth noting that Amazon has over 700 open job positions listed in New York City, 2,500 existing employees, and recently announced funding computer science classes in 130 New York City school classrooms. So Amazon will continue to grow in the Big Apple. So I think we need to put things in a proper perspective.
Andy: Okay, that’s fair enough, Mike. And, you know, of course, you’ve worked with I think, literally, hundreds of economic development organizations over the years, at federal level, at state level, local level. Do you think the HQ2 competition and what happened in Long Island City is going to have sort of lasting impacts on economic development incentive policies? And sort of the way that the government sort of approach, you know, how to structure these deals, what’s the long-term impact here?
Mike: I do think that the HQ2 competition, as well as what transpired in Long Island City, is really raising the consciousness and the profile of economic development into the broader population. So my children, at dinnertime, will say, “Daddy, did you work on any incentives today?” Well, one of the takeaways from this deal is that I think dinner table and water cooler conversation, those conversations have started all around the country and probably around the world about, “What is the purpose of economic development? And what does best-in-class policy look like?” I believe that there’s going to be a shift in the paradigm in economic development policy, where communities are gonna be very thoughtful in terms of the due diligence that’s done.
You’ll also see, I believe, a trend towards incentives that are focused on more corporate and social responsibility related activities. You’ve already seen trends over the past several years where the blank checks offered to corporations were expanding. Those programs seem to be dwindling and falling out of favor. So, that’s not new. But I do believe that you are gonna see states and municipalities look to develop public-private partnerships partially through their incentive policy that are gonna be focused on maximizing identifiable positive impacts from projects.
What I mean by that is, rather than merely rely on an economic impact study and fiscal impact study that points out the amount of indirect jobs or induced jobs or tax revenues that you’re going to want to see more tangible commitments on the parts of companies in terms of commitments to schools, commitments to public infrastructure improvements, commitments to deploying disruptive technologies in communities, and really spelling out what those are ahead of time rather than relying on or assuming that the company will commit itself to philanthropic activities, which many companies, including Amazon, does, and they do quite well.
But having those spelled out in MOUs, having those be part of the requirements that, you know, incentives are gonna be based upon requirements, that you pay a living wage, that you pay full benefits, that you offer parental leave, that you’re building to certain green building construction standards, etc. So I think that we will continue to trend towards policies that more specifically shape positive outcomes that are sought out by specific communities that align with their values.
Andy: You know, Mike, you mentioned sort of the Amazon HQ2 deal sort of putting economic development in the national spotlight, and you mentioned in terms of, you know, dinner table talk with your daughters and that sort of thing. Is there this misperception that when Amazon or any company gets an incentive that there’s kind of like a Brink’s truck backing up to the corporate headquarters with all these dollars coming out and sort of a lack of understanding of what an economic development incentive is in those cases?
Mike: Yeah. I have never seen a Brink’s truck. It seems they never stop in front of my office or my home. But I will be on the lookout for it. You know, I don’t think that it’s unfair for people to assume that some of the incentive deals, particularly ones that have been done going back a few years, have involved some significant amount of cash grants. Now, with that said, a lot of incentives, the vast majority of them, are performance-based. Pilot programs and tax increment financing and the credit programs in New York that were part of the HQ2 deal, they rely upon the business to generate incremental property tax revenue, incremental revenue from personal income tax withholdings as employees, incremental corporate income tax revenues that are then credited back to the company, sales taxes that are paid on taxable purchases of goods and services. So, is there cash involved? Yes, but in many cases, that cash or that refund is based upon an increment that’s created by the project rather than the city or the state emptying its government coffers.
So I do believe that there is a misperception, but it’s not completely off because cash incentives do exist, and in some cases, they are disproportionate to the commitments that are made. And unless you’ve got effective clawbacks and performance provisions in place, then you’ve got programs that lack good governance and good controls, and those would be the bad apples that really create this perception and justify the critiques that some of these incentives are corporate welfare or corporate giveaways.
Andy: So, is that one of the big kind of lessons learned out of this project, as well as other projects, that, you know, to successfully structure a deal in the future, companies are gonna have to work with governments to develop incentives, as you said, that are tied to a public good, is that the direction we’re gonna see in the years ahead, you think?
Mike: I do. I believe that corporate and social responsibility within the C-suite and board of directors on these large transformational types of projects, whether it’s HQ2 or the Tesla Gigafactory or some of Boeing’s larger expansion projects and some of the larger automotive projects that have announced over the last 10 years, you’re going to see government policymakers, regulators, really trend towards implementing programs that have those outcomes tied in. And there’s going to be, I think, an expectation among corporate executives and those that are making these location decisions to justify the need for particular direct incentives that fund private development that essentially are contract spend funding, capital projects, etc. and ensuring that they’re needs-based.
The economic and fiscal impacts are extremely important, and I do believe that the public doesn’t necessarily understand and probably, in some cases, trust whether these induced impacts will come true, that 25,000 jobs will turn into 50 or 60 or 70. Now, the science behind it and the math behind it is very well-established, but these are numbers that are so far into the future that it is difficult to grasp, never mind guarantee that these numbers are gonna come to fruition. So, from the public’s perception, they’re gonna wanna see tangible results, “How is my community going to be better off above and beyond the new jobs and the tax revenue?
Andy: So, if much of the backlash and the criticism of these megadeals, you know, focuses on the incentives, kinda what I’m hearing you say is, to avoid or mitigate that criticism, companies are really gonna have to structure this differently to appeal to the public good and to structure incentives that are gonna be good for the citizens of that community. Am I hearing you correctly here, Mike?
Mike: You are. They’re gonna be based upon shaping specific positive social outcomes, whether it be environmentally related, education related, adopting new technologies, making sure that public resources and public institutions are properly funded, reskilling existing workers, and making sure that there’s an opportunity for them to compete for today’s in-demand jobs and not leaving them behind. I think that you’re gonna see the next generation of incentive policy be deeply rooted in principles of corporate social responsibility and environmental, social, governance. And I think you’ll find that, for the most part, the companies on the other side of the transaction will adapt to that. And I do think that the future is bright in terms of public-private partnerships and raising the bar. I think we can still make everybody happy even if some of these programs that are more cash-related go by the wayside. I think that for the good of the order, I think everyone will start to adapt and move in that direction. And you’ll see some very positive outcomes in terms of quality of life, in helping communities achieve the type of broad and inclusive prosperity that is typically the goal of what these policies are, to begin with.
Andy: So you have done literally dozens of projects in your work with Amazon, and I just wanna ask kind of a basic question about the importance of incentives. Oftentimes, they are characterized as kind of a tiebreaker, something that comes into play sort of at the end. Is that an accurate way for us to view them, you know? I’m sort of asking, how important are incentives in the decision of a company, like Amazon, to ultimately deciding where the project goes?
Mike: Yeah. I would say that the answer depends, and pardon the hedge, but it does depend on what are the needs of the project and how does that match up to the resources and capabilities of the locations under consideration. So you’ve heard it a million times, a cliché, but a boatload of incentives isn’t gonna make a bad location good, and there’s many examples of that. But, at the same time, if you’ve got a site that is connected to water and sewer and has pretty much everything you need to set up shop, but the roads are crumbling, well, what do you do about that? You engage with the municipality and the state and the DOT, and you discuss, “What can we do to make sure that if we’re building a large fulfillment center or distribution center, where trucks are gonna be coming in and out, that we’ve got roads that are gonna be able to withstand that?”
So, in a lot of cases, the incentives that make the program work are really related to solving for maybe shortcomings on a specific site rather than necessarily needing them to balance the scales of the P&L.
Andy: I just wanna get your take on kinda looking forward and seeing if the paradigm has shifted here. Are we going to see more megadeal competitions with big, broad public RFPs? Is that gonna become the new normal, you think, or is Amazon HQ2 sort of an outlier here?
Mike: I was honored to speak at the Yale University School of Management last week, last Friday, and that was a common theme that came up of, “Is this going to be the new normal? Can we expect that every large project is going to be rfp’ed to dozens or hundreds of communities?” And I believe the answer is no. This was a very unique project that was trying to solve for some unique opportunities. At the end of the day, you know, a lot of these large-scale megaprojects are really focused on solving for talent. Talent is what drives intellectual property, and intellectual property is what gives companies durable competitive advantages.
And so you’ll probably have limited RFPs. I think the question is whether or not they’re going to be public RFPs or are they gonna be done privately. And that is, I think, it’s a decision that each company is gonna have to make, but that’s gonna be just as important as how many communities you are including in your bidding process as whether or not it’s gonna be done in plain sight or it’s gonna be done under an NDA. And I think maybe some of the challenges is when you try to accomplish both, when you’ve got communities under an NDA but the process is very publicly known. And I think that can create some unique challenges.
And what I would say is the means are as important, if not more important, than the end. I think that that is one of the lessons learned with some of these megaprojects is not just getting there but how you get there. And so, I would say, you know, the paradigm is shifting, but it’s shifting towards I think a greater social consciousness rather than shifting towards these broad-based RFPs. I think that the RFPs will continue, that it will be done on probably a more manageable scale, and potentially maybe not in as much of a PR-facing type of process.
Patience: So what do you see as the big takeaways from your conversation with Mike Grella?
Andy: At the top of the list, is Mike’s that we’re going to see a move toward the marrying of incentives with more socially-responsible corporate behavior.
The rules are changing and companies are going to have to make more tangible commitments to communities they are investing in. It isn’t enough to simply say, “we’re bringing you a boatload of new jobs.” They have to say, “here’s how we’re going to work with you to make this community a better place.” So that’s number 1.
My second takeaway, is that there is a conflict between managing an RFP process in a very public manner but then when it gets down to actual negotiations making it very private and requiring a community to operate under a strict non-disclosure agreement. Mike didn’t say it quite this directly. There were groups that were left out of the process – and that’s where the trouble began in Long Island City.
Patience: Does Mike think we are going to see more very public RFP site searches like Amazon HQ2?
Andy: Mike said “no.” He clearly believes this is the exception rather than the rule.
Patience: And finally what does Mike’s new company look like?
Andy: This was the last question I asked him and unfortunately we lost cell phone service at this point. But he’ll be making the formal announcement in March. And he plans to work with both communities and companies. And he is expecting to be a “disruptor” in the economic development field.
Patience: Do you think the economic development profession is ready for that disruption?
Andy: I do. And Mike Grella is in an interesting position to do this having spent 7 years with one of the most disruptive brands in history. The next decade promises to be a fascinating period for our profession.
Patience: The Project is sponsored by DCI. We are the leader in marketing places and have served over 450 cities, states, regions and countries. You can learn more about us at aboutdci.com.
Andy: Our special thanks to Mike Grella for speaking with us on the heels of Amazon’s reversal with New York City. He was as open as he could be and we really do look forward to hearing more details on his new consulting practice.
Patience: Thanks for joining us for today’s episode.
We hope you’ll keep listening. There are many more projects to come.