◼ TECHNOLOGY Bloomberg Businessweek August 19, 2019
23THEBOTTOMLINE Startupsnotchingbigexitshavebeenable
togetmoretaxbreaksafterthey’vesold,oftenattheexpenseof
schoolsandotherpublic-servicebudgets.received$55millionmoreintaxbreaksfromthe
city,evenasColumbuswasslashingitseducation
budgetandprogramstobattlemountingdeficits.
Theteacherssaythattheirpoliticiansshouldn’thave
takenthecompany’sthreatstomoveCoverMyMeds
andits1,000employeestothesuburbssoseriously,
andthatMcKesson,whichreportsabout$2billion
inprofitmostyears,canpayitsownway.
“Theywanttofeelliketheyaregoodneigh-
bors,”saysJohnConeglio,presidentoftheteach-
ersunion.“Well,what’sbestforyourcommunity
is topayyourtaxes.”CoverMyMedssaidina state-
mentthattheundevelopedlandwhereitsnew
officeswillbebuilthadgeneratedonly$32,821for
theschooldistrictandwillnowbringin$649,000a
year.Butunderthedeal,theschooldistrict,Ohio’s
largest,mustwait 15 yearsbeforethecompanypays
itsfull$3.6millionannualtaxbill.
Development officials inColumbussay tax
incentivesarecriticaltokeepingcompaniessuch
asCoverMyMeds,whichare“inherentlyportable,”
accordingtothecity’sdevelopmentdirector,Steve
Schoeny.Yetthisspring,McKessonmoveditsown
headquartersfromSanFranciscotoIrving,Texas,
withoutgettinga dimetodoso.(Itwasoffered
incentivesearlierinitsdevelopmentinTexasbut
didn’tmeettherequirementsneededtocollect
them.)Pittsburghhasn’tgivenMModal,itshome-
grownmakeroftranscriptionsoftware,anymore
taxbreakssince3MCo.boughtthecompanyfor
$1billion in December. “Anyone that has that kind
of money will always say, ‘We’ll just go somewhere
else,’ ” Coneglio says. “Well, you don’t know if you
don’t say no. What about saying no?”
Saying no has proven a tough proposition for cit-
ies throughout the Midwest. While tech startups
are far from the only businesses seeking tax incen-
tives wherever they can, their success almost always
means an exit that siphons money away from the
region to venture investors elsewhere, even as the
new parent company demands more subsidies from
the startup’s hometown. “It’s a horrible irony,” says
John Austin, director of the Michigan Economic
Center, who says only early-stage startups should
benefit from public funds. “We don’t end up the
home of the money and control. You are subsidizing
an entity that’s going to do what it wants anyway—
and giving away dollars that could educate your local
population to a higher level or build your transporta-
tion system to make the region more vibrant.”
The protests in Columbus against CoverMyMeds
may represent a new front amid a wave of teachers
strikes, which until now haven’t called out a home-
grown startup by name. Educators in particular are
pressing the issue, faced with crumbling schools
and stagnant pay. In Indiana, where teacher sala-
ries have fallen and schools are struggling to close
fundinggaps,thecapitalcityofIndianapolishas
givenExactTarget,a softwarecompanythatauto-
matesemailmarketing,some$60millionintax
abatementstostickaround:$43millionpriortoits
$2.5billion acquisition by Salesforce.com Inc. six
years ago, and $18 million since.
“TheabatementsinIndianaarea killer,”says
JenniferMcCormick,Indiana’sschoolssuperinten-
dent,addingthatSalesforce’s$1.7million in grants to
the Indianapolis Public Schools doesn’t make up for
the millions more the district might have seen had
thecompanyjustpaiditstaxes.Salesforce,which
is basedinSanFranciscoandhasa marketvalue
ofmorethan$120billion, declined to comment on
whether the incentives were determinative.
City officials aren’t crazy to think valuable start-
ups might move elsewhere. St. Louis still rues let-
ting Square, the digital credit processing company,
move to San Francisco in 2009 without a fight. “They
couldn’t find enough local talent here,” says Cliff
Holekamp, co-founder of Cultivation Capital, a local
venture firm. “There’s this huge sense that we totally
missed the boat.” (It might also have had something
todowithco-founderJackDorsey,whowasraised
inSt.Louis,livinginSanFrancisco.)SinceSquare’s
$3billioninitialpublicofferingin2015,St.Louishas
givenit about$5million, and Square has hired about
500 people in the area. Square declined to comment
on whether the incentives were determinative.
Instead of giving established startups incentives,
public dollars are best used investing in companies’
earliest stages, says Paul Krutko, president of Ann
ArborSpark,theregion’seconomicdevelopment
entity.HisteamgavelocalstartupDuoSecurityInc.
$3millionforanofficespaceexpansionbefore,not
after,CiscoSystemsInc.acquiredit for$2.4billion
last year. “It’s about gardening vs. big-game hunt-
ing,” Krutko says. “We believe in gardening.”
In Columbus, the school district hired a pri-
vate contractor over the summer to replace strik-
ing teachers, who demanded better pay as well
as influence over tax abatements such as the one
CoverMyMeds got after it sold. This would be
unprecedented power for a teachers union. “We
are always being told there is no money for what
we need as teachers,” says Coneglio. “We want a
say in the process so next time there is a big deal
worked out behind closed doors, what the schools
and teachers need comes first, not the needs of
another wealthy corporation.” �Mya Frazier“Anyone that
has that kind
of money will
always say,
‘We’ll just go
somewhere
else.’ Well, you
don’t know if
you don’t say
no. What about
saying no?”