Incentives for VW plant total $577 million

8/29/2008, 7:27 p.m. ET
By BILL POOVEY The Associated Press

CHATTANOOGA, Tenn. (AP) — Tennessee's financial incentives for Volkswagen to pick Chattanooga total $577.4 million, apparently the largest such offer to an automaker joining the South's lineup of assembly plants.

Tennessee Economic and Community Development Commissioner Matt Kisber said in announcing the incentives package on Friday that he does not know if the total is a record offer to an automaker.

Kisber said regardless, it is a deal that he "would never turn down."

A state report shows the German automaker's July selection of Chattanooga for the $1 billion plant that will have 2,000 employees is expected to create another 9,477 related jobs.

Kisber joined economic development officials and the mayors of Chattanooga and Hamilton County at a news conference in Chattanooga before the State Funding Board approved the package at a meeting in Nashville.

He said the VW plant represents Tennessee's "largest investment" and the largest projected economic impact of any project since Gov. Phil Bredesen took office after the 2002 election.

Tennessee was a finalist with Alabama and Michigan for the VW plant.

Alabama Gov. Bob Riley has said Alabama put together incentives worth over $385 million, the most that state had ever offered for an auto project.

A report by Mississippi's economic developers shows incentives totaling $294 million were provided Toyota in 2007 for an assembly plant at Blue Springs. Kia received about $324 million in incentives from Georgia in return for agreeing to build an assembly plant at West Point, Ga., in 2006.

Kisber said the other states' totals, unlike Tennessee, do not necessarily include tax credits for the automaker.

Allison Tyrer, a spokeswoman for the Georgia Department of Economic Development, said the projected tax credits, based on the number of jobs, are included in the report on Georgia's incentives for Kia.

Kisber said the other finalists for the VW plant made competitive financial offers and "we are in the same ballpark as the other finalist states."

Linda Swan, a spokeswoman for the Alabama Development Office, said Tennessee's $577.4 million package is "certainly larger than any of ours."

Alabama Development Office director Neal Wade said the Tennessee package is "the largest."

"We went as far as we could go," he said.

Michael Randle, editor and publisher of Southern Business and Development magazine in Birmingham, Ala., said Tennessee's $577.4 million package is unprecedented in the South.

"It is the largest," Randle said. "There is nothing wrong with that. There is nothing with a larger economic effect in the South than an auto plant. You can't put a value on that."

Kisber said the planned VW plant and its 2,000 jobs are only part of the projected financial return. A study by the University of Tennessee's Center for Business and Economic Research predicts 11,477 jobs — including construction and suppliers — will be created in the region that also includes northwest Georgia and northeast Alabama.

Kisber said the study shows that on a cash-flow basis, for every dollar that state and local governments spend on a one-time basis for the VW project — $229.7 million state and $86.2 million local — both state and local government coffers will get $1 in new tax revenues annually for 30 years.

Kisber said that means a net cash benefit of $526.9 million for the state and $557 million for local government.

Kisber also said that Volkswagen has agreed to fully pay local property taxes that fund public education.

Kisber noted the incentives package is not the most important part of recruiting a major company like Volkswagen.

Volkswagen spokeswoman Jill Bratina agreed, saying the incentives "play an important role" but the selection of Chattanooga as the plant site is mainly due to finding the "right partner" for the company's future plans.

Volkswagen plans to start production at a 1.9 million-square-foot plant by early 2011 at Enterprise South industrial park, making at least 150,000 vehicles.