Monday, November 29, 2010

Spending to lure business makes sense

The Salisbury Post

Cash grants and other incentives have helped generate $35.5 million in net revenue for Rowan County since 2000, according to an economic development study.

A 10-year snapshot of incentives awarded to Rowan County companies shows using money, discounted land and utility extensions to lure private industry has paid off, advocates say.

Rowan County economic developers are touting the results of an impact analysis of incentives dating from 2000. While taxpayers have paid companies $8.9 million to locate or expand in Rowan County, projects lured with an incentive have generated $44.4 million in property taxes.

"The revenue many times exceeds what we've provided in assistance, and there are literally thousands of jobs directly created by these companies," said Robert Van Geons, executive director for RowanWorks, which serves as the county's Economic Development Commission.

The 20 companies that have received incentives since 2000 mostly cash grants now employ about 4,100 people. Without these projects, Rowan County would have to raise the tax rate by more than 5 cents to maintain current services, Van Geons said.

"It shows that every citizen and business is benefiting from a tax rate distinctly lower than if we hadn't done these projects," he said.

While incentives have become a standardized part of the economic development process throughout North Carolina, they remain controversial especially cash grants, which opponents have dubbed "corporate welfare."

But every county offers them, and both opponents and supporters agree they are here to stay, at least for the near future.

Cash grants will play a critical role in Rowan County's economic recovery, advocates say.

"You can't win a game if you're standing on the sideline," said Carl Ford, chairman of the Rowan County Board of Commissioners.

Opposition remains

Incentives are government subsidies for business, and cash grants are the most egregious form of assistance, said Jeanette Doran, an attorney for the N.C. Institute for Constitutional Law.

"It's money going from public purse to the corporate bottom line," said Doran.

The N.C. Institute for Constitutional Law has sued the state over incentives, including those awarded to Dell Computers and Google, but has yet to win a case.

Because cash grants come from the public coffers, they reduce the county's tax revenue, she said.

"People have to do without money that could go for schools, road construction and infrastructure," Doran said.

Incentives only benefit targeted businesses, said Jim Sides, who voted no to cash grants as a Rowan County commissioner from 2004 to 2008. Sides will return to the Board of Commissioners in December for another four-year term.

"They harm existing businesses and other taxpayers that don't get the benefit of incentives," Sides said. "Nobody should pay less taxes."

Jobs lured

Advocates argue that while incentives cost the county some money, without them Rowan could not compete for companies, expansions and jobs. Incentives have lured projects promising more than 1,660 jobs since 2000.

"Obviously, they've made a huge impact on economic development in our county," said Randy Gettys, who serves on the RowanWorks board of directors.

A common refrain about incentives goes like this: "I hate incentives, but they are a necessary part of the game."

"I used to say it too," Gettys said. "I don't say that any more."

The impact analysis makes it clear, Gettys said, that incentives are a smart long-term investment, not a necessary evil.

"They pay back very quickly, they're not giveaways, and they're only earned by performance," he said.

Commitment required

To win a cash incentive from Rowan County, a company must promise to create jobs and invest in capital improvements. The company earns back a certain percentage of property taxes over a set period usually 75 percent back over five years if it performs as promised.

Tax breaks, or investment grants as they are officially called, are figured on the assessed value of new capital improvements. Existing buildings and land don't count the company must pay 100 percent of the taxes on old property.

Local economic developers fight the bad rap caused by some high-profile failures. Dell Computers left just five years after North Carolina used $240 million worth of incentives to lure the company to the state.

Rowan County incentives are different and more conservative, Van Geons said.

"Nobody has been paid in advance, and nobody has been paid when they didn't have the jobs they had committed to," he said.

People often mistakenly believe the county pays money upfront, or that companies get paid regardless of their performance, he said.

Actually, some companies end up receiving less money than they expected because their property depreciates over time, Van Geons said.

All incentives have been cash-flow positive, meaning the county has never lost money on a project, he said.

Even Alcoa, the only Rowan company that closed after receiving a cash incentive, paid nearly $130,000 in taxes for a net gain of $92,000, Van Geons said.

Alcoa did not pay back its incentive $37,500 in 2006 because the company performed as promised for the year it earned the incentive, Van Geons said.

The county has lost two other projects lured with incentives, although neither received a payment. Wind Tunnel Extreme never materialized, and Sustainable Textile Group in China Grove has not met performance criteria.

Tax breaks necessary?

One question dogs the incentive debate: Would the company have come anyway?

PGT Industries plant manager Monte Burns said probably not.

"Without them, there would be a high probability that we wouldn't be here," Burns said.

So far, PGT, a windows manufacturer on Heilig Road, has received three checks totaling $162,213 from the county coffers. As long as the company maintains 300 employees, PGT will receive annual incentive grants for two more years.

Rowan County lured PGT from Davidson County in 2006 with a good price on the old Draftex building and the promise of tax breaks.

In 2005, the housing market was booming in Florida, where PGT has a 60 percent market share for hurricane-resistant windows. The company had outgrown its Davidson County plant and was looking for a new location.

"Davidson County put together a very aggressive package," Burns said.

Davidson offered what amounted to free land, with tax incentives and bonds to help fund the construction of a new plant, he said.

However, Rowan County already had a building, plus a better property tax rate, he said.

"The bean counters said this one makes the most financial sense," he said.

Proof or risk

No one can prove incentives made the difference, Sides said. Companies do not have to provide evidence that they would not have come to Rowan County or expanded an existing business without an incentive, he said.

"Of course they're going to tell you that," he said.

Van Geons said a company must show a project is competitive and that incentives play a role in the decision. However, he acknowledged, "you don't know for certain that the project would not have happened in your community without it.

"In the end, there are times when you know for certain that what you've put on the table wins a deal, and there are times when you know for certain that what you've done helped a local company expand," he said.

Incentives helped

Incentives helped Rowan County land Henkel, a $25 million project that promises to create 103 jobs, said Nancy Lee, Henkel regional director who served as plant manager last year when Henkel won a five-year tax break from Rowan County and $206,000 grant from the One North Carolina Fund.

Henkel was planning to consolidate operations, going from six plants to two. The Salisbury plant, formerly the adhesives and electronics materials operations of National Starch and Chemical, was in the running.

"I felt we were in competition with all the plants," Lee said. "The incentives helped to make us more attractive."

Lee worked in partnership with economic developers to land the expansion. She said Van Geons guided her through potential incentives available from the state, county and city to put together a competitive package.

The Salisbury site also offered a good workforce, close proximity to Charlotte and a record of performance with National Starch, she said.

But all of those aside, the tax breaks were crucial, she said. The company wanted to choose a location where it can maximize the return on investment, she said.

"I was looking for dollars to make this the best return on our investment," Lee said.

Open discussion

The intense debate surrounding incentives caused RowanWorks to complete the 10-year impact analysis, Van Geons said. The study took more than seven months, using numbers and information pulled from tax records, meeting minutes from the Board of Commissioners, formal agreements and old Salisbury Post articles.

"We've done our best to put together the most accurate, strictly factual representation of the projects that have announced in last decade," Van Geons said. "I believe our efforts have a positive impact on the economy, and we want to have open discussion about it."

RowanWorks will prepare an executive summary of the impact analysis and host a public presentation, including a question-and-answer session, about the findings.

Even without including the projected economic impact of companies that receive incentives, such as ancillary jobs created like day-care providers or service contractors, the results are impressive, Van Geons said. And the report provides a baseline for moving forward and judging the success of future incentives, he said.

"Now we have a cornerstone at the turn of the millenium that we can build on," he said.

Sunday, November 28, 2010

Chamber of Commerce to Commission: Shh!

By: Dan Whisenhunt

Hamilton County commissioners will consider a proposal next week to offer incentives for an unnamed company that may be building a 1 million-square-foot distribution center in Chattanooga.

If commissioners know the name or anything else about the company, Chattanooga Area Chamber of Commerce officials want them to keep quiet.

Trevor Hamilton, the chamber's vice president of economic development, told commissioners that the project, slated for a site near the Volkswagen plant at Enterprise South industrial park, is expected to bring in 1,250 full-time jobs with a starting wage of $32,000 a year. The company is expected to make a $101 million investment, he said.

He reminded commissioners that confidentiality agreements are a key to the county's success in luring businesses.

"I would respectfully ask that you delay any questions or comments until we have time to finalize our negotiations and until such time that we can present the formal [payment-in-lieu-of-taxes] resolution," Hamilton said.

County officials have said the company could be Internet-based, and records show it plans a 1 million-square-foot facility.

On Tuesday night, Chattanooga Mayor Ron Littlefield told the City Council that it would hear more details about its payment-in-lieu-of-taxes agreement next week. Hamilton County Mayor Claude Ramsey told commissioners Wednesday he would brief them on the details when they became available.

Littlefield and Ramsey did not discuss what the value of those incentives would be.

Hamilton County Commission Chairman Fred Skillern said commissioners would be happy to approve incentives for the new business.

"I'm looking forward to having good news," Skillern said. "If you have good news, we will have good news for you."

In other business, commissioners next week will consider an agreement accepting a $1 million transportation enhancement grant for the downtown Riverwalk.

Dan Saieed, director of development for the county, said it's the second grant the county has received for the project this year.

He said the new grant will cover the portion of the Riverwalk from Alstom's West 19th Street plant to Interstate 24.

The initial $1.7 million grant for which the commission approved an agreement in April, was for the trail from Ross's Landing to the Alstom plant.

The county and city match for both grants is $350,000, he said.

Wednesday, November 24, 2010

Loss of jobs to Kansas irks Kansas City's mayor

The Kansas City Star

Mayor Mark Funkhouser railed Wednesday against Kansas poaching jobs from Kansas City, and he placed much of the blame on the Greater Kansas City Chamber of Commerce.

“It’s just nuts,” Funkhouser said.

The chamber fired back and said the mayor was blaming the wrong people. It really wants the same thing as Funkhouser: better Missouri incentives to counter Kansas.

Both sides agree the recent shuffling of businesses among metropolitan area cities does little to boost the area’s economy.

Two Kansas-side officials said Wednesday that competition for business would prove to be a good thing.

“Everybody puts their best foot forward,” said Ed Eilert, chairman-elect of the Johnson County Commission. “What happens happens.”

Funkhouser called a news conference Wednesday to say he was “infuriated” by the actions Monday night of the chamber’s board, which endorsed a Kansas program that the mayor said would enable that state to raid city jobs.

The program, known as PEAK (Promoting Employment Across Kansas), allows for greater incentives to be offered to companies relocating to Kansas.

As a result, Kansas City has lost thousands of jobs to Kansas, Funkhouser told reporters.

“This a program that is absolutely raiding jobs from Kansas City to no benefit to the region,” Funkhouser said.

If Kansas does not stop, he said, he would like to see Missouri officials offer incentives equal to those dangled by Kansas.

“We’ve asked the state of Missouri to help us in this border war,” Funkhouser said.

But the mayor acknowledged that politicians in Jefferson City may balk at boosting economic incentives.

Funkhouser again encouraged Kansas City business leaders to rise up to form their own Kansas City chamber, which he said might better represent the interests of the city in economic development and other business-related issues.

What Funkhouser did not tell reporters, said Pam Whiting, a chamber spokeswoman, was that the chamber board also urged Missouri to enhance its economic development incentives.

The chamber is taking numerous steps to promote Kansas City business interests, she said.

“We’re working very diligently on Kansas City, Missouri, issues,” Whiting said, “including bringing a disparate group of people together to engage in a campaign to retain the earnings tax.”

Was Funkhouser’s news conference helpful or hurtful to bringing the area together?

“I don’t know what response the mayor wanted,” Whiting said.

Funkhouser told reporters that he wanted Missouri to offer similar or more incentives, which might be the economic development equivalent of “nuclear deterrence,” Funkhouser said. That might stop the shuffling of companies within the area, which doesn’t add new jobs, he said.

The area trails others in adding new jobs, he added, and that may be due, in part, to the poaching.

Funkhouser cited a recent Federal Reserve study that found an area’s economic interests hinged on the viability of the core city — in this case, his city.

He said he understood that many Kansas residents and their leaders believed they would be ahead by looking first to their cities’ best interests, attracting as many companies as possible.

But, Funkhouser said, “Our fortunes are tied together, and that’s an empirical fact.”

Eilert cautioned, though, that restricting businesses’ movement in the area might result in losing them altogether.

Blake Schreck, president of the Lenexa Chamber of Commerce, noted that an “anti-poaching” agreement from 15 or more years ago existed.

But Kansas and Missouri are different states with varying political and business interests, Schreck said.

A city or the state of Kansas can’t ignore businesses looking to relocate. Often, they don’t know a business is in Missouri until after the courting begins, Schreck said.

A “perfect storm” of a poor economy, the existence of prime office space at the Sprint campus, and area politics has resulted recently in more companies moving to Kansas, Schreck said.

“The reality is, what’s wrong with a little competition?” he said.

For now, though, the economic drain on his city is tough to take, Funkhouser said.

It began, he said, when the city lost the Kansas City Wizards stadium, as well as a new Cerner Corp. campus, to Wyandotte County.

Since then, the Kansas City companies moving across the state line have included JPMorgan Retirement Plan Services (800 jobs), KeyBank Real Estate Capital (300 jobs), and Hoefer Wysocki Architects (65 jobs).

A fear is that AMC Entertainment, a downtown fixture since 1920, will soon move to Kansas with 400 jobs.

City officials have said that the state of Kansas reportedly is offering $50 million to lure the company.

Kansas City did hold onto the National Association of Insurance Commissioners and its 460 employees in October, but city leaders had to offer to reimburse 50 percent of the earnings taxes paid by its employees for 10 years.

Funkhouser said a city with a $1.3 billion budget can’t compete with a state that has a nearly $14 billion budget.

Kansas eventually will realize, Funkhouser predicted, that spending tens of millions of dollars on business incentives would be better invested in schools and infrastructure.

But until then, he wants the hurt from this economic drain on his city to stop.

“This is absolutely against the interests of Kansas City and it’s against the interests of the region,” he said.

To reach Michael Mansur, call 816-234-4433 or send e-mail to

Monday, November 22, 2010

Southeast Michigan groups agree to joint effort on economic development

By Marti Benedetti

Southeast Michigan’s most powerful economic development organizations have agreed to work together in a new way to attract and grow local business.

The development groups that signed a letter of intent to collaborate include Ann Arbor SPARK, Detroit Economic Growth Development Corp., Michigan Economic Development Corp. and Macomb, Oakland and Wayne counties.

The action came at a Detroit Regional Chamber meeting last Friday.

“In order for the Detroit region to be vibrant, we must have a shared, collaborative and transparent approach to economic development,” said Trevor Lauer, chair of the chamber’s Detroit Regional Economic Partnership and DTE Energy’s vice president of marketing and renewables.

“As a result of this agreement, we will now work together on several key aspects of economic development strategy,” Lauer said.

“What I learned as the head of the U.S. Economic Development Administration is when government leaders of a region collaborate well together, those regions are significantly more successful,” said Detroit Regional Chamber President and CEO Sandy Baruah.

According to the letter, the groups will work together on a number of issues:

• Strategy development, shared regional marketing materials and messaging.

• Targeting international and domestic business investment missions.

• Developing and sharing investment leads.

• Participating at trade shows.

• Working with corporate CEOs and university leadership for the economic benefit of the region.

• And implementing a unified approach to working with state government leaders.

Sunday, November 21, 2010

Economic Development Coalition sees deals multiplying in region

By Carol Wersich
Evansville Courier & Press
Posted November 21, 2010 at 11:59 p.m

A year ago in November, the Economic Development Coalition of Southwestern Indiana saw no activity by potential companies wanting to expand operations or establish roots in Evansville or the Tri-State.

"It was dead," said Greg Wathen, the coalition's president and chief executive officer.

Then, by the end of December, activity began to happen and it has continued picking up.

"Today, the level includes 23 potential projects, which is pretty phenomenal for us. ... It's incredibly strong," said Wathen.

"The outlook for the coming year is good. Our activity typically is a window to what might occur with the economy in general in the future."

However, it's uncertain whether all, some or none of the 23 companies will decide to expand or locate in Vanderburgh, Gibson, Posey and Warrick counties — areas covered by the coalition.

"Because the activity has increased to this level, we think within the next six to 12 months that will translate into new investment being made here," Wathen said.

"If all 23 projects materialized, it could amount to more than a $2 billion investment and more than 2,500 new jobs."

Wathen said he realizes the region probably won't attract 100 percent of them, but the area's track record for competition puts it in a good position to attract some.

"We know that we have a few projects where companies already have secured financing. We're basically waiting on them to decide where they want to locate or expand."

Wathen said the economy has amplified the amount of competition today. Now, 100 percent of the potential projects are competitive, whereas it used to be about 60 percent, he said.

"I can't fault any company out there for forcing communities to compete. All states are different.

"Sometimes it's more difficult with one state over another. Some states don't tax personal property. Other states have very significant utility taxes or workers' compensation taxes that are very high. Rarely is it 'apples to apples,'" he said.

European and Asian companies are getting into the competition because of the value of the U.S. dollar, according to Wathen.

The Economic Development Coalition of Southwestern Indiana was formed in late 2006.

By early 2007, Wathen and the late Rick Borries of AT&T were busy negotiating to bring the coalition's first major project, the AT&T Wireless Customer Service Call Center, to Evansville.

A short while later, the center opened in a revamped former Sam's Club facility on Vogel Road.

New investment

From 2007 through today, the coalition has helped secure $346 million in new investment for existing and new companies, such as the AT&T center, Berry Plastics, Mead Johnson, Toyota Boshoku and Vuteq, said Michelle Hudson, coalition co-chairwoman, during the organization's annual board meeting Friday.

"From headquarters and customer service centers to research and development operations, these companies represent not only new investment but, more importantly, 1,780 new jobs as well," said Wathen.

In the past three years, the coalition has secured $47 million in grants for projects such as expanding water and sewer systems, building community centers and making levee improvements.

Thursday, November 18, 2010

GREDA emphasizes teamwork

The Register-Mail
Posted Nov 18, 2010 @ 10:00 AM

GALESBURG — Communities “cannot be in a parochial mindset” and must work as a team to boost local economic development, said Tom Schmidt, president of the Galesburg Regional Economic Development Association.

That was the message GREDA leaders emphasized at a forum Wednesday focusing on what businesses look for in a community before they decide to relocate or expand.

Wednesday’s event at the Galesburg Public Library was GREDA’s first public forum since Schmidt took the helm of the regional economic development organization in October. Panel speakers featured Steve Warren, a business development executive in Ameren Corporation’s economic development department; Jeff Eirinberg, owner of KATCO; a real estate developer based in Davenport, Iowa; and Michelle Smith, GREDA’s marketing and communications coordinator.

Warren cited 2009 survey results from Area Development Magazine. In the surveys, site selection consultants and their corporate clients from across the country were asked about the selection process and factors that weigh heavily in determining where to do business.

Some of the quality of life factors that topped the concerns of potential clients included the area’s quality of schools, housing costs, crime rates, health-care facilities and recreational activities, Warren said.

Warren and Eirinberg talked about what site selection consultants and their corporate clients these days expect.

And confidentiality is a “non-negotiable” element, Warren said.

“People may not understand, but believe me, it needs to be expected,” he said. “It’s part of doing business.”

Eirinberg mentioned there were “two projects” in Galesburg he has been working on with GREDA. One of those could be ongoing, Eirinberg said, declining to disclose further details.

While both say local economic development agencies play instrumental roles in facilitating communication and research, the rest of the community, from residents to city council members, plays a critical role, they added.

“Economic development is a team sport,” Warren said. “Infighting just slows things down and it comes across.”

“ ... (Getting) your team together is mission number one.”

Warren said some potential businesses and site selection consultants will “go undercover to coffee shops, gas stations” to find out “what’s really going on.”

“They want to know about the negative things,” he said.

Attendees included local business owners, representatives from Carl Sandburg Community College and municipal officials from Knoxville and Galesburg.

“There’s always something to learn from them,” said Cesar Suarez, economic development director for the city of Galesburg, who sat in for the meeting along with Interim City Manager Craig Whitehead.

Wednesday, November 17, 2010

North Carolina Emerges as Data Center Hub

November 17th, 2010 : Rich Miller, Data Center Knowledge

Economic development officials in rural North Carolina are cheering an unusual data center trifecta – winning huge data center projects by Google, Apple and Facebook. Each of the three marquee tech companies chose North Carolina after extensive, multi-state site searches, won over by the state’s combination of affordable power and tax incentives. The projects will bring more than $2 billion in investment to small rural towns.

You might things couldn’t get any better for the data center corridor in western North Carolina. But they almost did. This past summer a site in Cleveland County was a finalist in a site search by Microsoft, which eventually chose to build a $499 million data center in Boydton, Virginia.

Despite that near miss, North Carolina officials have plenty to cheer about, and believe this is just the beginning of a major data center cluster. “Now you’ve got three of the most recognized technology companies in the world here,” said Scott Millar, the director of economic development for Catawba County. “I think it really establishes the corridor. With these companies here, any company doing a data center site search will certainly want to consider this area.”

North Carolina has always had data centers in the Raleigh/Durham area, which is home to Research Triangle Park and data centers for companies including IBM, NetApp, Ralph Lauren, Peak 10, Hosted Solutions and DataChambers.

But things were far quieter in the western part of the state. The region was once a thriving area for textile mills. Many of these mills have departed or closed, leaving behind industrial-strength power and water infrastructure that’s ideally suited for data center development. Duke Energy’s power rates are competitive, with industrial electricity rates at about 5 cents per kilowatt hour. State and local governments have been generous with offers of tax incentives, which have been a key factor in winning major deals. Here’s a recap:

•In early 2007 Google announced plans to build a $600 million data center in Lenoir, a town of 17,000 residents in Caldwell County.
•In 2009 Apple chose the small town of Maiden (population 3,300) in Catawba County for a $1 billion data center campus.
•On Nov. 11, Facebook unveiled plans to invest $450 million in a new data center facility in Forest City (pop. 7,500) in Rutherford County.
•On Monday, Wipro Infocrossing confirmed plans to build a $75 million data center in Kings Mountain in Cleveland County, which has about 10,000 residents.
Developers marketing properties in Cleveland, Catawba, Caldwell and Rutherford counties say they’re seeing continuing interest from data center site location consultants and end users.

“We’ve had tremendous activity,” said Pete Marin, the President of developer T5 Partners. “There’s a large number of big projects. We’re seeing requirements from 5 megawatts to 70 megawatts.”

T5 is a data center development company led by former data center specialists with The Staubach Company. The company is focusing on North Carolina, and marketing multiple sites for major end users. T5 is currently building a second data center at its Kings Mountain campus (where Wipro leased its first building) and also has a site in Maiden that has attracted interest. Five 9s Digital is also marketing multiple sites in the region, as are county officials.

Catawba County created to market to the data center sector. Millar began targeting his economic development efforts to the data center industry five years ago, attending industry conferences and hosting an annual Data Center Information Exchange event for data center site selection specialists. The first event five years ago attracted eight consultants. By this year, the event had grown to 50 participants.

The success of western North Carolina demonstrates the evolution of the data center marketplace, where major facilities were historically clustered in bandwidth hubs like northern Virginia and Silicon Valley.

“There will be new markets that emerge,” said Marin. “These 50 megawatt requirements will forge the new frontier.”