Fall 2005

QUIZ

The State of Louisiana is doing everything it can to help businesses rebuild after hurricanes' Katrina and Rita. Here's an example: The Louisiana Department of Economic Development had a $10 million deal closing fund, modest by most Southern state standards, but enough to turn a pretty big project or several smaller ones. Well, that $10 million is gone, but it wasn't spent unwisely. Louisiana officials have used the deal closing fund to assist businesses that were affected by the hurricanes. A $25,000 limit was set on how much would be offered in bridge loans per business and 403 Louisiana-based businesses were approved and have received or are in the process of receiving the loans. The Quiz this quarter is this: How many businesses were affected by hurricanes' Katrina and Rita during the fall quarter in Louisiana?

(a) 7,854 (b) 14,576 (c) 81,000 (d) 32,500

(Scroll down for answer)

Editorial - First of a series on the Gulf Coast Recovery

Let's Just Write the Check and Worry about the Accounting Later

By Mike Randle

The damage is done on the Gulf Coast. The 2005 hurricane season is over. Now, the long rebuilding effort is underway for what is and what was the nation's worst natural disaster. The hurricanes of 2004 were bad for the South, particularly Florida. The hurricanes of 2005 leveled coastal Mississippi, severely damaged parts of south Alabama and set back much of coastal Louisiana, particularly the New Orleans region, many, many years.

As of this writing, the federal government has committed about $60 billion to the recovery on the Gulf Coast as a result of the hurricanes of 2005. Mississippi's tab looks to be less than $250 million. Louisiana's, on the other hand, could exceed $4 billion. Mississippi can handle their part. I doubt Louisiana can adequately handle a $4 billion recovery bill. I can tell you, knowing personally Louisiana's leadership, that if they fall short, it won't be because they didn't give the effort. Time will tell.

In 2001, the federal government committed a little over $20 billion to New York's recovery after 9/11. Not to take anything away from that, but in terms of land use, 9/11 affected about 20 acres. Of course, it affected the minds and hearts of everyone. But so has New Orleans. In contrast, hurricanes Katrina and Rita affected 28,000 square miles of Louisiana. Twenty acres compared to 28,000 square miles? Twenty billion compared to $60 billion? Does that add up? Not hardly.

In a day when we see a federal government that lowers taxes and continues to spend, yet condemns those who tax and spend, why not simply borrow more to help Louisiana's comeback? The federal government's answer over the last four or five years to growing deficits is to print more money. If our nation's government has earmarked over $60 billion to the recovery, what's $4 billion more? After all, Washington has the ability to print more money. Louisiana doesn't.

About three weeks after hurricane Katrina hit the Gulf Coast, I heard President Bush say something to the effect of "we are looking into what the federal government is responsible for financially." In the wake of the Katrina disaster, Bush could and should have said, "we'll write the check and worry about the accounting later."

mike@SB-D.com

Editorial

In the Long Run, the Closure of GM's Oklahoma City Plant may be Best for Oklahoma

By Mike Randle

GM's late November announcement that it will close in rapid fashion (February 2006) it's assembly plant in Oklahoma City may eventually open up the Sooner State for much bigger developments from the automotive industry. Time and time again over the last dozen years or so, Oklahoma officials have asked me, "Do you think we will be able to land a foreign automaker in Oklahoma with GM here?" My diplomatic answer was always, "It's possible, but not near Oklahoma City." But since OKC is located in the center of the state and the growing market is the major player in the state's economy, my gut feeling was that GM's presence in OKC would make it impossible for a foreign automaker to target Oklahoma.

Let me preface the rest of this editorial with this: automakers and any industry that pays a better-than-average wage and is a good corporate citizen, whomever they may be, we unconditionally support here at SB&D. Good jobs are good jobs and while the South may be the most dominant economic region in the U.S., it's massive population base and the fact that it continues to attract millions of people every few years from all over the world simply means new jobs must be created by the hundreds of thousands every year. In other words, the South remains hungry for jobs and domestic automakers have paid high wages, employ over 35,000 now at their Southern-based assembly plants and have been good corporate citizens in the region. For more than 30 years, GM's operation in Oklahoma City has exemplified that positive relationship.

But GM will soon be gone from Oklahoma and it will be Oklahoma that will benefit the most from the divorce. If you look at the recent history of assembly plant activity in the Southern Auto Corridor, a western movement from its center, which is now Interstate 65, is obvious. Nissan's choice of Mississippi in 1999 and Toyota's Texas pick in 2003 indicate a jog to the west. There hasn't been a new assembly plant announced to the east of I-65 since BMW in 1992 (Honda's Alabama plant, which began production in 1999, is 50 miles east of I-65, so that one doesn't count).

That western movement should continue with Arkansas landing its first major auto assembly plant in the near future and next in line could be Oklahoma now that GM's departure has been revealed.

We have estimated for several years now that foreign automakers could open as many as 10 new assembly plants in the Southern Auto Corridor by 2013. If Korean automaker Kia announces its new plant in the spring of 2006, as we predicted two years ago, that means there will be eight left. Until now, Oklahoma didn't have a chance for one of those eight plants. Now, the loss of GM may be a gain for the Sooner State in the form of a foreign automaker.

mike@SB-D.com

Headquarter Relocations to the South Continue

Several high profile headquarter relocations to markets in the South from outside the South occurred in the fall quarter. The two most notable were International Paper's HQ relocation from Stamford, Conn., to Memphis and Nissan's North American headquarters relocation from the Los Angeles area to Nashville. Other companies choosing to relocate their headquarters to the South in the fall quarter include Arion North America, CinTel, Headway Corporate Resources (NYC to Raleigh), Schlumberger Ltd. (NYC to Houston) and Great American Country (Denver to Nashville). The South lost out on one, however. Chiquita Brands chose to remain in Cincinnati instead of relocating to Atlanta or South Florida.

The South's Chip Biz has Good Quarter

In the fall quarter Korean electronics giant Samsung chose Austin, Tex., for its newest North American computer chip facility. The company is spending $3.5 billion on the new plant, which will house about 800 workers. Also in the fall, microchip manufacturer Micron Technologies announced it is investing $1.2 billion in its Manassas, Va., facility, creating 860 new jobs. Idaho-based Micron purchased the Virginia plant from Toshiba in 2002. You have to go all the way back to the spring of 1996 to find two semiconductor manufacturers making $1 billion or more investments in one quarter in the South.

Entrepreneur.com, NPRC Big on Southern Markets

Entrepreneur.com and the National Policy Research Council published their annual "Hot Cities" for entrepreneurs in the fall quarter and markets in the South dominated the rankings. Charlotte, Raleigh-Durham, Washington-Baltimore-Northern Virginia, Atlanta, Nashville, Austin and Memphis all made it onto the large cities top 10. El Paso, Birmingham, Charleston, S.C., Mobile, McAllen, Tex., Columbia, S.C., Greenville-Spartanburg and Tulsa earned spots in the top 10 in the mid-market category. And in the small market category, Auburn-Opelika, Ala., Wilmington, N.C. Jonesboro, Ark., Huntsville, Ala., Laredo, Tex., and Springfield, Mo., made the magazine's top 10. Of the 30 "Hot Cities" for entrepreneurs cited in each top 10, 21 were in the South. Alabama and Texas led all U.S. states with four markets each making a top 10 and South Carolina and North Carolina each had three cities cited.

Fastcompany.com, Carnegie Mellon Not so Big on Southern Markets

Fastcompany.com, based on research done by Carnegie Mellon University, recently ranked the top 10 Fastest Cities in America in terms of growth of their creative class, or the number of engineers, artists, scientists and other creative professionals. The South didn't fare too well in the ranking, landing only two markets in the magazine's top 10. Those two markets were San Antonio and Raleigh-Durham.

Aflac Adding 2,000 New Jobs in Columbus, Ga.

Columbus, Ga.-based insurer Aflac Inc. has broken ground on a major expansion at its West Georgia home base. The company is investing $100 million in a 340,000-square-foot expansion. The deal is expected to create about 2,000 jobs over the next five years. The company reported a 60 percent jump in profit in the third quarter of 2005. The expansion is the largest in Georgia so far in 2005 and one of the largest in the South.

DaimlerChrysler's Search Ends in South Carolina

More than three years ago rumors swirled that DaimlerChrysler was on the verge of announcing a huge, $750 million commercial van plant near Savannah, Ga. Roy Barnes, the governor of Georgia at the time, was in the tail-end of a campaign for a second term with current Georgia Gov. Sonny Perdue. Barnes chose to announce that DC had made the decision to build the plant on a site near Savannah in Pooler, Ga. The only problem was no DaimlerChrysler officials were with Barnes when he made the announcement shortly before the Governor's failed reelection bid in November of 2002. But in November of 2005, DaimlerChrysler officials did attend a ceremony with South Carolina Gov. Mark Sanford to announce it will retool an existing facility in Ladson, S.C., located in the Charleston-North Charleston metro area, to produce the Sprinter van model. The deal, though, is much smaller than the project announced by former Ga. Gov. Barnes in 2002. DC revealed it will invest $35 million in the restructured project and hire 200 workers initially. The first vans, which will be sold under the Dodge nameplate, will be assembled at the site in late 2006. DC also operates a small commercial truck operation in Gaffney, S.C. Employment levels at that facility will not be affected by the new project in Ladson. (For more information on the Southern Automotive Corridor, turn to page 15 in this edition or log onto www.SouthernAutoCorridor.com).

BRAC Not Kind to Northern Virginia

Few regions in the South can boast of an economy better than Northern Virginia's. With an October 2005 unemployment rate of about 2.5 percent, even people who don't want to work apparently are working in the region that partly surrounds Washington, D.C. But it was Washington and the Base Realignment and Closure Commission that recommended in the fall that 23,000 jobs be moved or eliminated in Northern Virginia, 18,000 of which are military-related. It's been estimated that approximately 7 million square feet of real estate will be vacated by the Department of Defense in Northern Virginia, with 4 million of that vacated in Arlington, Va.

Office Vacancy Rate in D.C. Lowest in Nation

Washington D.C.'s office real estate sector is enjoying record rental rates of almost $48 a square foot and the vacancy rate is the lowest in the nation at 7.4 percent. The Capitol Hill sub sector of D.C. had a third-quarter vacancy rate of 3.9 percent. The vacancy rate has remained low despite the fact that over 1 million square feet of new office space has been added this year. A record 6.8 million square feet of office space is now under construction in D.C.

Dell Opens Winston-Salem Plant

Round-Rock, Tex.-based computer maker Dell has officially opened its new $100 million manufacturing facility in Winston-Salem, N.C., less than a year after announcing the project. Chairman and founder Michael Dell announced at the grand opening ceremony that the plant will produce about $10 billion worth of computers per year at full production. The company's goal is to produce a computer every 2.5 seconds at the plant. About 1,500 workers are expected to be employed at the facility within three years.

Kiplinger.com Names Cool Markets

According to Kiplinger.com, if you are a young professional, San Francisco, New York, L.A., Boston and Chicago don't rank in the top seven coolest markets in the U.S. If you are looking for cool markets, and you're young and professional (you've got a decent job), then head to Austin, Raleigh, Atlanta, Athens, Ga., or Nashville. Those five Southern markets made Kiplinger's ranking of the seven coolest markets in the U.S. for young people. The Web site chose its seven cool markets based on job availability and affordability.

Magazine Names Top Work Force Training Programs

Expansion Management magazine recently published its annual ranking of state work force training programs and the South was represented well. The publication polled 80 well known corporate site location consultants and the result ranked Georgia, Alabama, Kentucky and South Carolina as four of the five best states for worker training and Tennessee and Maryland also made EM's top 10. States outside the South that made the magazine's top 10 in worker training include Indiana, Arizona, Colorado and Idaho.

Florida: A Job Generating Monster

A report released in October by the Federal Deposit Insurance Corp. showed that Florida has accounted for about 500,000 new jobs, or approximately one-fifth of all new net jobs created in the U.S. since the end of the recession. Even during the recession, Florida was one of the few states in the nation to show net job increases.

Scripps Florida Chooses FAU Site

On December 7, officials with the Scripps Research Institute apparently bowed to pressure from environmentalists and announced that it now prefers to build its potentially huge biotech development on the campus of Florida Atlantic University's Jupiter branch, near the Abacoa development. Scripps had preferred a 1,900-acre site called Mecca Farms. Palm Beach County officials preferred the Florida Research Park. Both of those sites were targets of lawsuits by environmentalists, including the Sierra Club and the Florida Wildlife Federation. The FAU site, while now the preferred site for Scripps, must meet approval by the state and Palm Beach County. It is unknown how many acres will be available for Scripps, however, the entire FAU campus totals only 135 acres.

New Orleans’s First Big Deal Post-Katrina

Tenet Healthcare Corp., announced in late October that it plans to invest nearly $500 million to establish a new healthcare network in New Orleans. The healthcare provider was the largest in the New Orleans region prior to hurricane Katrina's devastation to parts of the city. The hurricane damaged two of Tenet's urban campuses, the Memorial Medical Center and the Lindy Boggs Medical Center. Both hospitals remain closed. Three of the other hospitals in the New Orleans region operated by the company were damaged. Tenet officials have said that the damage caused by Katrina will give the company an opportunity to "reinvent" how it will offer healthcare services in the future. The proposed new healthcare network has been named the NOLA Regional Health Network.

Rita Second-Worst Storm for Utility

Officials with Entergy Corp., an electric utility that serves Arkansas, Louisiana, Mississippi and Texas, said that Hurricane Rita was the second-worst storm in the history of the utility. Katrina, of course, was the worst. Entergy officials estimated that the cost of restoring services in Texas and Louisiana as a result of Rita could top $500 million.

Offshore Wind Farm to be built in Gulf

The State of Texas signed an contract with a Louisiana company during the fall quarter to construct the nation's first offshore wind farm. The $300 million project will be built in the Gulf of Mexico about 7 miles off the coast of Texas' Galveston Island. When completed, energy generated by the wind farm will produce enough electricity to power over 40,000 homes.

QUIZ ANSWER

The answer is (c). An estimated 81,000 businesses in Louisiana were affected by the hurricanes.